City faces Brussels power grab threat as pressure mounts on Brown over finance summit

Gordon Brown is under pressure to stand up to Brussels amid claims that his showcase G20 summit is heading for failure.

The Tories called on the Prime Minister to veto a controversial proposal to give a new European super-regulator powers to intervene in the City.

The row over the European Commission's plan erupted after finance ministers failed to agree a plan for next month's meeting.

Stand up for us: Claims that the G20 summit will be a failure have left Gordon Brown in a difficult position

Stand up for us: Claims that the G20 summit will be a failure have left Gordon Brown in a difficult position

Mr Brown is pinning his political hopes on success when leaders of the world's biggest economies come to London on April 2.

But last night Downing Street had to reject claims that the summit could end in deadlock after the U.S. clashed with the EU over the best way to rescue the global economy.

Mr Brown wants leaders, including President Obama, to agree a 'global new deal' to pull the world out of recession.

Yesterday he confirmed he is ready to endorse a fundamental review of bank regulation ahead of Wednesday's publication of a report by the head of the Financial Services Authority.

Lord Turner is due to set out a range of detailed measures to beef up the watchdog's powers after critics claimed it failed to stop the banking crisis.

His paper is expected to be the central plank of proposals to be discussed by the G20, including a crackdown on the so-called shadow banking system, in which complex assets are traded out of sight of regulators in offshore tax havens.

But the Tories last night highlighted the threat posed by European Commission proposals to create two regulatory bodies with powers to interfere in the City, which will also be discussed by the G20.

George Osborne called on Mr Brown to veto Brussels plans for a European Systemic Risk Council, which could intervene in national financial markets, and a European System of Financial Supervisors.

The new bodies, unveiled three weeks ago, would have the power to intervene in the UK after the Commission said it was in the City's interests to 'submit to greater regulation'.

George Osborne: International financial co-operation does not lay the ground for a power grab

George Osborne: International financial co-operation does not lay the ground for a power grab

The prospect of Brussels gaining powers to call the tune for City firms will horrify those who are desperate to protect Britain's dominant position in financial markets.

The Shadow Chancellor said: 'Yes, we need greater international co-operation on banking but that shouldn't be an excuse for another power grab by the EU.

'We've all had to foot the bill for the mistakes made by the regulators, and so those regulators should be accountable to the British taxpayer not to Brussels. Gordon Brown should stop dithering and stop these plans in their tracks.'

Yesterday Mr Brown confirmed he wanted to reform and strengthen the FSA by giving it greater powers and resources.

Writing in the Sunday Telegraph, the Prime Minister said it was time to 'reshape' banking regulation.

Lord Turner has warned that a 'revolution' in regulation is needed to prevent a repeat of the financial crisis that has sent the world economy into recession.

The Government is likely to embrace his proposals and is preparing a major package of regulatory reforms that could be unveiled as early as the Budget on April 22.

The changes Lord Turner is expected to propose include regulating hedge funds, making directors liable for the risks they take, new pay and bonus structures for finance firms and better monitoring of global financial flows.

Although the G20 finance ministers agreed at the weekend to press ahead with existing plans, and to pump more emergency cash into the International Monetary Fund to help bail-out countries facing bankruptcy, there were clear signs of disagreement.

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