BRUSSELS--European Union finance ministers agreed on Tuesday to a sweeping overhaul of how the bloc's financial industry is policed, but remained locked in dispute over the taxation of banking and trading.
Three years after the start of a financial and economic crisis, some have grown frustrated by Europe's slow pace of reform in its financial sector, held up by indecision and disputes among the bloc's 27 countries.
On Tuesday, they announced a rare breakthrough with a deal to set up pan-European watchdogs at the start of next year to oversee banking, insurers and markets despite concerns in London that the new agencies would undermine its national regulators. The reform, labelled historic by some experts, establishes three financial sheriffs who can overrule national agencies like Britain's Financial Services Authority.
But the region's economic leaders failed to resolve a row about how to impose levies on banks. Although most European politicians want to tax banks more, they remain at loggerheads over what should be done with the money.
The European Union's executive in Brussels would like countries to use some money from bank levies to go to emergency funds that could be used to shore up flagging banks. On Tuesday, Britain made clear it would not accept any such order from the European Commission.
"It is up to national governments and parliaments to decide what should happen to the revenues from those (bank) levies," said George Osborne, the British finance minister, adding that Britain had "plenty of allies" on this issue. "There is a significant body of opposition at (the meeting of finance ministers) to a European resolution fund."
European leaders are also divided over whether to start imposing a tax on financial transactions such as the buying and selling of shares. German Finance Minister Wolfgang Schaeuble appealed for such a charge, which he said would be socially fair. "It is a question of social justice, the acceptance by society of such a system."
But Osborne, whose finance ministry would likely stand to gain most from such a tax because of London's big financial centre, threw cold water on the idea. Osborne said it was difficult to see how such a transaction tax could be made to operate in a world in which "financial activity can move very quickly ... outside the European Union."
"Our efforts would be more fruitfully directed at the G20 (Group of 20 major economies) level and the European level to other pressing issues in the world economy," he said.
France, which has said it would support such a tax if others around the globe follow, signalled flagging support for such a scheme. "It is technically feasible, practically difficult, politically desirable and financially uncertain," said French Finance Minister Christine Lagarde.
These divisions, coupled with a reluctance internationally to implement similar measures, are likely to scupper any agreement. Sweden, whose own attempt to tax financial deals backfired when trading moved abroad, warned at the meeting against repeating that mistake.
"We don't want to see a new transaction tax," Finance Minister Anders Borg said. "The banking levy is more suitable as it would bring us revenue to deal with future crises."