Ecofin meeting was held in Luxembourg today where EU sets plan for fiscal exit strategies and delays deal over EU watchdog.

Press conference

Delays with European Systemic Risk Board

A European Union plan to set up watchdogs for banks and to spot threats to the economy was delayed on Tuesday after Britain blocked an agreement, fearing the new bodies could bully London into spending money.

Sweden, which holds the EU presidency until the end of the year, tried at a meeting of EU finance ministers in Luxembourg to secure agreement to set up the new super-watchdogs as soon as next year.

But Britain is worried the supervisors -- who can overrule regulators such as the Financial Services Authority or national governments -- could ultimately order taxpayers to spend money, beefing up a bank's capital cushion, for example.

The Treasury said a deal had been postponed.

"We are very pleased that the discussion will continue on the complete supervisory package with a view to agreement in December," a senior Treasury official said.

The same official had expressed his concerns over the plans earlier on Tuesday.

"A central plank of the June agreement (among EU leaders on supervision) was the respect for fiscal sovereignty reflecting the impact on national taxpayers of supervisory decisions," he said. "This fundamental principle should be applied to the entirety of the legislation."

The European Commission, the 27-country bloc's executive, unveiled its blueprint for an overhaul of the way banks and financial markets are policed last month. It is a central pillar for new rules designed to prevent a repeat of the global economic crisis.

The Commission plans to create a banking super-watchdog, with power to overrule member states, and a pan-European supervisor that would warn of early signs of crisis.

The British government, which part-owns some of the country's biggest banks after saving them from collapse, is concerned the new watchdogs could order it, for example, to inject more money to improve lenders' balance sheets to European standards.

Parliamentarians say the chances of the powers of the new supervisors being watered down are slim. But Britain, fighting to keep control over the centre-piece of its economy, the City of London, could delay their introduction.

There is widespread scepticism in London about the new financial rules which some British critics see as a Franco-German attempt to undermine Europe's financial capital.

The new laws will give more say to European institutions. The risk board, for example, which would be staffed by the European Central Bank and based in Frankfurt, is likely to have wide-ranging powers.

Fiscal Exit Strategies in 2011

European governments are starting to establish a framework for cutting the debts they have accumulated to tackle the global financial crisis, setting out an agreed timetable for embarking on their exit strategies.

But the more they talk about the removal of stimulus, the further the euro rises against the U.S. dollar and other major currencies, threatening the hoped-for recovery.

At their monthly meeting Monday and Tuesday, finance ministers from the European Union's 27 members agreed that they should start to bring their budget deficits down towards the upper limit of 3% of gross domestic product in 2011 at the latest.

The ministers agreed that "substantial fiscal consolidation is required in order to halt and eventually reverse the increase in debt and restore sound fiscal policy," they said in a statement.

Actual consolidation is conditional on their economies being firmly in recovery, and the finance ministers also left room for maneuver in agreeing that the "specificities of country situations should be taken into account."

But it is the firmest time frame yet for the removal of stimulus since the German government began to press for the development of exit strategies at meetings of the Group of 20 largest economies in April.

It also suggests that 2011 will mark the latest date for the European Central Bank to start raising its key interest rate. And the expectation that the ECB would be the first of the major central banks to do so has been one factor pushing the euro higher in recent weeks.

Meeting Monday night, finance ministers from the 16 countries that use the euro expressed growing concern about the currency's 20% appreciation against the U.S. dollar since March.

French Finance Minister Christine Lagarde said late Monday that she and her euro-zone colleagues "want a strong dollar; we need a strong dollar."

Sources: Wort, Ny Times, WSJ, Swedish Presidency