Government called on to make a stand against EU regulation

Britain should use the "Luxembourg Compromise" – an only once used way of refusing EU rules – to prevent the EU taking over regulation of the City of London, The Telegraph reports.

France's Charles de Gaulle was the last EU leader to opt for a showdown in the "empty chair crisis" in 1965, withdrawing his officials from Brussels after the commission pushed its luck too far, the Telegraph says.

Britain cannot veto the massive shift in regulatory power to Brussels now under way. Internal market laws are decided by qualified majority voting (QMV.

Gordon Brown needs to play the Luxembourg card by invoking "vital national interest". It has no legal status, but send s warning.

"This is an extremely serious crisis," said David Heathcote-Amory, former Europe Minister and now a key Tory MP on the European Scrutiny Committee.

"Once we lose of control over the City of London we will never get it back, and the consequences could be catastrophic. I think we are in 'Luxembourg terrritory'. If the City was in Paris you could be pretty sure that French would fight like tigers to save it," he said.

"The Continental countries have no interest in the health of the City, and some want to turn the tourniquet tighter. I fear the Commission is going to get its way since we have such a weak government," he said.

Super-regulator dangers

The Telegraph sums up the proposals as: “While earlier talk of an EU super-regulator has been dropped, the same goal is being achieved by other means. The plan is to create three "authorities" with a permanent staff and powers to impose "binding" decisions on states. Appeals go to the European Court. There is to be a European Banking Authority in London, an Insurance Authority in Frankfurt, and a Securities Authority in Paris.”

The FSA’s Lord Turner questioned plans to bring London's securities houses under EU oversight, this week "Frankly, this is an area that when it gets Europeanised you sometimes get things that are not actually to do with good regulation. If one was absolutely confident that European supervision was going to be completely politics-free, in a neutral, technocratic fashion, we would be more relaxed," he said.