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Cameron: No UK Guarantee For Foreign Banks

(c) Sky News 2012

The British taxpayer should not have to guarantee foreign banks, Prime Minister David Cameron has said.

It comes after eurozone leaders agreed on a 'growth compact', which would see taxpayer’s money from the EU’s bailout fund to directly prop up struggling banks.

David Cameron said he welcomed any moves for eurozone countries to work more closely together.

But said he objected to any moves for further economic or monetary union between eurozone and non-eurozone countries.

He said: "I wasn’t happy with [part of the compact] not least because it implied that a banking union - part of what needs to happen - might apply to all 27 countries and not just the 17 in the eurozone.

"Outside the single currency, I want the Bank of England properly regulating Britain’s banks.

"Yes, we have to stand behind our own banks, but I don’t want British taxpayers guaranteeing eurozone banks – Spanish banks or Greek banks."

Direct recapitalisation of banks could happen after "an effective single supervisory mechanism" is established, with the participation of the European Central Bank, eurozone leaders said in a statement this morning.

Conditions would be attached to such direct aid, they said.

Sky News' political editor Adam Boulton said the plan is effectively a "eurozone-wide version of what British taxpayers did for British banks following the financial crisis".

He added: "It’s a significant step towards banking union in the eurozone."

EU President Herman Van Rompuy said the countries would make more "flexible" use of the rescue pot in order "to reassure markets and to get again some stability around the sovereign bonds of our member states".

Such action would be reserved for "well-behaving" nations, he said.

Facing soaring interest rates, Italy and Spain had blocked an EU growth pact until their partners yielded to their demands to use the rescue funds to buy bonds in the markets.

The leaders said the bank recapitalisation proposals should be considered "as a matter of urgency" by the end of the year.

Italian Prime Minister Mario Monti said the agreement was a "very important deal for the future of the EU and the eurozone,” adding: “It is a double satisfaction for Italy.”

Spain has requested aid for its struggling banks but the country wants to avoid taking in more debt.

"We affirm that it is imperative to break the vicious circle between banks and sovereigns," the statement said.

However Van Rompuy still has some convincing to do.

French President Francois Hollande sees integration going hand-in-hand with the pooling of debt, an idea opposed by German Chancellor Angela Merkel.

"There cannot be a transfer of sovereignty if there is no solidarity," Mr Hollande told reporters.