Chancellor of the Exchequer George Osborne has said that the UK must put in place ‘safeguards’ to protect its financial hub in the event of a Eurozone banking union.

‘Britain is facing one of the most challenging economic times in modern history,’ he told BBC Radio 4′s Today programme on Thursday.

Referring to David Cameron’s veto of the fiscal compact last year, Osborne said that the Prime Minister had been ‘ahead of the game’. ‘We can take some satisfaction that we did foresee this problem, but no satisfaction that we have to deal with it,’ he said.

‘We were identifying a potential issue for the UK, which is do we want, as Europe’s largest financial centre, to have a banking union on our doorstep without certain safeguards? [...] There will have to be safeguards, there will have to be conditions to protect Britain’s most important industry.’

He said that is ‘no way’ that Britain is going to be part of a banking union – ‘Britain is not a member of the 17-nation single currency area.’

Turning away from the UK, Osborne said that Spain needs to restructure its banking system, ‘they need resources to do that,’ he said.

‘How exactly that is done [...] must be a matter for the Spanish government and the Eurozone.’

‘When they created the rather clumsily titled EFSF [European Financial Stability Facility], this Eurozone bailout fund, one of the things it was able to do and its successor, the equally clumsily called ESM [European Stability Mechanism], what these funds are able to do is support Eurozone banking systems. So we need to make sure that the mechanisms already put in place can be activated.’

‘The banks have been one of the weak links in all of this and the Eurozone have tolerated weak, undercapitalised banks for too long.’

BC