BRITAIN AND Italy have told their European neighbours not to dictate how they should impose banking levies, dealing a blow to efforts to find a single EU approach to taxing banks to meet the cost of future crises.

This warning and a series of disagreements wrecked efforts by European finance ministers to find common ground at a meeting that left them as far apart as ever on central issues of financial reform.

French economy minister Christine Lagarde blocked new EU hedge fund rules, and there was a rare intervention by the European Central Bank’s president, who poured scorn on Berlin-backed plans for a financial transaction tax.

At the same meeting, officials from credit rating agencies were hauled in front of European Union finance ministers yesterday as the sector faces more reform.

Several member states have found it hard to digest a decision by Standard Poor’s to demote Greece to junk status, aggravating their attempts to mount a rescue package for Athens and win back confidence in the euro currency. The agency’s recent downgrade of Ireland was also seen as significant in turning bond markets against its sovereign debt.

Top executives from the “big three” agencies – SP, Moody’s and Fitch – came under attack from Greek finance minister George Papaconstantinou, according to one official present, who criticised them for reflecting market sentiment rather than facts in their ratings.

France also urged EU countries around the table to seek alternatives to ratings as the bloc ponders curbs on the use of ratings.

Moody’s said it has long supported efforts to reduce over-reliance on ratings. “Ratings are an important part of debt markets but they are not the only opinion of credit risk,” it said.

Separately, ministers agreed to cede two European Union seats on the board of the International Monetary Fund to emerging economies under a new power-sharing scheme for international financial institutions.