BRUSSELS (AFP) ― Plans to create a “banking union” across eurozone and European Union borders collapsed Tuesday amid intractable wrangling between Berlin, London and Paris.

After four hours wrestling with deep problems in the design of an initial supervisory regime, Cypriot Finance Minister Vassos Shiarly, who is chairing the talks, announced that more time was needed and called a fresh gathering on Wednesday, Dec. 12.

“It is only a question of a little bit more time perhaps before we can achieve yet another positive European first,” said Shiarly.

With a meeting of the 17 eurozone ministers already planned on Greece’s bailout for Dec. 13, it looked likely that yet another late-night session may be in the offing.

“It is of primordial importance that an agreement be reached by the end of the year,” said EU Economic Affairs Commissioner Olli Rehn of this flagship project agreed by national leaders.

“It is a test that Europe cannot afford to fail,” Rehn warned at a closing press conference.

But IPK European Strategy analyst Parvez Khan, a longstanding monitor of financial sector issues, told AFP: “The general feeling is that this is just drawing out a failure to deliver.”

A big bone of contention is how the European Central Bank, which is to be at the apex of a proposed system to police 6,000 eurozone banks, works with the London-based European Banking Authority, set up last year to fix flaws in oversight across the 27-member EU.

The Single Supervisory Mechanism is meant to be the first stage in a banking union that EU leaders agreed to set up in the aftermath of the three-year-old eurozone debt crisis and the global financial crisis that preceeded it.

EU leaders agreed to tighten regional supervision as a condition for the bloc’s bailout fund to directly step in and recapitalise banks, instead of passing funds through governments and adding to sovereign debt loads.

The SSM is to be phased in progressively over the course of 2013, but there are big difficulties over how decisions will be taken and disputes settled between the 17 states that share the euro and the other 10 EU countries.

Britain, home to the City of London’s massive eurozone banking interests, fears that unless special arrangements are decided to redress this, the ECB will effectively dominate decisions affecting territories that don’t use the euro.

There has to be “a Chinese wall” between supervision and monetary policy at the ECB, said German Finance Minister Wolfgang Schaeuble.

Britain and others also see problems lurking in regional German savings banks that could threaten the stability of the wider financial system.

Margrethe Vestager of Denmark, the other EU state with a formal euro opt-out, said: “I think it will be an enormous strength if non-eurozone countries can participate on an equal footing because it will be another element in keeping the 27 more together.”

France wants “a system which applies to all banks and in which the ECB is ultimate arbiter,” said its Finance Minister Pierre Moscovici.

And it is determined to ensure that the battle over how to weight voting clout does not result in a de facto veto for Britain.

Recent comments by French central bank governor Christian Noyer have inflamed passions in London.

Noyer said that the bulk of euro clearing operations, much of which is currently conducted in the City, should be moved to the eurozone itself.

Already the subject of legal sabre-rattling, the reaction in London was scathing, with the suggestion being that Paris is resorting to unfair competitive practices having failed to win that business on the open market.