A war of words broke out between London and Berlin yesterday as the German Finance minister, Peer Steinbrück, made an outspoken attack on the City. As world leaders meet at the G20 summit in Pittsburgh, Mr Steinbrück laid bare the disagreements between France and Germany on one side and the UK and US on the other about tighter regulation.

He said he hoped that the summit would agree "specific measures" to limit bankers' bonuses, but added: "There is clearly a lobby in London that wants to defend its competitive advantage tooth and nail.

"In the United States, too, the financial industry is evidently putting a lot of pressure on Congress with the message, 'Don't take things too seriously with regulation'."

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Mr Steinbrück said the banking industry would "hopefully get a rule whereby bonuses will be limited to a proportion of fixed salaries". On the contentious issue of closer supervision of hedge funds and private equity, Mr Steinbrück suggested that British interests were having a hard time, "to put it politely", in agreeing closer supervision.

Despite broad agreement on some issues, the fissures between the European and Anglo-American positions seem set to widen. Other powers, such as China, also seem unlikely to subscribe to the Franco-German view. President Nicolas Sarkozy of France, for example, has said he will walk out if there is no agreement at the summit on bank bonuses.

Sources close to the German government confirmed yesterday that "differences are widening" on the issue of how long nations that have traditionally run large trade surpluses, such as Japan, Germany and China, should be expected to continue to reflate their economies to help weaker nations such as Britain and America.

Meanwhile, the European Commission published its latest proposals on financial regulation, and rumours emanated from Brussels that the Governor of the Bank of England, Mervyn King, was being lined up to be vice-chairman of the new European Systemic Risk Board (ESRB).

Jean-Claude Trichet, president of the European Central Bank, is expected to chair the ESRB, which will be a non-binding "early warning system" for financial crises.

The EC also firmed up its plan for EU-wide supervision of individual companies and sectors, and the role and powers of three new supervisory authorities: the European Banking Authority, the European Securities and Markets Authority, and the European Insurance and Occupational Pensions Authority. Together with national, bodies they will form the European System of Financial Supervisors.

An EC document said: "The goal is one set of rules for all financial institutions in the EU, big or small, domestic or multinational." The commission's president, Jose Manuel Barroso, added: "This European system can inspire a global one, and we will argue for that in Pittsburgh."

The EC says the new bodies will develop draft proposals for technical standards; work towards "a common rulebook"; facilitate exchange of information and settle disagreements between nations; supervise the credit ratings agencies; and carry out "co-ordination and some decision-making in emergency situations".

The problems that confounded national regulators in rescuing cross-border banks such as Fortis during the crisis have added momentum to these reforms.