UK Economic Growth Less Than Expected

Britain's growth figure for the third quarter has been revised to 0.9% by the Office for National Statistics.

That is down from their previous estimate of 1%.

Britain's dominant services sector posted meagre growth in October, adding to the challenge for the economy as a whole to expand in the last three months of 2012.

Third quarter GDP growth was the strongest since the third quarter of 2007, but much of that reflected a one-off boost from the London Olympics and a rebound from the second quarter when an extra public holiday dented output. 

Britain suffered its second recession since the financial crisis between late 2011 and mid-2012, and overall has recovered much more slowly since 2009 than most other big economies.

It also emerged that borrowing unexpectedly increased last month, putting more pressure on Chancellor George Osborne's plan to bring down the budget deficit.

Public sector net borrowing, excluding financial interventions such as bank bailouts, was £17.5bn in November, up £1.2bn on the same month last year.

Economists had predicted borrowing would fall slightly to around £16bn.

Public sector borrowing for the year to date is £92.7bn, excluding a one-off £28bn boost from the transfer of the Royal Mail pension fund into Treasury ownership, which is 9.9% higher than the same period last year.

The latest figures will put more pressure on Chancellor George Osborne

James Knightley, analyst at ING Bank, said the borrowing figures highlighted the weak state of the UK economy and the fact that austerity measures were failing to generate the improvement in Government finances that were hoped for.

He said: "All in all, the UK appears to be ending 2012 not in particularly great shape, and as such we suspect the Bank of England has more work to do with further policy stimulus likely in early 2013, especially if the worst fears over the US fiscal cliff materialise."

The ONS said the latest figures do not take into account the transfer of assets from the Bank of England's money printing programme into the Treasury, and the auction of bandwidth for 4G mobile broadband services, which is expected to boost the finances.

In the Chancellor's Autumn Statement earlier this month, the Office for Budget Responsibility (OBR) said it expected borrowing to be £108bn in 2012/13, compared to £119.9bn in the March estimate.

The news will put further pressure on Britain's gold-plated AAA status.

All of the three main ratings agencies have now put the UK on negative watch.

Vicky Redwood, chief UK economist at Capital Economics, said: "Although a number of temporary factors flattered the OBR's new forecast for borrowing this year, the underlying picture is that the weak economy is preventing the deficit from falling."

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BAE Systems Strikes £2.5bn Deal With Oman

By Alistair Bunkall, Defence Correspondent

A deal worth £2.5bn has been completed between British defence manufacturer BAE Systems and Oman.

It will see BAE provide the Gulf state with 12 Eurofighter Typhoon aircraft and eight Hawk training jets.

As well as supplying aircraft, BAE Systems will provide in-service support to the Royal Air Force of Oman's (RAFO) operational tasks.

Work to start building the aircraft will begin in 2014, with the first jets due for delivery in 2017.

But the markets did not seem too enthusiastic about the announcement, as the BAE share price was down 2% during the early hours of trading.

More importantly for the company's future financial health is the Salam deal for 72 Typhoon jets with Saudi Arabia, worth £4.5bn.

Earlier this week, BAE warned that its 2012 earnings would suffer if no agreement was reached on this deal by February 21.

Last month, Prime Minister David Cameron visited Jordan, Saudi Arabia and the United Arab Emirates on a trade mission to promote BAE and persuade the states to buy British-made defence equipment.

PM David Cameron visited Jordan, Saudi Arabia and the UAE last month

It is unusual for a British prime minister to promote defence companies so openly but the Government is seeking to build closer ties with friendly Middle Eastern states in the face of what it sees as a growing threat in the region from countries like Iran.

The move also demonstrates an attempt to forge links outside of the traditional Nato countries.

The deal is not only important for BAE Systems but also for the companies that form the supply chain, many of which are based in the UK.

The deal will support BAE's assertion that it still has a strong business with a positive future after the proposed merger with EADS collapsed in October.

Cuts to defence budgets globally have resulted in a tougher and more competitive market, and BAE had hoped a merger with a company that specialises in civil aviation would lessen any effect of budget cuts.

Guy Griffiths, group managing director for BAE Systems' International business, said: "Receiving this contract is an honour and is excellent news for both BAE Systems and the Eurofighter Typhoon consortium.

"We look forward to working in partnership with Oman's Ministry of Defence, and the Royal Air Force of Oman, to ensure this is a highly successful programme that maximises the potential of both Hawk and Typhoon."

Oman becomes the seventh country in the world, and the second in the Middle East, to operate the Typhoon, joining the air forces of the United Kingdom, Germany, Italy, Spain, Austria and Saudi Arabia.

Business Secretary Vince Cable said: "This is obviously a very good day for BAE Systems, its suppliers and the broader Eurofighter supply chain.

"We, and our partners in the Eurofighter consortium are pursuing a number of opportunities at present and I hope that the decision by Oman to join the Typhoon family is followed by more of its friends and neighbours."

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Banks Face Break-Up Over Risky Trading

By Poppy Trowbridge, Business and Economics Correspondent

UK banks face break-up if they fail to follow new rules protecting high street operations from riskier trading.

The Parliamentary Commission on Banking Standards today published a report assessing Government-backed legislation that will require lenders to protect customers' banking deposits from potential losses.

While the report suggests ring-fencing will help address the damage done to culture and standards in banking, it may not be enough to stop banks taking advantage of the rules.

Commission chairman Andrew Tyrie MP said: "The legislation needs to set out a reserve power for separation; the regulator needs to know he can use it."

"Over time, the ring-fence will be tested and challenged by the banks. Politicians, too, could succumb to lobbying from banks and others, adding to pressure to put holes in the ring-fence."

MPs are looking at ways to exert pressure on lenders that fail to comply.

Shadow chancellor Ed Balls told Sky News: "I think people are really frustrated, families, businesses, that banking reform is taking so long.

"In the meantime, our economy has not been growing, small business lending is falling. We've got to get on with it and we've got to get it right.

"The commission says the proposals on the table so far from George Osbourne don't go far enough, they've been watered down, and they also are going to look at the wider issues of standards and culture in the way our banks operate."

Next year, the commission will take further evidence on whether full separation of proprietary trading operations at banks is necessary.

The Government launched an inquiry into banking standards in the wake of revelations that the London Interbank Offered Rate (Libor) had been manipulated by traders.

Barclays and Swiss bank UBS have been fined by authorities for manipulating Libor.

The rate is a reference point for vast ranges of financial contracts around the world worth around £184 trillion.

Mr Tyrie said: "The latest revelations of collusion, corruption and market-rigging beggar belief.

"It is the clearest illustration yet that a great deal more needs to be done to restore standards in banking."

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Women Drivers Face Insurance Premium Rise

By Darren McCaffrey, Sky Reporter

Women drivers could see insurance premiums increase by around 25% as new laws come into force that ban setting prices according to gender.

Researchers believe it could force nearly a quarter of women drivers to give up driving altogether.

The European Court of Justice ruling follows a 10-year legal battle against the proposals by insurers.

It is not confined to car insurance but also covers pensions and life insurance.

Car insurance premiums could increase for young female drivers by an average of around £300 a year.

Those aged between 31 and 35 are also likely to be hit with a rise of around 10%, or £53 a year, according to research from comparison website Confused.com.

Michael Ossei, personal finance expert at price comparison website uSwitch, told Sky News: "What we have found is young women between 18 to 25 years old will be heavily affected by the change.

"What that means from our research (is that) 24% will be taken off the road, not able to drive, while a further 11% say they will have to sell their cars."

Men reaching retirement could also be hard-hit with annuities possibly decreasing by up to 13% a year, while women may see their life insurance policies increase by 16%.

Currently, men usually get a higher pension income than women because, on average, they die younger.

The Government is strongly opposed to the change.

Transport Minister Stephen Hammond told Sky News it was unnecessary and that they were working to manage the impact.

"One of the reasons we are against it (is that) the basic principles of insurance previously has been insurance based on risked rather than just gender-based."

The court ruling is an attempt to end discrimination and to bring about equality between men and women - but it is a decision that will come at a price for many.

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Tax Row: McDonald's Calls For Review Of Law

The managing director of McDonald's in the UK has said Britain's corporation tax rules need to be addressed.

Speaking on Jeff Randall's Christmas Dinner, Jill McDonald warned that the continuing row over the amount of corporation tax companies pay could create a negative image of British business.

"Customers, consumers, want businesses to be doing the right thing," she said.

"I think it is politicians who are creating the laws who need to address and look at those."

She added: "I do think that it's in danger of spinning a little bit out of control because you don't want the conversation to be so negative about business …because, as we know, business is ultimately what's important to help Britain grow again."

McDonald's paid £42m in UK corporation tax last year

She made her comments after a number of companies – including Starbucks, Google and Amazon - were heavily criticised by politicians and campaigners over their tax affairs.

McDonald's, which employs over 90,000 people in the UK, paid £42m in UK corporation tax last year, which Ms McDonald defended as "fair".

"One man's efficient tax planning though is another's tax avoidance so the law does need to be looked at," she said.

"But in McDonald's for example we pay what we would consider to be our fair share of corporation tax."

Paul Walsh, the chief executive of Diageo which has Guinness, Smirnoff and Johnnie Walker among its brands, told Jeff Randall that tax is a complex issue for a global company.

Only 7% of Diageo's total sales were in the UK last year but the company - which is the world's biggest spirits company - paid more than a billion pounds in UK corporation tax.

"I think we run the risk of getting into the debate of 'If you pay tax, everything's fine'," he said.

"What about the company that's investing billions and will get appropriate tax losses and capital allowances?

"They're creating a lot of jobs so be very careful that we don't suddenly get so simplified in our approach that it conspires against what this nation is trying to do - create jobs. "

:: Jeff Randall's Christmas Dinner is broadcast tonight at 7pm on Sky News, and is repeated over the festive period. It is also available on Sky On Demand and the Sky News for iPad App.

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Energy Bill Breakdown Demanded By MPs

Energy firms should be forced to inform every customer what proportion of their bills will contribute to the supplier's profits, MPs are demanding.

The cross-party Energy and Climate Change Committee called for householders to be given a breakdown of their gas and electricity bills.

Their proposal would see annual statements provided by energy companies, featuring details of their operating costs, wholesale prices and profits.

It would also show firms' contributions to environmental levies, the costs of smart meters and investments.

Members of the committee say the shake-up would ensure customers are better informed and help improve competition in the widely-criticised energy market.

Conservative MP and committee chairman Tim Yeo said recent reports of wholesale price-fixing had reinforced the need for greater transparency.

"Trust in energy companies is at rock bottom and consumers don't have the right information to hand to make informed choices about where they get their energy," he said.

"Most consumers simply don't know how to interpret their energy bills and this puts them off attempting to switch suppliers.

"The Government should be doing all it can to increase competition in the energy market and must make it easier for new entrants to join the market."

There are concerns that many energy customers are paying more than they need to because of the bewildering array of tariffs available.

The Government recently announced plans to simplify the options and force energy companies to give their customers the cheapest deal available to them.

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Nissan To Build Luxury Car Model At UK Plant

Car giant Nissan is to build a new luxury model in the UK, creating 1,000 jobs with a £250m investment.

The new global model will be manufactured at the Japanese firm's plant in Sunderland, which employs 6,000 workers.

The car, built under Nissan's Infinity premium brand, is set to be produced from 2015.

It will be developed with help from Nissan's design centre in London and technical centre in Cranfield and then exported around the world, the firm said.

Around 280 of the new jobs will be in Sunderland, with the rest in other sites across the country.

Because of capacity limitations at Sunderland, securing the new Infiniti will mean that a C-segment hatchback previously announced for the plant in April will be manufactured elsewhere, said the company.

The North East plant will build more than half a million cars this year, the first UK manufacturer to achieve this milestone.

The new model will be made at the Nissan factory in Sunderland

Colin Dodge, Nissan's executive vice-president and chief performance officer, said: "This milestone, our first premium product to be manufactured at Sunderland, reconfirms our commitment to UK manufacturing and the ongoing success of the plant which is moving up the value chain.

"Just as important, the new Infiniti, which will be exported around the world, is being developed with help from our London design centre and our European Technical Centre."

Business Secretary Vince Cable, who will attend a ceremony in Sunderland to mark the announcement, said: "Sunderland will be the only place in the world to make this new premium compact car.

"Nissan in the UK goes from strength to strength. Not only will the new car be made here and exported all over the world, the UK has already contributed to its design and development.

"Today's news is a strong endorsement of the quality of Britain's car industry which is creating jobs, taking on apprentices and contributing to building a stronger economy.

"The auto sector is living up to being one of the great success stories of our industrial strategy and a testimony to government and private sector working together in close partnership."

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Investigation Launched Into Comet Collapse

The Department for Business, Innovation and Skills has launched an investigation into the purchase and administration of troubled electrical chain Comet.

The Insolvency Service has been tasked with scrutinising the process following a number of complaints from MPs.

The business was bought for £2 by Hailey Acquisitions, an investment vehicle put together by Henry Jackson of OpCapita, in November 2011.

They were given a £50m dowry from previous owner Kesa Electricals, now known as Darty, to run the retailer, which collapsed just a year later.

Seven weeks after they were appointed administrators, Deloitte failed to find a buyer for the 235-store chain, and closed its remaining 49 outlets.

The collapse of the company, which was founded in Hull in 1933 and employed around 6,895 people, is one of the biggest high street failures since the demise of Woolworths in 2008.

Deloitte said on Monday that it remained in talks with a small number of parties over the sale of internet operations and the brand.

But the firm also confirmed the taxpayer will have to pick up a £49.4m bill for unpaid redundancy and tax payments.

Comet launched a sale following its collapse at the beginning of November

With insufficient funds raised from the winding down of the chain, the Government's Redundancy Payments Service will be required to meet the £23.2m of outstanding redundancy and accrued holiday pay and pay in lieu of notice.

The scale of the problems at Comet was also highlighted in the report, with the chain racking up losses of £95m in the year to April after also seeing revenues slump by £200m compared to a year earlier.

This was followed by a further £31m loss in the subsequent five months as credit insurers lost confidence and withdrew support for the business.

Hailey Acquisitions is expected to get payments of just under £50m as a secured creditor - a shortfall of £95m on the amount owed.

But it has been reported that unsecured creditors, including HM Revenue and Customs which is owed £26.2m, will receive nothing.

Comet was hit by weak high street trading conditions, competition from online rivals and being unable to secure the trade credit insurance needed to safeguard suppliers.

In particular, it was knocked by the lack of first-time home buyers who were key customers for Comet.

Holders of £4.7m of unclaimed Comet gift cards and vouchers are also on the list of unsecured creditors.

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Ministry Of Defence Confirms Airwaves Sell-Off

The Ministry of Defence (MoD) has confirmed plans to sell part of its radio spectrum currently reserved for military purposes.

The sale of the airwaves - used to support superfast 4G mobile broadband - will be the first of its kind by a Government department.

It could bring in around £1bn for the Treasury, The Financial Times reported, although the MoD would not comment on the amount for commercial reasons.

The spectrum up for sale will be below 15 gigahertz - a valuable part of the radio spectrum because of its wide range of applications including radio, television, and data.

Around half of these airwaves are currently controlled by the Government, with the MoD holding around three quarters of this for defence purposes.

Mobile network operators are likely to bid for the spectrum, which will give them the opportunity to launch fourth-generation mobile services.

The announcement follows the Autumn Statement in which George Osborne said he planned to raise a total of £3.5bn from auctioning off other 4G spectrum.

But the Chancellor's decision to add the anticipated income to the nation's accounts was criticised for helping him avoid a rise in UK national debt.

The Minister for Defence Equipment, Support and Technology, Philip Dunne, said he welcomed the move to free-up the "much-needed" spectrum.

"We hope that the sale will help drive the roll-out of new generation networks and universal access to broadband, both of which are vital to the UK's prosperity," he added.

The auction is expected to be completed by the summer of 2014, after the Government's planned sale of other spectrum at the beginning of next year.

Last month, the telecoms regulator Ofcom set a reserve price of £1.3bn for the January sale, although the final figure could be much higher.

In 2000, the auction of 3G brought in more than £22bn for the Treasury, when the reserve price was £500m.

The then Chancellor Gordon Brown also used the proceeds to pay down national debt.

To date, EE, which owns Orange and T-Mobile, is the only mobile network to launch 4G products in the UK.

Its network, which offers speeds up to five times faster than 3G, is now available in London, Bristol, Birmingham, Cardiff, Leeds, Sheffield, Edinburgh, Glasgow, Liverpool, Southampton and Manchester.

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HMRC Missed Calls Cost Taxpayer £136m A Year

Delays in answering phonecalls to HM Revenue and Customs hotlines cost the taxpayer £136m in the last year.

According to the National Audit Office (NAO) report, delays cost customers £33m in call charges while they waited for HMRC to answer the phone and the estimated value of customer time while they waited was £103m.

The NAO said 20 million calls to HMRC hotlines - many of which are 0845 numbers - were not picked up at all last year.

People who did get through were also waiting longer to speak to an adviser - an average of 282 seconds compared to 107 seconds in 2009/10.

In the first quarter of this year, some 6.5 million people were left holding on for longer than 10 minutes.

"Depending on the tariff they pay their phone company, customers are charged once their call is connected even if they are held in a queue," the report said.

"We estimate that if HMRC improved performance to answer 90% of calls and reduced waiting times, it could save customers around £52m a year.

"HMRC currently plans to spend £34m to achieve this level of performance."

The NAO found that there had been some progress since thousands more staff were drafted in, with the 74% pick-up rate significantly higher than the 48% recorded in 2010/11.

However, the report warned that the figures probably underestimated the issue, as calls are counted as answered even if they do not reach an adviser.

Public Accounts Committee chairman Margaret Hodge said: "When people have no choice but to contact the Revenue to discuss their tax affairs, I find it totally unacceptable that HMRC uses costly 0845 numbers and charges people for the privilege of waiting for the department to pick up."

TaxPayers' Alliance chief executive Matthew Sinclair said: "This report exposes a shameful level of service at HMRC.

"Taxpayers will be outraged that HMRC could let 20 million phone calls go unanswered and yet still claim that it is outperforming some arbitrary target."

An HMRC spokesman said: "In 2010/11 we answered 48% of all call attempts, rising to 74% in 2011/12.

"By late 2012 we were answering over 90% of calls to our contact centres. We are well aware that in the past we have not delivered the standard of service to which we are committed.

"We are determined to build on this progress and we have invested £34m so we can deliver on our improvement targets earlier than planned."

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EU Summit: Cameron 'Committed To Saving Euro'

The Prime Minister has made it clear he wants favours in return for signing a deal aimed at increasing economic and monetary union in the European Union.

At the seventh and final EU summit of the year, David Cameron insisted the UK was not in an uncomfortable position, despite refusing to have its banks monitored by a centralised supervisor.

"We did not stand in the way of the eurozone having a banking union ...now there are opportunities for us to seek changes in our (EU) relationship, changes that the British people will be more comfortable with," he said.

"They (the eurozone countries) want to make changes, and we can ask for changes too."

His comments come a day after European finance ministers took a major step towards full banking union by agreeing to create a single supervisor for eurozone banks.

But although the UK will not be subject to the scrutiny - continuing to monitor its own institutions - Mr Cameron insisted that Britain "remains at the heart" of decision making in Europe.

The ECB will oversee all banks in the 17 EU countries that use the euro

"I don't think Britain is in an uncomfortable position at all," he said.

"I think we are in a position where we have opportunities to maximise what we want from our relationship with the European Union.

"The fact is we have a multi-faceted Europe, we have a Europe where countries like Britain are absolutely at the heart of decision making."

Earlier this year, Mr Cameron called for a "new settlement" between the UK and Brussels and on Thursday said his focus was now on getting a "better deal" for Britain.

The banking deal gives the European Central Bank (ECB) oversight for lenders in the 17 EU countries that use the euro - and any other country that wants to opt in.

It also paves the way for Europe's bailout fund to give direct aid to ailing banks - a measure seen as vital to helping the eurozone break free of its debt crisis.

The agreement, which follows months of negotiations, was described by the president of the European Commission, Jose Manuel Barroso, as a "deep and genuine economic and monetary union", which requires "steps towards political union".

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Fuel Poverty Warning For 300,000 More Homes

A further 300,000 people will be pushed into fuel poverty by Christmas because of the latest round of energy price hikes, an advisory body has warned.

The Fuel Poverty Advisory Group (FPAG) said the latest round of energy price rises has increased the average annual energy bill by 7%, taking it to £1,247 for direct debit customers and £1,336 for cash and cheque customers.

These increases are likely to have pushed a further 300,000 households into fuel poverty and estimates have already shown that over nine million households could be living in fuel poverty by 2016.

The lobby group urged David Cameron to take stronger action to ensure there is a more widespread and ambitious effort to tackle "spiralling" fuel poverty levels.

It said the Government should create a cross-departmental group on fuel poverty to ensure a joined-up approach as well as creating a new duty for local authorities to meet fuel poverty targets.

It also advised the Government to carry out an urgent impact assessment of welfare reforms on fuel poverty.

Derek Lickorish, chairman of the FPAG, said: "With a cold winter, welfare reforms cutting incomes, and all at a time of austerity measures and other rising household costs, the plight of the fuel poor has never been more serious.

"Millions are living in misery due to high energy bills. Yet time is running out for the Government to fuel poverty-proof the homes of those on the lowest incomes.

"A toxic cocktail of rising wholesale prices, the high cost of energy reforms and cuts in incomes for many households means fuel poverty levels are set to sky rocket without radical action."

Families are considered to be in fuel poverty when they have to spend more than 10% of their incomes on keeping their homes warm.

The FPAG said that nearly half of the UK's fuel poor households are pensioners, a third contain people with some sort of disability or illness, a fifth contain a child aged five or under and one in 10 house someone aged 75 or over.

The Government recently announced proposals to require energy firms to provide just four tariffs for each fuel and to place all customers on the cheapest price available for their chosen tariff.

But critics have warned that the plans could see an end to cheap deals, stop consumers switching suppliers, reduce competition and push up bills in the long run.

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Open University To Go Global With Online Courses

The Open University (OU) has launched a campaign to take distance learning global - as it attempts to catch up with online course offered by US colleges.

The OU has teamed up with 10 British universities in a venture called FutureLearn.

The plan is to give free virtual lectures that are supplemented by digital learning tools to help promote UK institutions.

OU vice-chancellor Martin Bean told Sky News: "You won't be able to get a degree through FutureLearn but you will be able to get free access to some of the best higher education content on the planet.

"In a world of higher fees where people are taking on more of that responsibility for themselves I think they're going to demand better teaching ... and I'm sure it will help these universities really develop new, innovative and experimental teaching practices."

The decision to go global comes after leading US colleges, including Harvard, MIT, Texas and Georgetown, launched various learning partnerships.

One partnership involving Stanford already has two million users around the world.

Professor Bean admitted: "There's no doubt the Americans have got a little out in front of us on this one."

But he insisted the move would benefit Britain's universities.  

"It strengthens brand and competitiveness, it allows them to experiment and develop new teaching strategies for their students on campus and online," he said.

"And it also creates some revenue opportunities in being able to compete for all of those transnational students that are often in developing parts of the world."

The OU has been running courses since 1971, initially using late night television programmes to supplement course notes.

Supporters see FutureLearn as an important way to put students on a path that may lead to traditional tertiary education - a lucrative sector for colleges.

But there are doubts whether any money can be made from massive open online courses (Moocs), even though one in the US has 160,000 users.

Moocs do not carry degree credits and concerns have been raised about plagiarism and the manpower needed to check the work of tens of thousands of students that may be on a single course.

Money-making concepts have included offering free courses but charging for exams, certificates and tutoring.

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EU Summit: Cameron 'Committed To Saving Euro'

The Prime Minister has made it clear he wants favours in return for signing a deal aimed at increasing economic and monetary union in the European Union.

At the seventh and final EU summit of the year, David Cameron insisted the UK was not in an uncomfortable position, despite refusing to have its banks monitored by a centralised supervisor.

"We did not stand in the way of the eurozone having a banking union ...now there are opportunities for us to seek changes in our (EU) relationship, changes that the British people will be more comfortable with," he said.

"They (the eurozone countries) want to make changes, and we can ask for changes too."

His comments come a day after European finance ministers took a major step towards full banking union by agreeing to create a single supervisor for eurozone banks.

But although the UK will not be subject to the scrutiny - continuing to monitor its own institutions - Mr Cameron insisted that Britain "remains at the heart" of decision making in Europe.

The ECB will oversee all banks in the 17 EU countries that use the euro

"I don't think Britain is in an uncomfortable position at all," he said.

"I think we are in a position where we have opportunities to maximise what we want from our relationship with the European Union.

"The fact is we have a multi-faceted Europe, we have a Europe where countries like Britain are absolutely at the heart of decision making."

Earlier this year, Mr Cameron called for a "new settlement" between the UK and Brussels and on Thursday said his focus was now on getting a "better deal" for Britain.

The banking deal gives the European Central Bank (ECB) oversight for lenders in the 17 EU countries that use the euro - and any other country that wants to opt in.

It also paves the way for Europe's bailout fund to give direct aid to ailing banks - a measure seen as vital to helping the eurozone break free of its debt crisis.

The agreement, which follows months of negotiations, was described by the president of the European Commission, Jose Manuel Barroso, as a "deep and genuine economic and monetary union", which requires "steps towards political union".

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