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Lawyers for the Government and the European Central Bank (ECB) clashed in court on last week over an ECB decision to ban big institutions in the UK from settling some trades denominated in the single currency. The Government claims that an ECB ruling on clearing houses – intermediaries between buyers and sellers of financial assets such as interest rate swaps – contravenes EU rules, in the latest altercation over Europe’s influence on London’s financial power. The ECB has said clearing houses should only be allowed to deal with trades denominated in euros if they are based in the eurozone, an affront to the UK institutions which account for a large proportion of euro clearing. The ECB ban would apply to clearing houses with daily exposures of more than €5bn (£4bn), a level that applies to several based in the UK, including LCH.Clearnet, owned by the London Stock Exchange. The Government is appealing against the policy, arguing that it is a violation of single market rules, in the latest disagreement with EU authorities. The UK has already lost appeals against curbs on short-selling and a tax on financial transactions, and is taking legal action over a cap on bankers’ bonuses. On Wednesday, ECB lawyers defended the policy at the European Court of Justice, claiming that authorities in the UK such as the Bank of England would be willing to sacrifice the safety of the euro in order to protect the pound, possibly by refusing to bail out institutions that deal in euros.

An ECB lawyer said if a clearing house were to default, it “could cause havoc in the euro area”, and that the ECB needed to be able to monitor clearing houses “day-to-day”, which it would only be able to do if the clearing house was in the eurozone.

A Treasury spokesman said: “We want to make sure that there is a level playing field across the EU for British businesses. We believe that the ECB’s location policy contravenes European law and fundamental single market principles.”

A ruling in the appeal, which was lodged by the Government in 2011, is not expected for months.