The City is preparing for years of “disastrous” interference from Brussels after a protectionist Frenchman took charge of regulating banks and financial institutions yesterday.

As Commissioner for the Internal Market, Michel Barnier, the former French Foreign Minister, will draft all future EU laws for the banking and finance services sectors that are key to Britain’s economy and recovery. Mr Barnier was handed the five-year post after intense lobbying by President Sarkozy. His appointment is certain to generate fresh controversy over Gordon Brown’s acceptance of Baroness Ashton of Upholland as the EU’s new foreign minister. Critics said that Mr Brown had been comprehensively outmanoeuvred.

One senior City source said: “This is a disaster. They have appointed an incredibly prescriptive French politician who is hardline protectionist. He doesn’t care about Britain. This is a job which is critical for Britain, for the City, and it goes to the French.”

The only concession to British concerns was a last-minute agreement that Jonathan Faull, a British civil servant, will become Mr Barnier’s most senior civil servant as director-general of the internal market department.

Michael Fallon, a Tory MP on the Commons Treasury Select Committee, said: “Brown has been completely outwitted. We now have none of the three key economic jobs in Brussels. This has all happened at an incredibly dangerous moment when there are firm proposals which will govern regulations on banking, insurance, private equity and hedge funds.”

Mr Barnier has made his suspicions of markets well known. When he was the French Agriculture Minister he said he believed that the global food crisis of 2008 had been caused by “too much free market liberalism”.

In 2005 he attacked Britain’s rebate from the EU budget won by Margaret Thatcher, saying: “We simply believe, today, that the British rebate, this cheque that was conceived in another epoch, does not correspond to a fair breakdown.”

José Manuel Barroso, the Portuguese chief of the European Commission, insisted that he had not caved in to Mr Sarkozy. “There were many requests but these were my choices alone,” he said. “I do not give portfolios to countries. I attribute them to individuals, to Europeans.”

Mr Sarkozy’s victory represents a blow for Britain’s Europe policy. Government figures including Lord Mandelson had said Britain should hold out for an economic job in the new European Commission rather than accepting Lady Ashton as the new High Representative. It left the remaining field clear for the French, Germans and Spanish. The Germans won the new post of Energy Commissioner for Günther Oettinger, while Competition went to Joaquín Almunia of Spain. A Liberal Democrat, Olli Rehn, of Finland, will become Commissioner for Economic and Monetary Affairs.

Downing Street had insisted that it was fighting to stop financial services falling into French hands when key regulatory proposals on hedge funds, bank capital requirements and derivative trading were being prepared. Last night it was trying to secure a position in Mr Barnier’s seven-member “Cabinet” for a City figure.

William Hague, the Shadow Foreign Secretary, said: “Financial services are a vital British economic interest and, while we want to co-ordinate regulation internationally, the European Commission’s proposals have the potential to do serious harm to our financial services industry.”

Who's who in the new Commission

Economic and Monetary Affairs Olli Rehn, 47. Liberal Finnish politician who won respect as enlargement commissioner in the outgoing EU executive. His main tasks will be to enforce EU budget rules following the economic crisis, increase co-ordination of the bloc’s macroeconomic policies and, possibly, oversee the adoption of the euro by several countries in central and eastern Europe.

Competition Joaquin Almunia, 61. Spanish socialist who won praise as economic and monetary affairs chief in the outgoing Commission. Not a technocrat in the competition area, Mr Almunia will face the challenge of enforcing EU antitrust and state aid rules when some governments would like to protect their national industries. He will have to ensure that state aid for banks is accompanied by restructuring programmes, a sensitive issue.

Internal Market Michel Barnier, 57. A close ally of President Sarkozy of France who served as regional aid commissioner. France lobbied hard for him. Britain will watch closely lest he introduce financial regulation detrimental to the City.

Trade Karel De Gucht, 54. Belgian former foreign minister. Outgoing humanitarian aid commissioner. His nomination for the powerful post came as a surprise, especially after his compatriot Herman Van Rompuy had been selected as the first EU president under a new treaty. He once called Jan Peter Balkenende, the Dutch Prime Minister, “a mix between Harry Potter and a rigid bourgeois”.

Energy Günther Oettinger, 56. German Christian Democrat who was premier of Baden-Württemberg. A nominee from Germany, an EU heavyweight, highlights the growing importance of energy. He will oversee efforts to create a common EU energy policy and negotiate with Russia if there is another gas crisis linked to its transit via Ukraine.

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