Sweden is a member of the EU although not the eurozone, and Borg said that “long and tough” negotiations lie ahead with “a large number of countries that are not members of the eurozone” deeming the proposal “unacceptable.”

Borg said that EU treaty guarantees of independence for the Frankfurt-based ECB — which he said would mean it was not bound by EBA mediation in case of disputes — meant there was much work to be done “before we are anywhere close to any compromise”.

“We cannot accept that the money of Swedish taxpayers is used to bail out foreign banks,” he said.

“The whole idea that we would be under the supervision of an institution where we have no voting rights, where (spending decisions on) our taxpayers’ money could depend on decisions taken by an institution where we have no influence, is completely unacceptable.”

He said these were “red lines” for opponents.

The plan, which has been hailed as a cornerstone of future political union, appeared doomed after two days of talks in Cyprus, which drove a fresh wedge between the 17 eurozone partners and the other 10 European Union states.

The plan, unveiled by EU banking commissioner Michel Barnier, thus looks set to miss the deadline for implementation due to EU treaty restrictions as opposition grew.

German Finance Minister Wolfgang Schäuble said it became immediately clear

during a feisty debate that the target-date for adoption of January 1, 2013,

was no longer attainable.

“January 1st, that will not be possible,” Schaeuble said, adding that it was “not even worth having that discussion.”

The nub of the breakdown was what Barnier called a “juridical problem.”

“We are going to continue working to improve the relationship when it comes to voting on the supervisory council for non-eurozone countries who want to be covered by the mechanism,” Barnier pledged.

He underlined that non-euro countries could choose to opt in or out, although he stressed that regulations would be designed to function across the full European single market, which includes all 10 non-eurozone states.

In Barnier’s proposal as unveiled earlier in the week, the supervisory council was to be composed of ECB and eurozone figures only.

European Central Bank deputy head Victor Constancio said the ECB would decide alone whether and how to grant voting rights and influence to non-euro countries brought into the new supervisory regime, given EU treaty guarantees of independence.

Asked if a treaty change may be required, a spokesperson for the Cypriot EU presidency said: “There is a chance.”

The lengthening list of problems — so much so that Britain’s George Osborne did not even speak out publicly on London’s own reservations — leave Barnier with a mountain to climb to meet the goal set for him by EU leaders at a June summit of installing new European-level supervision by January 1st, 2013.

Barnier’s proposal requires unanimity among the 27 EU states, at least a sustained attempt over a lengthy period of listening under EU lawmaking rules.

Seen by leaders as the first step towards full economic and political union, the “banking union”, agreed to as the way out of structural problems highlighted by the debt crisis, is in turn designed to draw in non-euro countries — all but two of which are treaty-bound to move to the euro over time.

The plans already faced other obstacles including a German-expressed need to establish a related resolution fund for winding down broken banks, and the role of the London-based European Banking Authority (EBA) — itself created out of the financial crisis.