Sarkozy has stuffed us... London will pay the price

"We were done over -comprehensively." That was the private verdict today of a senior British figure close to the Brussels talks that ended with a Frenchman seizing control of City regulation for the first time in 50 years.

"The French played a brilliant hand and they stuffed us. But the price will be paid by London, say, three years down the line."

In public, Downing Street maintains a fiction that Gordon Brown had a success in getting Cathy Ashton installed as the EU's first High Representative and there is no danger from the elevation of Michel Barnier as financial services commissioner. In reality, we would have been better served by the pair doing a job swap.

The story emerging from Whitehall is that Brown and Sarkozy both wanted the City post for their countries. Typically in Brussels horsetrading, neither would get it and a small country would get an unexpected bonus. Sarkozy's genius was to convince Brown, who had backed a bid to make Tony Blair president, to grab the runner-up prize of High Rep.

Sarkozy hoped David Miliband would jump at becoming responsible for EU foreign affairs, but the Foreign Secretary declined. After that the word went out from the French that any Briton could have the job. Why was Sarkozy so desperate to secure what is a less prestigious job on the face of it? "It's all about building up Paris as a financial centre," says the insider. "At London's expense."

Alistair Darling argues that European cities should be competing with the world, not against each other. Sarkozy's vision is to challenge Anglo-Saxon capitalism in the Square Mile.

Britain is now on the back foot.