Given its history of financial meltdown and subsequent recovery, Sweden, which assumed the presidency of the European Union on July 1st, is the ideal country to orchestrate the reform of Europe’s financial landscape. Its reputation for levelheadedness will come in handy too. The EU remains riven by two deep divides on the regulation of finance.

The first is an ideological one over the degree of freedom that should be afforded to markets. It pits a weakened and distracted Britain, whose appeal as a financial centre in less troubled times was enhanced by its “light-touch” regulation, against countries such as France and Germany, which feel their long-standing distrust of freewheeling markets has been vindicated. “There is a large body of people who say that the Anglo-Saxon model has failed,” says a person involved in the new regulations. “Now they see the chance to bury it.” Tougher regulations may also peg London back in its rivalry with other European centres such as Frankfurt or Paris.

The second divide is between countries that want large cross-border banks to be overseen by a single European supervisor and those that want them to stay under the control of home regulators. The question of who is in charge cuts to the heart of Europe’s problems. Its banks operate in a largely borderless market but are often closely watched only at home.

The opening shots on supervision were fired on June 18th and 19th when European leaders agreed to establish a European Systemic Risk Board, which is intended to sound the alarm over the build-up of risk, and to create new European supervisory authorities to keep an eye on big cross-border financial institutions. The promise to create new European authorities was hailed by proponents of centralised regulation as a victory over Britain. Nicolas Sarkozy, the French president, called Britain’s agreement to their establishment a “complete change in Anglo-Saxon strategy” on financial regulation.

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