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By Gabriela Baczynska
LUXEMBOURG, June 20 (Reuters) - European Union states locked horns on Tuesday over moving the bloc's London-based regulators for banking and drugs after Brexit, a test of unity for the 27 remaining members, most of which have expressed interest in hosting them.
"Despite the high political dimension, we are committed to ensuring a successful outcome and hence the unity among the EU 27 remains our priority," said Malta's Helena Dalli, who chaired a meeting of EU ministers on the issue.
But the ministers, meeting in Luxembourg, failed to agree on procedure for choosing the new sites for the European Banking Authority (EBA) and the European Medicines Agency (EMA), which together employ more than 1,000 people.
Germany and Ireland are among states to have already said they will apply to host both bodies, though diplomats say both will not go to one single country.
The newer member states in former communist eastern Europe, which have joined since 2004, complain they host fewer common EU bodies and want this disparity addressed.
The EU's executive European Commission will propose a set of criteria to choose the new locations, including logistical support, infrastructure, and access to the labour market and medical care for the employees' relatives.
Eastern bloc members say these criteria favour the wealthier west and say a geographical spread of sites should also be taken into account.
Italy withheld its consent on Tuesday, saying the Commission should go further and shortlist several of the most eligible sites. The Netherlands also had reservations, diplomats said.
"This is a difficult discussion because for the first time since the Brexit decision, this theme is actually dividing the 27 whereas so far our strength in facing Brexit has been in our unity," one senior EU diplomat said.
"Eventually it will be a political decision with a lot of horse-trading behind the scenes."
EU leaders meeting for a summit in Brussels on Thursday are due to finalise the process and member states will have until the end of July to propose cities.
A final decision is expected in October after the EU states vote, first on the medical, then on the banking authority.
Barcelona, Milan, Copenhagen and Dublin have all started campaigning to host the EMA, which has an annual budget of $360 million.
Frankfurt, Paris, Amsterdam, Vienna, Lyon and Strasbourg are among the cities wanting the EBA, whose 160 London-based employees write and coordinate banking rules across the bloc.
"The agencies are really a joke," one senior EU official said of the relatively small budgets at stake for national governments. "They don't matter themselves but the stakes are high because it's about the unity of the 27." (Additional reporting by Alastair Macdonald; Writing by Gabriela Baczynska; Editing by Richard Balmforth)