VIENNA A British exit from the European Union would be a catastrophe despite disagreements over capping banker bonuses that have left London increasingly isolated, German Finance Minister Wolfgang Schaeuble told an Austrian newspaper.
His comments are his strongest so far in trying to avoid a messy split that would send shock waves through politics and financial markets.
Britain failed this week to secure backing to water down new EU rules limiting bonuses, a measure that could threaten London's dominance as a financial centre.
Schaeuble acknowledged Britain's interest in the subject, given the major role its financial centre plays, but told Der Standard:
"I would prefer that the British could also agree, especially since I would not like the British to be driven out of the EU in the end. It is German policy that one does not support the voices that can imagine an EU without the UK."
He spoke of the damage such a move would inflict on the EU.
"Try then to explain to an Indonesian: Europe is an incredibly strong, dynamic entity but unfortunately not in a position to keep a globally oriented country like Britain as a member. This loss of reputation alone would be a catastrophe."
The rules, which would limit bankers' bonuses to the equivalent of their salary, or two times their salary if shareholders agree, are set to be introduced next year and would represent the toughest bonus regime anywhere in the world.
They threaten Britain's financial industry the most, raising the risk that some banks and their top bankers could relocate to other financial centres outside the European Union.
Schaeuble took a hard line in the interview, however, saying: "The regulations will not be weakened under any circumstances."
(Reporting by Michael Shields; Editing by Alison Williams)