The British government would be prepared to use its 'golden share' to veto the proposed $45 billion merger between EADS and BAE Systems if the terms were not right for Britain, a defense ministry source said.

Priorities for the British government include jobs and future security for BAE plants in Britain. It would also insist that the defense business is based in Britain with a British chief executive, said the source, who spoke on condition of anonymity.

"(Prime Minister) David Cameron, (business minister) Vince Cable and (defense minister) Philip Hammond don't really want France and Germany owning more than 9 percent - they want a combined company to be a commercial organization and free of overt political influence," the source said.

Three German sources said on Monday that the merger talks are at risk of failing due to the divergent stances of the governments involved.

(Reporting by Rhys Jones, Writing by Rosalba O'Brien)