EU leaders agree fudge on Austria and banking secrecy

In the end, the summit ended in agreement - agreement to differ, a fudge. Austria agreed that it might reconsider its banking secrecy rules, and the 14 other member-states hinted they might reconsider their bilateral sanctions against Vienna.

Affirming their determination to clamp down on tax evasion, the EU summit agreed to press forward towards a system of exchanging information on non-resident bank account holders.

But Austria, in a last-minute statement for the minutes, made clear that "at this stage" it was not able to co-operate "for constitutional reasons". If it maintained this position, the controversial savings directive will never come into force.

But that "at this stage" was sufficient hint of future compliance for the Portuguese Prime Minister, Mr Antonio Guterres, to express "delight" at a successful conclusion to the presidency. "We have achieved all we were asked to do," he said. The new Swedish Prime Minister, Mr Goran Persson, was more sanguine. "It is not a historic breakthrough, but the process can go on," he said.

Talks will begin soon with Switzerland, Liechtenstein, Monaco and Andorra, to persuade them also to exchange information between tax authorities, and the Austrians will have, in effect, two years to declare their intention to amend their secrecy laws, and a further seven to implement the changes.

If they do not, Luxembourg has warned that it may have to reconsider its own willingness to go along with the directive and the entire agreement will begin to unravel. But the agreements yesterday should also allow immediate progress on other parts of a broader tax package, most notably a code of conduct on unfair corporate taxation and a directive on the tax treatment of cross-border royalties.

The mood had changed dramatically overnight. The German Finance Minister, Mr Hans Eichel, was pulling no punches on Monday night. "With a position like that," he said, "Austria is not worthy of the Community."

Yesterday things were altogether different with Mr Guterres praising Vienna's "constructive spirit" and the President of the Commission, Mr Romano Prodi, talking of a solution to Austria's isolation "in the reasonably near future".

Was that a sign, the press wanted to know, that Austria had been promised progress in exchange for signing up, albeit half-heartedly, to the tax declaration?

"Absolutely not," said Mr Guterres. "There was no link at any time, explicit or implicit," said the French Prime Minister, Mr Lionel Jospin. "The two issues were separate," the Taoiseach insisted.

Indeed the Austrian concession was so slight as to make many wonder at the question.

But diplomats and ministers say that the Portuguese are now expected to write to the Austrians before the end of the month to open up the possibility of a winding up of sanctions. The President of the European Council may be involved, sources say, not in mediation but to provide an objective analysis of the compliance of Austria with democratic norms.

Not many expect sanctions imposed in January to be lifted within the year. Mr Ahern, a supporter of lifting sanctions, said it was significant that Chancellor Schussel was "not expecting to see sanctions removed or ending but to see the beginnings of a structured dialogue". Mr Ahern met Mr Schussel with Mr Guterres for talks on Monday night.

Yesterday's "deal" marks substantially the end of what has been a successful, workmanlike if undramatic presidency for the Portuguese which will be remembered more for the Lisbon-E Summit than for Feira's fireworks.

The baton passes within days to the French, and President Chirac was already talking up the prospects of a major summit at Nice where much of the routine work under way here on treaty changes will come to a head. He spoke of the need to give the EU new flexible ways of working in a union of 30 and of the need for the willing and able "to show the way and show the light".

The Taoiseach was a little wary. "Some are not sure what President Chirac has in mind," he told journalists. "He did not tell us precisely what he means."

Mr Chirac did however confirm that a major proposed Balkan regional peace summit is likely to take place in Croatia, probably in October.

And leaders agreed a statement encouraging constructive engagement with Russia and "its support to the efforts being made by President Vladimir Putin and the new Russian government to modernise and reform". The statement stressed the role of independent media and reminded Russia of its obligations in Chechnya not to use excessive force.