German bankers face new pressure

German banks could be forced to abandon customer confidentiality as Mr Gerhard Schroder's centre-left government seeks new ways to prevent tax evasion and plug gaps in its budget. Senior Social Democrats want to oblige banks to inform the tax authorities about all interest-bearing accounts to ensure that full tax is paid on interest earnings.

But banks claim that introducing such controls would drive capital out of Germany to countries such as Switzerland, where banking confidentiality remains almost total.

"There is a danger that this measure would achieve the opposite of what is wished for. Among those who would probably feel threatened are people the Social Democrats did not mean at all," according to Prof Norbert Walter, chief economist of the Deutsche Bank in Frankfurt.

The proposal to abolish banking confidentiality comes as Germany's Finance Minister, Mr Hans Eichel, prepares to push through a controversial 30 billion deutschmarks (€15 billion) package of spending cuts in the teeth of fierce opposition from the Christian Democrats. Mr Eichel announced this week his intention to divide the package into two parts to avoid defeat in the upper house of parliament, the Bundesrat, where the government does not enjoy a majority.

Only 10 per cent of the cuts require the approval of the Bundesrat, which is composed of representatives of Germany's 16 federal states. Mr Eichel hopes the remaining 90 per cent of the cuts will be approved by the lower house, the Bundestag, by the end of November.

The finance minister warned that, if opposition parties continued to block the smaller part of the package, worth DM3.8 billion, he would make equivalent savings elsewhere.

Thousands of old-age pensioners demonstrated in Berlin this week against the government's plan to link pensions and social security payments to inflation rather than wage rises.

German employers approve of the government's plan so thoroughly that they want to apply it to all employees - linking wage rises to inflation for the next two years.

"Along with tax reform and lower insurance contributions, this is our only chance to stop laying people off," according to one employers' leader.

But as Germany's economic performance improves, trade unions are in no mood to listen to the complaints of employers and most are gearing up for big wage claims next spring.

"This process of redistribution from the bottom to the top has got to stop. Reasonable income increases are also a contribution to reviving domestic demand," according to one trade union leader.

As pressure mounts to balance the books while remaining true to his party's commitment to social justice, Mr Eichel may be forgiven for eyeing the interest earnings of Germany's richest citizens. But finance ministers are often disappointed by the return from such measures, as investors move money abroad or divide their wealth among family members.