Savings tax compromise continues to elude ministers

The three-year EU deadlock over the savings tax directive is set to blight yet another summit - to be held at Feira, Portugal, in a fortnight - following another failed attempt by finance ministers to reach a compromise.

A further diplomatic heave on the issue has been promised by the Portuguese presidency which yesterday circulated a new draft four-point compromise paper.

Finance ministers will meet in Portugal in special session on the eve of the summit to see if a breakthrough is possible.

At stake is the need to curb billions of pounds of lost revenue through tax evasion in non-resident accounts, particularly in Luxembourg. To that end the Commission had sought agreement on a "co-existence" formula which would require member-states either to impose a minimum level of savings tax on such accounts or to supply details about them to the tax authorities of the depositor.

Britain has insisted that such a tax would threaten its eurobond market and has succeeded in focusing the debate on exchange of information, anathema to those - Belgium, Austria, Luxembourg and Greece - for whom banking secrecy is crucial.

The presidency paper leans towards the British view by proposing the eventual phasing-out of the "minimum tax" alternative in the co-existence model. But it does not meet the British requirements because the eventual adoption of a pure "information-exchange" model is only aspirational.

The British also say they cannot be expected to provide information to states which do not reciprocate, and want any directive to come into force only when agreement has also been reached sometime in the future with the US and Switzerland.

Few expect Feira to resolve the issue, leaving an uncomfortable present for the French Presidency.

The Minister for Finance, Mr McCreevy, said the Republic could live with either model, but that it had already agreed in principle to the co-existence model.

The French, meanwhile, have pulled back from announcing an expected initiative to beef up the role of the euro-11 in economic management in the face of warning noises from London, which fears isolation. A British spokesman said they stood behind the Luxembourg summit compromise on the issue which made it clear that only a full meeting of Ecofin could take decisions.

The French Finance Minister, Mr Laurent Fabius, said it would not be polite to initiate such a move during Portugal's presidency but that he had been taking soundings among fellow ministers on the issue. The French see economic governance through the euro-11 as a necessary political counterweight to the European Central Bank.

Ministers agreed the broad economic guidelines for Feira approval, reiterating familiar warnings of dangers of overheating in the Irish economy. And they also adopted the convergence reports on Greece from the Commission and the ECB, clearing the way for formal approval by euro-11 members of Greek membership of the euro.