Budget warnings for Germany and France and a new attempt to end years of wrangling over how to clamp down on cross-border tax dodgers will dominate the agenda for EU finance ministers at their meeting this week.
The EU's head office, under rules adopted to protect the euro single currency, warned Germany early this month that it had to bring its spiraling deficit under control or face the prospect of hefty fines.
For that to take effect, finance ministers meeting today have to sign off on the so-called "excessive deficit procedure." Berlin would have four months to curb its deficit.
Finance ministers also were considering an early warning for France, which risks breaching the deficit cap this year as well.
Euro rules oblige governments to keep deficits under 3 percent of gross domestic product while aiming for balanced budgets. But the economic slowdown has made sticking to the targets difficult for many EU countries, especially Germany, which is beset by feeble growth and high unemployment.
Ironically, it was Germany that insisted on the strict budget discipline when the euro rules were being drafted to prevent countries with a history of red ink from undermining the shared currency.
Finance ministers will also take up a Greek proposal to end more than a decade of disagreement over plans to thwart tax dodgers who hide money in foreign bank accounts.
The compromise reportedly would allow Luxembourg, Belgium and Austria to put off loosening their bank secrecy laws until Switzerland and other non-EU tax havens agree to follow suit. In the meantime, they would impose a withholding tax on interest income themselves and distribute the proceeds to the savers' home country without divulging identities.
But an EU official said that compromise was threatened by a new disagreement over the level of the tax.
Fearing a loss of the lucrative private wealth management business, Switzerland is balking at taxing interest income at 35 percent when some EU countries are setting lower rates, the official said. German Chancellor Gerhard Schroeder, for example, last month proposed a flat rate of 25 percent for German savers.
Germany and Britain are arguing that the higher tax rate is Switzerland's price to pay for retaining bank secrecy.
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