BERLIN (AFP) — German Chancellor Angela Merkel on Wednesday attacked Liechtenstein's traditional banking secrecy and demanded a US-style deal giving Berlin insight into German investments in the Alpine tax haven.
"What is possible with the United States should be possible with the European Union," Merkel told reporters after talks with Liechtenstein's Prime Minister Otmar Hasler.
She referred to an accord forcing banks in Liechtenstein to declare to the US Internal Revenue Service (IRS) investments by US citizens or residents in US securities such as stocks and bonds made from banks in the tiny principality.
It was one of a set of demands Merkel made amid high tension over a tax fraud scandal involving some four billion euros (5.8 billion dollars) members of Germany's elite have hidden in secret accounts in Liechtenstein, which lies between Switzerland and Austria.
Striking a conciliatory tone, Hasler said "an agreement on fighting fraud" that his country is negotiating with the European Union "goes in the direction" of German demands.
The chancellor also insisted Liechtenstein sign up to EU protocols on money-laundering and "waste no time" in heeding calls from the Organisation for Economic Cooperation and Development for greater banking transparency and a clear commitment on fighting fraud.
The Paris-based OECD this week slammed the "excessive" secrecy of banks in Liechtenstein, which features on its blacklist of uncooperative tax havens alongside Monaco and Andorra.
Merkel, who is fearing political fallout from the scandal, also reminded Liechtenstein that European nations will soon be asked to ratify its accession to the Schengen zone of passport-free travel.
"We want to avoid a situation where we have to set an ultimatum," she said.
Hours before her meeting with Hasler, Liechtenstein pledged to tighten tax laws but denied the step was linked to the unfolding scandal in which investigators are targeting some 1,000 Germans suspected of hiding assets in its banks.
Berlin believes some 45,000 minimally-taxed trusts based in the principality encourage tax evasion among Europe's wealthy set.
Liechtenstein has fought fire with fire as it faces German outrage over the affair and vowed not to abandon the confidentiality that is an intrinsic part its banking system.
Crown Prince Alois has condemned the investigation methods used by Germany, accusing it of breaking the law by buying secret data and seeking to undermine his country's sovereignty.
"Does a state have the right to obtain information by breaking the law in a friendly state and probably also contravening its own laws?
"Spying on our clients is unthinkable," he said.
"We are going to see what we can do to protect our citizens and also our investors, who trust us, against such methods of investigation. The principle of confidentiality also applies to our foreign clients."
The German finance ministry has admitted paying more than four million euros to buy information about illicit German accounts in the principality and using the foreign intelligence service to help it uncover the scandal.
Liechtenstein's LGT bank group, which is partly owned by the royal family, has said German finance authorities are working from a list of its clients stolen by an employee in 2002.
The Sueddeutsche Zeitung reported that investigators know not only the names of Germans with secret funds in foundations in Lichtenstein but also have extensive details of conversations about their arrangements.
Investors are following a paper trial that goes back to the 1970s and includes notes on conversations between suspects and LGT, the daily said.
"Our tax investigators have never been so well served. We simply have everything," it cited a source close to the probe as saying.
Tax inspectors on Monday clamped down across Germany, searching homes and offices from Hamburg in the north to Munich in the south.
The raids are expected to continue for weeks and to focus not only on the country's business elite but on wealthy sport and entertainment stars.
The investigation claimed its first prominent victim in Klaus Zumwinkel, who stepped down as chief of Deutche Post last week after he was named as a suspect.
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