The German chancellor, Angela Merkel, put pressure on the Liechtenstein government yesterday to increase the transparency of its banks and other financial institutions amid a nationwide inquiry into Germany's biggest tax evasion scandal.
Speaking after a meeting in Berlin with Otmar Hasler, the prime minister of the tiny alpine tax haven, Merkel said Liechtenstein had to "quickly clear up" a variety of problems, not least the ease and attractiveness its secret bank accounts offered to rich Germans looking for a tax oasis.
"It would not be good if Liechtenstein was found to be encouraging illegal activities," Merkel said, calling for Liechtenstein to cooperate with tax authorities in other countries.
Hasler responded by saying that Liechtenstein had done much to reorganise its banking system. "We are on the road to reform," he said, adding that his
government was ready to sign an anti-fraud policy with Germany.
Prosecutors are examining up to 1,000 Germans believed to have evaded taxes by transferring up to €4bn to secret accounts in Liechtenstein. The investigation has already led to the resignation of the chief of the German postal service, Klaus Zumwinkel.
The latest head to roll yesterday was that of Michael Betzl, the chief data protection officer of the southern state of Bavaria, who resigned from his post after tax inspectors raided his home and office. Much was made of the fact that his wife works for the BND, the foreign secret service, which unearthed the scandal after paying €4m to an alleged former employee of Liechtenstein's LGT bank for a CD-rom of client's data going back to the 1970s. The informer is believed to be living in Australia, possibly under BND protection.
The scandal sent shockwaves through the German business community and has now escalated into a heated political row between the two countries. Liechtenstein, a small principality of just 35,000 inhabitants has accused its 80-million strong neighbour of adopting bullying tactics.
Speaking in the capital, Vaduz, on Tuesday, Crown Prince Alois adopted strong, military-style language to express his frustration towards Germany, talking of an "unprovoked German attack" on a "miniature state". He added that rather than using taxpayers' money to pay for stolen data, "Germany would do better to use it to sort out its tax system" which he said was "even worse than Haiti's".
German politicians reacted angrily. The head of the SPD, Kurt Beck, accused Liechtenstein of using "robber baron" policies and suggested sanctions as a way to force it to clamp down on tax evaders. Those who want German tax law to be simplified - they are among the most complicated in the world and full of loopholes which have made tricking the taxman a national pastime - have expressed hope that the scandal might lead to reform.
"Money is not flowing into tax oases because they are so attractive, rather because the fiscal-political landscape in Germany is so utterly horrible," said Peter Ramsauer of the conservative Christian Social Union, who called for a simplified system with lower rates.
