Speaking to the AFX News agency on Wednesday, an unnamed UK diplomat suggested that although the Commission is nowhere near to securing the solution to the dispute demanded by EU members such as the United Kingdom, namely automatic information exchange, there have been indications that the European body is ready to compromise, settling for voluntary information exchange, coupled with a 35% withholding tax to be imposed on non-resident savings accounts.

An European Commission paper seen by the FT supported this conclusion. According to the document, which was discussed by the Commission yesterday and will go before EU Finance Ministers on Tuesday:

'At this stage, the Commission considers that there is a basis for agreement on three of the four elements. The sticking point remains the appreciation of the Swiss offer on information exchange.'

The tacit approval of the European Commission for the Swiss government's voluntary information exchange and withholding tax proposals are likely to put the United Kingdom in an awkward position, as Chancellor Gordon Brown has been adamant throughout the negotiations that only full and automatic information exchange is acceptable. The reason for this is that the UK government fears that a withholding tax solution to the dispute would harm the country's eurobond market.

Since the deal must be approved unanimously by all 15 EU member states, it is possible that UK opposition to the compromise could scupper the entire process ahead of the December 31 deadline.