The directive was made conditional on the agreement of the US, Switzerland and a number of offshore banking centres to apply 'equivalent measures', and it is obvious by now that no such agreement is forthcoming. The US is of course the biggest stand-out: officials in the Treasury Department have encouraged Brussels to believe that they would be able to muscle through information exchange measures, but the political reality is otherwise, and even more so since the Republicans gained a firm hold on Congress in the recent elections.

The UK has strong-armed some of its 'dependent territories' into conditional agreement with the Directive, including Jersey, Guernsey and the Isle of Man; but other jurisdictions including the mighty Cayman Islands have said they will fight rather than give in. And Switzerland, whose tradition of banking secrecy constitutes the biggest threat to the EU's own banking sector if information exchange goes ahead, has resolutely refused to do more than strengthen its withholding tax system and agree a beefed-up Mutual Assistance Treaty with the Union.

It's this last proposal that the EU Single Market Commissioner Frits Bolkestein is planning to put to an ECOFIN Council meeting on Tuesday (the last before the deadline), and which Luxembourg has said it will veto. Last week, Luxembourg Prime Minister and Finance Minister Jean-Claude Juncker said: 'In the forthcoming ECOFIN meeting December 3, in Brussels, Luxembourg will make use of its veto to block the current proposal of the EU Commission . . . to impose an EU-wide withholding tax on investments and to abolish banking secrecy as it still exists in Luxembourg and Austria. Luxembourg is of the opinion that the agreement reached between the EU Commission and Switzerland in matters of EU tax harmonization is not enough for Luxembourg to abandon its banking secrecy. Mr. Juncker also informed the press that he refused to attend a scheduled meeting in Copenhagen last Friday November 29, of the German, French and UK Ministers of Finance which would have attempted to put Luxembourg under pressure to accept Brussels' proposal."

Mr Juncker made it clear that for Luxembourg, 'equivalent measures' meant 'identical measures', and that this had been its position ever since the Directive was first proposed at the Feira summit in Portugal in 2000. He said that Luxembourg remained in favour of a 'co-existence' model for taxation of savings, as had been proposed prior to the Feira agreement, and that the Commission's compromise proposal would result in a massive flight of capital from the EU to surrounding countries. He suggested that the French and German finance ministers might then like to explain to their citizens why they are throwing away much-needed tax revenue just at the moment when they need it most.

Mr Juncker also recalled that agreement on the Savings Tax directive was linked to the 'Code of Conduct' under which the Commission was supposed to be attacking more than sixty 'harmful' tax measures in place in member states, and said that the recent decision of the Isle of Man to reduce corporate taxation to zero flew in the face of attempts to regularise the taxation of individuals and enterprises in the Union.