Germany will introduce a new tax on savings income at national level unless the European Union agrees to an EU-wide withholding tax at next week's Helsinki summit, Chancellor Gerhard Schroder warned yesterday.
And, ignoring charges that his recent drift to the left is to blame for the euro's fall in value, Mr Schroder announced a raft of tax changes aimed at encouraging more social justice.
The President of the European Central Bank, Mr Wim Duisenberg, criticised Mr Schroder's policies on Thursday, declaring that Germany's decision to save 70,000 jobs by bailing out an ailing construction firm gave the wrong impression to investors.
Most market analysts yesterday agreed with Mr Duisenberg that the euro's fall below parity with the dollar owed more to Mr Schroder's change of course than to the performance of the ECB.
"Now that Wim Duisenberg has confirmed this publicly, we must take the argument seriously," said Mr Hans Jaeckel, chief economist at DG Bank.
In an address on Europe to the Bundestag in Berlin, Mr Schroder sharply criticised Britain for blocking plans to levy a Europewide tax on interest payments. Contrasting Britain's "intransigent behaviour" with the spirit of co-operation prevailing between Berlin and Paris, the Chancellor said he still hoped to persuade Mr Tony Blair to change his mind.
Germany wants to prevent EU member-states - particularly Luxembourg - from becoming tax havens and to create a level playing field consistent with the principle of the single market. But Britain fears that a withholding tax would drive investment out of the City of London and insists on special protection for its international bond market.
Among the measures proposed by Mr Schroder is a change in the way inherited property is assessed, although he was at pains to stress that small houses inherited by close relatives would not be affected.
Mr Schroder resisted calls from left-wingers in his Social Democratic Party to introduce a wealth tax but he promised to increase staff at tax offices to improve the investigation of tax fraud. And in a further measure designed to appeal to the party faithful, he proposed that tax breaks should benefit investment that creates jobs rather than asset management.
None of these proposals will endear Mr Schroder to the austere Mr Duisenberg, but they are likely to prove popular within the Chancellor's party and among the German public - which has shown little appetite for market-orientated economic reforms.
