A hard-fought EU deal to tax the savings of non-resident foreigners has collapsed just six months after it was agreed.

The collapse means the issue will now have to be discussed at the Laeken summit on 13 December, just days before the launch of the euro as a cash currency.

At a meeting of European finance ministers on Tuesday, Austria, Belgium and Luxembourg objected to plans for an end to banking secrecy.

They are now insisting that they will only agree to the plan if the EU also forces other tax havens in Europe - like Monaco, Liechtenstein, and Switzerland - to also amend their bank secrecy laws.

"Luxembourg's position is not open to change and will not change," said Luxembourg's Prime Minister Jean-Claude Juncker.

But EU Commissioner Frits Bolkestein, who is in charge of the internal market reforms, said he was angered by the change of heart.

"It would be very disappointing if member states try to renegotiate a unanimous agreement. New proposals presented by the Commission in July were based on that unanimous agreement," he said.

The problem for the Commission is that Switzerland in particular is unlikely to amend its banking secrecy laws to allow access to the records of EU residents.

Vexed problem

The problem arises from a proposal to harmonize tax rates on savings throughout the EU, in order to prevent tax evasion.

Under a deal agreed in July, EU states would exchange information about cross-border savings accounts held by non-resident EU citizens.

The three countries which have strenuously objected to divulging banking information - Austria, Belgium and Luxembourg - would be granted a seven-year transition period under the proposal, during which they could impose a 15% withholding tax instead.

But now those countries also want agreement that non-EU members like Switzerland would also be subject to the same provisions, fearing that otherwise savings would flee across the border.

The problem is increased by the arrival of the euro, which is expected to force people holding large sums of money in cash to convert their money to euros.

UK brokered deal

The deal, which was originally agreed at the Feira summit in Portugal in 2000, was brokered by the UK Chancellor Gordon Brown.

The UK originally feared that the EU proposal would mean a withholding tax was applied to all savings accounts, including the vast institutional holdings of bonds in London, making it uncompetitive as a financial centre.

Mr Brown is separately negotiating with UK dependent territories like the Channel Islands to ensure they do not become tax havens for EU residents.