By Patrick Bartlett Europe Business correspondent

The European Union is considering economic and political reprisals against its neighbour Switzerland if it doesn't help in the battle against tax evasion.

Switzerland, facing unprecedented pressure to lift its cherished banking secrecy, stands accused by the European Union of profiting from tax evasion.

Some of my colleagues are treating Switzerland like an Alpine Iraq. I won't stand for it

Jean-Claude Juncker Prime Minister of Luxembourg

EU finance ministers, who are meeting on Tuesday, are demanding that Switzerland amend its banking secrecy laws to provide information about savings held there by EU citizens.

But not everyone agrees that a tough line should be taken.

Split

UK Chancellor Gordon Brown is one of the main proponents of pushign Switzerland hard, equating tax evasion with money laundering and terrorist financing.

But other members of the EU including Austria and Luxembourg, both themselves with strong private banking industries, are much less strident.

"The way some of my colleagues are trying to negotiate with the Swiss is not acceptable," Luxembourg Prime Minister Jean-Claude Juncker told a conference.

"They are treating Switzerland like an Alpine Iraq. I won't stand for it."

The Swiss, meanwhile, are not mincing their words.

"Friends do not threaten each other with sanctions," said Swiss Finance Minister Kaspar Villiger.

Possible sanctions

Amid growing frustration at perceived Swiss intransigence, EU ministers are considering a list of possible sanctions, including restriction on investments in Switzerland.

Several EU states, including Luxembourg and Austria have said they will only lift their banking privacy laws if Switzerland does so too

The EU has set a deadline of the end of the year to agree with several other countries ways of exchanging information about their citizens' savings.

Of these, Switzerland, lying at the heart of Europe, is seen as by far the most important.

Moreover, several EU states, including Luxembourg and Austria, have said they will lift their banking privacy laws only if Switzerland does so too.

But the Swiss authorities vigorously deny they are soft on tax cheats.

Instead of lifting banking secrecy, they have offered to impose a 15% withholding tax on all savings held by EU citizens.

Proceeds would be shared between the relevant European states. But that has been rejected by Brussels as woefully inadequate.