Germany, which takes over the presidency of the European Union on January the First, has suggested it may withhold payments to the EU budget unless agreement is reached on harmonising taxes within the EU.

The finance minister, Oskar Lafontaine, is quoted in a newspaper interview with Welt am Sonntag as saying Europe cannot expect Germany to pay the highest net contribution, but at the same time do nothing against what he called unfair tax competition.

German calls for tax harmonisation have met strong opposition from Britain.

But Mr Lafontaine said proposals put forward by the EU Commmission offered a chance of progress during the German presidency.