The proposed European Union savings tax is set to be one of the main issues of contention at the EU summit in Helsinki. BBC economics correspondent Ed Crooks explains what the dispute is all about.

What is the new savings tax being proposed by the EU?

It is known as a withholding tax, because it is meant to withhold some of the income earned by savers on investments outside their home country.

Germany and other countries have proposed a tax rate of 20%.

So if a German, for example, had a bank account or shares in Britain, the interest and dividends on those savings would be charged tax at 20% on their earnings.

Why are the Germans and other Europeans so keen to introduce this tax?

Germany is particularly keen to get EU-wide agreement on this tax, because Germany has a particularly big problem with people dodging tax by taking their money out of the country.

A classic scam is for people to actually load their cash into a suitcase, drive it over the border into Luxembourg or Switzerland, and put it into a bank there.

By law, they would still have to pay German tax on the interest they earn; but they don't declare it to the taxman.

And the banking secrecy laws in Switzerland and Luxembourg mean the German tax man can never know how much they are getting.

Why is the UK so opposed to it?

Because the government thinks it will damage the City of London, without really addressing the German problem.

The City has thrived partly because it is a bit of a tax haven for foreign investors.

Slapping an automatic 20% tax on whatever they make here might well persuade some of them to take their money elsewhere - to Switzerland or New York.

And the German tax evaders could presumably still go to Switzerland just as much as before - it won't be affected by the withholding tax because it is, of course, outside the EU.

The compromise position being offered by the UK is to agree to the tax, but to specifically exclude the most important financial markets in the City - essentially the ones used by large investors.

But so far the Germans and the rest aren't biting.

What might happen if the proposals went through?

There is a lot of argument about just how big the effects on the City of London would be.

The most alarmist projections suggest that tens of thousands of jobs could be lost, which seems way out of line.

London is still very attractive as a financial centre, partly just because of the English language, partly because an enormous concentration of investment and staff has already accumulated there.

That said, international finance is a footloose and fancy-free business. One of the key reasons why the City became so strong is that the US Government imposed a withholding tax on investments during the 1960s.

Banks and brokers quickly spotted the opportunity to save money by moving themselves offshore from the United States - to London.

An EU withholding tax might create a pressure driving the markets towards Switzerland the same way.

What will be the broader consequences if there is no agreement on any measures of financial reform at the Helsinki summit?

It is very hard to tell. The Germans have been hinting at dire consequences.

And the row threatens to dominate the Helsinki summit at which Europe's leaders hope to make progress on enlarging the EU, the European defence force, and improving EU decision-making.

Obviously the UK would like to see progress in some of those areas, and as always in Europe there will be opportunities for horse-trading between different interests.

But if Gordon Brown just digs in his heels and says "no, no, no!" then he can block any EU plans.

Do the Germans have a point that the lack of coordination is undermining the single currency, the euro?

Perhaps a little. The currency markets are wild and mysterious places, and all sorts of factors can cause short-terms shifts in exchange rates.

Certainly the perception that Europe's finance ministers are at loggerheads and can't get their acts together to agree on tax policy will not help investors' confidence.

But ultimately other factors will be much more important: particularly flows of trade and investment, and investors' views about how the economies of Europe, the US and Japan are going to develop.

At the moment the euro is unpopular mainly because the prospects for the US and Japan look stronger than those of the euro-zone.

How much does a weak euro matter anyway?

Not at all, really. It is, of course, politically and symbolically damaging for supporters of the euro and greater European integration generally.

But in economic terms it will probably help Europe, not harm it. An economy with unemployment of around 10% and inflation of not much more than 1% can certainly well take the extra boost to exporting and manufacturing industries that the weak euro will deliver, without giving any cause for concern.