EU leaders salvage tax deal

EU leaders agreed the compromise at the eleventh hour

European leaders have agreed a compromise on a tax deal which had been blocked by Austria.

Austria had strongly objected to the plan, as it will mean the end of banking secrecy.

But after last-ditch talks at the summit in Portugal, the leaders found a compromise which will see the measures phased in over the next 10 years.

Wolfgang Schuessel: Last-minute change of mind

It will mean banks in different European countries exchange information about their customers, to end the current practice of EU citizens not paying tax on savings in other countries.

Earlier the EU leaders had ruled out an early lifting of the diplomatic sanctions imposed on Austria because of the participation of the far-right Freedom Party in its government.

They rejected the move despite a personal plea from the Austrian Chancellor Wolfgang Schuessel to the summit leaders in Santa Maria da Feira.

Questions

The EU leaders said sanctions would stay in place until at least next January.

No one had directly linked Austria's efforts to end the sanctions with its blocking of the tax deal.

The UK and Germany are expected to disagree over human rights charter

But correspondents say there will now be questions over whether Austria was been offered any movement on sanctions to persuade it to unblock the tax plan.

With the tax and sanctions issues proving controversial, EU leaders managed to get through several less contentious areas of policy.

They approved the next stage in creating a European defence force, agreeing how the new force will liaise with Nato, and how the two bodies will make use of the same assets in certain situations.

They also agreed to create a force of 5,000 specially trained policemen to go to hot spots like Kosovo at short notice.

Key issues

Austria sanctions

EU military force

Integration

Human rights charter

Savings tax

The EU leaders accepted the Greek drachma into the single currency, a move which was hailed as a victory for the reformist government.

The decision came only a year after Greece was rejected because its economy did not measure up to the strict agreed standards.

But since then the government has sharply reduced inflation, the public deficit and debt levels in order to quailfy.

Only three countries - Britain, Denmark and Sweden - will remain outside the currency once Greece has joined.