European Union finance ministers have failed to agree on a proposal to punish Switzerland for its refusal to co-operate against tax evasion. The EU has asked Switzerland and five other financial centres to co-operate in its fight against tax evasion by sharing information on the savings held by EU residents abroad.

At a meeting of EU finance ministers in Luxembourg yesterday, Britain and Sweden pressed for sanctions against Berne if the Swiss refused to co-operate. But the Swiss finance minister Mr Kaspar, who was at the meeting, said his government had offered no compromise over lifting its banking secrecy.

A number of EU member-states back sanctions, but Austria and Luxembourg, where banking secrecy is also prized, warned against tough action. Luxembourg's prime minister, Mr Jean-Claude Juncker, said it was outrageous to propose a trade war against a friendly state such as Switzerland.

"The way in which some of my colleagues are trying to negotiate with the Swiss is not acceptable. They are treating Switzerland like an Alpine Iraq. I won't stand for it," he said.

Last week, EU foreign ministers threatened to exclude Switzerland from a number of joint projects, such as entry to the EU's open-border Schengen agreement, if it refuses to divulge EU citizens' savings income. But some diplomats believe stronger action is needed to solve the deadlock before the end of the year.

This is the deadline by which the EU is due to approve a bill that which would require its members to automatically share data on savings held abroad by their residents by the end of the decade to clamp down on tax evasion.

The Internal Market Commissioner, Mr Frits Bolkestein, suggested yesterday that, even if the EU takes action against Berne, it could be delayed until 2010.