Merkel challenger blasts German-Swiss tax deal

BERLIN -- Switzerland's efforts to safeguard what remains of its banking secrecy came under fire Monday from the man who hopes to unseat Chancellor Angela Merkel in next year's German elections.

Peer Steinbrueck has long been critical of a proposed treaty that would see Germany receive billions of euros from Switzerland in return for dropping a demand to get the names of suspected tax cheats.

The views of Germany's former finance minister received new weight coming hours after he received the nomination to lead the opposition Social Democrats into the next elections.

"This German-Swiss tax agreement contains so many fundamental flaws that I can't recommend to my party (...) to vote in favor of it," said Steinbrueck.

The agreement was meant to be approved this year, so it could come into force in 2013. But Steinbrueck's center-left party can block it in Germany's upper house, where Merkel's coalition lacks a majority.

By making the tax deal a campaign issue, Steinbrueck also puts pressure on Merkel to show she won't go soft on tax cheats _ at least until the election, which is expected to take place in September.

The deal with Germany is part of a series of agreements Switzerland has negotiated with dozens of countries in an attempt to shed its image as an uncooperative tax haven. But only the treaty with the United States _ which also has yet to be confirmed by Washington_ requires Switzerland to hand the names of suspected tax cheats to foreign authorities.

"The majority of honest taxpayers...shouldn't get the impression that they are the dumb ones," Steinbrueck told reporters in Berlin.

His comments echoed those of Thomas Eigenthaler, head of the German tax inspectors' union, who told Parliament last week that the Swiss deal amounted to "a red carpet for hardcore tax evaders" because it allows them to avoid possible prison sentences.

The sums involved are sizeable. Under the deal, Switzerland would levy a onetime punitive tax of 21 to 41 percent on undeclared German assets in Switzerland, leading Germany's Finance Ministry to predict a payout of at least (EURO)10 billion. On top of that would come millions from an anonymous capital gains tax.

But campaign groups say this would only be a fraction of the German money hidden in Switzerland.

Markus Meinzer, a researcher at the nonprofit Tax Justice Network, said between (EURO)250 billion and (EURO)400 billion untaxed German assets in Switzerland were a reasonable estimate.