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Monti criticises City's plan for compromise

THE POLITICAL CRISIS over plans to impose a Europe-wide savings tax escalated yesterday after the EU's tax commissioner criticised a compromise plan as "not ideal".

Mario Monti threw down a gauntlet to the City, which is bitterly opposed to the tax, challenging it to come up with an acceptable solution.

He said the Commission had made "remarkable" efforts to persuade arch- supporters of the tax, such as Germany and France, to agree to the idea of a compromise.

The market is furious at plans to impose a withholding tax on savings held outside investors' home countries, saying it could drive the $3.25 trillion Eurobond business into tax havens. It has suggested exempting Eurobonds held in clearing systems and holdings above 40,000 euros (pounds 26,800), to target the private investor.

But Mr Monti said yesterday: "The threshold avenue may not be the best one but we await to see the UK ideas. This does not seem to be an ideal solution."

Mr Monti said all EU member states wanted a compromise. "The Commission has exerted a lot of persuasion towards the other member states with some success," he said.

The Commissioner appears to be running out of patience. Asked when he expected the breakthrough to be achieved, he said: "In the recent past, as a matter of fact."

The Government has said it will reject a withholding tax but is understood not want to veto the directive that contains it, as it includes plans to create a single financial savings market.

It wants the City to come up with detailed plans for the meeting of EU finance ministers on 25 May, although industry sources said they would need more time.

The International Primary Market Association said it still believed the directive was a "complete disaster" and called for an OECD-wide initiative.

Raising the row in the Commons, the shadow chancellor, Francis Maude, said Labour had supported the Tory government when it blocked the move in 1989. "Why can't you just say `no' to this wretched tax so that people today who fear for their jobs can have those fears put to rest?" he demanded.

The Chancellor, Gordon Brown said: "I've made it absolutely clear that the UK will not accept any directive which requires member states to introduce a withholding tax."