EU finance ministers are today trying to agree plans to tax cross-border income from savings. But officials say they cannot predict whether they will be able to manoeuvre around the issue of Italian milk quotas.
The main difficulty for the EU is deciding whether to allow Italian farmers to delay the payment of around €650 million of EU fines for breaching EU milk production limits. While some countries favour this approach, many member states are vociferously against this move.
If an agreement over payment delays is reached, Rome would withdraw objections to the new tax rules, which have implications for billions of euros of savings held in Switzerland. The tax rules require EU unanimity to be passed.
A senior EU presidency diplomat told a Reuters reporter: "If there is some solution on the milk quotas, Italy is most likely going to see its objections to the tax package in a different light."
The diplomat added that he hoped the whole debate would be completed by June 2003.
The European Commission, which polices illegal state aid, said it would examine any potential compromise on the fines.
The issue of milk quotas comes at a delicate time for Italy, with local elections coming up. EU diplomats have hinted that large member states such as Germany might be willing to find a compromise in order to break the long-standing tax deadlock.
If a deal is finally struck, the EU will have to overcome strong resistance from large milk-producing countries such as Denmark and the Netherlands. These nations have consistently refused to back Italy's requests for a repayment of the fine over 30 years at a zero interest rate.