German chancellor Angela Merkel has threatened Liechtenstein with isolation in Europe unless the tax haven changes its rules allowing for bank secrecy, in a move that ratchets up the international wranglings over the tax evasion scandal gripping Germany.

Merkel suggested the German parliament could block Liechtenstein's bid to join the border-free 'Shengen' zone of the European Union.

The move came after Crown Prince Alois of Liechtenstein launched an attack on Germany's behaviour and tax system.

The German government illegally obtained a disc with details of as many as 1,000 individuals, but the sum paid, around EUR5m, is thought likely to be dramatically outweighed by the sums the Germans expect to recoup.

Further reading:
Read the FT's story on Merkel's move