By Michael Shields and Georgina Prodhan
VIENNA (Reuters) - Austria dropped its blockade of European Union efforts to negotiate accords cracking down on cross-border tax cheats, unveiling on Friday proposals that would allow scrutiny of foreigners' accounts while keeping bank secrecy for Austrians.
After weeks of political wrangling, leaders of the two coalition parties laid out joint priorities for talks with EU partners starting next week that could pave the way for deals with countries like Switzerland and the United States.
Finance Minister Maria Fekter, who had taken the hardest line in defence of Austrian banking secrecy, said she supported the joint position and would fight for it in Brussels.
Austria is the only one of the EU's 27 states yet to agree to routinely share data on bank accounts held by foreigners after Luxembourg bowed to pressure this month to end decades of banking secrecy that helped make it a major financial centre.
Austrian Chancellor Werner Faymann's centre-left Social Democrats and their centre-right People's Party partners reiterated in a government statement that banking secrecy had to remain intact for people subject to taxation in Austria.
But eager to avoid any impression that foreign tax dodgers could abuse the country's bank secrecy, they said they were now ready to support EU negotiations with other countries as long as three main points got special attention.
Austria wants negotiations to require an exchange of bank account data at least in line with Organisation for Economic Cooperation and Development (OECD) standards, reveal owners of trusts and mailbox companies, and take into account bilateral tax deals Vienna has struck with Switzerland and Liechtenstein.
Those accords preserve bank secrecy but are set to bring in more than 1 billion euros from mid-2013 from accounts Austrians have quietly stashed across the border.
Domestic political friction had threatened to scupper a joint position leading up to next week's expert-level meetings.
Tensions burst into the open when a finance ministry draft proposal - crafted as a joint letter to Brussels from Faymann and Fekter, but which further detailed Fekter's hardline position - was leaked to the Austria Press Agency.
A furious Faymann immediately said he would not sign such a letter and accused Fekter of "bad style" for negotiating in public. He said the flap had made Austria a "laughing stock".
Friday's breakthrough does not mean a deal is in the bag.
Thomas Wieser, an Austrian bureaucrat who heads the staff group that coordinates meetings of euro zone finance ministers, told the Kurier paper that creating a public register of trusts was not part of the EU negotiating mandate.
Austria also cannot hope to have bilateral tax accords run alongside similar EU treaties, he added.
Still, Austria's new stance could help foster a more positive atmosphere for global talks by cash-strapped governments keen to track down and tax citizens' offshore funds.
OECD guidelines now call for sharing savings information with other countries only on demand, but this may change given growing political momentum for tougher action.
"The political support for automatic exchange of information on investment income has never been greater," OECD Secretary-General Angel Gurria said this month, citing Luxembourg's switch and a U.S. campaign to track down its citizens' wealth abroad.
Austria now has banks withhold tax on foreigners' interest income and returns the money anonymously to home EU countries.
(Additional reporting by Angelika Gruber in Vienna and Ilona Wissenbach in Brussels; Editing by Catherine Evans)