Widmer-Schlumpf also said France and Italy were likely to be watching developments between Berne and Berlin before themselves seeking agreements to claw back taxes.

"With Germany we're at a point at which we say, if the partner doesn't want this agreement then the status quo is the better alternative for us than to negotiate still further," she told the Neue Zuercher Zeitung.

"Also in the talks with the USA there's a threshold beyond which we cannot go as a sovereign state."

Switzerland has been locked in a dispute with Germany and the United States about citizens of those countries who parked their funds in secret Alpine accounts to avoid taxes.

The Swiss tradition of banking secrecy underpins the country's powerful financial sector.

The Swiss and German governments inked a revised agreement earlier this month with stiffer tax rates after Germany's opposition Social Democrats (SPD) criticized an initial deal as too soft. [ID:nL6E8F58UC]. Germans hold an estimated 200 billion Swiss francs in untaxed funds in Switzerland.

Widmer-Schlumpf said other countries were also weighing bilateral deals.

"I think Italy will look at how things go with Germany," she said. "France probably too."

Swiss officials have held technical talks with their Italian counterparts and Switzerland is trying to launch discussions with Prime Minister Mario Monti.

Meanwhile, French Finance Minister Francois Baroin indicated last winter that talks might continue after the presidential election, she said.

Switzerland has insisted on a withholding tax for offshore accounts and rejects the automatic exchange of information, the European Union standard.

Switzerland's withholding tax deal with Britain is expected to come into force in 2013, and Austria has "in principle" agreed to a deal, which may be signed on Friday.

Vienna estimates there are some 12 billion to 20 billion euros in undeclared Austrian funds in neighboring Switzerland.

INVESTIGATION

The United States is investigating eleven Swiss banks including Credit Suisse (CSGN.VX) and Julius Baer (BAER.VX) for aiding U.S. citizens who are suspected of dodging taxes.

Switzerland is trying to get the investigations dropped in return for the payment of fines and the transfer of U.S. client names. It is also seeking a deal to shield the remainder of its 300 or so banks from U.S. prosecution.

"We still assume that we will get the planned solution this year," said Widmer-Schlumpf.

In 2009, flagship bank UBS (UBSN.VX) was forced to pay a fine and release the names of 4,500 clients to U.S. officials, with the government bending bank secrecy statutes in a parliamentary vote to prevent international legal action against a systemically important bank.

UBS's arch rival Credit Suisse has also come into the crosshairs of U.S. investigators, as have Baer and Zuercher Kantonalbank.

Asked by the NZZ what the Swiss government would do in the case of an indictment of those banks, Widmer-Schlumpf said: "We cannot just throw all our constitutional principles over board just to save a bank."

Yet when queried further specifically on Credit Suisse, she also said: "The question how much a state can and should invest depends greatly on the consequences of a bank going under."

Earlier this year, Wegelin, Switzerland's oldest bank, was indicted by U.S. authorities.

(Reporting by Catherine Bosley; Editing by Rosalind Russell)

• A Permanent Economic Emergency