Feb. 20 (Bloomberg) -- Liechtenstein Prime Minister Otmar Hasler promised to work more closely with Germany as Chancellor Angela Merkel said the ``clock is ticking'' amid a growing tax- evasion probe linked to the principality.

Merkel pressed Liechtenstein at a Berlin news conference with Hasler today to help end ``damaging'' tax competition in Europe and to participate in agreements requiring countries to provide judicial assistance for tax-evasion inquiries.

``We have to solve these open problems,'' Merkel said as the two leaders attempted to play down differences after two days of mudslinging between politicians from both countries. ``I want to have a good relationship with Liechtenstein.''

Liechtenstein's Crown Prince Alois yesterday called the methods used in the probe an ``attack'' on the principality as German authorities investigate hundreds of people suspected of failing to declare money they have in Liechtenstein foundations. The probe has already brought down Deutsche Post AG Chief Executive Officer Klaus Zumwinkel, 64, who quit Feb. 15 after a raid on his home.

``I don't think this is the right way to proceed and frankly it's not helpful for our relationship,'' Merkel said of Alois's comments. ``I haven't made any ultimatum.''

Liechtenstein today introduced a new draft law to establish a clear legal difference between foundations with a charitable purpose and those for private use. Under the proposal, people who set up a foundation won't be identified in the register, though there are other circumstances in which their identities may be made known, Justice Minister Klaus Tschuetscher said.

`Prepared to Cooperate'

``We are prepared to cooperate,'' Hasler said. ``We need to continue to have a good relationship'' with Germany.

The top data-protection watchdog in Bavaria, Karl-Michael Betzl, today took a leave of absence from his duties after his office and home were searched yesterday as part of the probe, Alois Glueck, president of the Bavarian state assembly, said in a statement today.

Prosecutors are also investigating bank employees as part of the nationwide probe, Bernd Bieniossek, spokesman for the Bochum prosecutor's office that's leading the investigation, said in a telephone interview today. He declined to identify the banks involved.

Tschuetscher today criticized German Social Democratic Party leader Kurt Beck, who in an interview with the magazine Stern compared the principality to ``robber barons in modern form'' and said the financial instruments Liechtenstein uses to allow Germans to evade taxes border on ``criminal groupings.''

Mattress Maker

``Tax evasion has nothing to do with foundation law, nothing at all,'' Tschuetscher said at a press conference in the capital of Vaduz. ``If someone stuffs his untaxed money into a mattress, you wouldn't go and tell the mattress maker he can no longer make mattresses.''

The German government paid as much as 5 million euros ($7.4 million) for information on German account-holders in Liechtenstein. The disk was provided by an ``unsolicited'' informant to the Federal Intelligence Service, or BND.

Liechtenstein, a country of 35,000 people, wedged in the Alps between Switzerland and Austria, will take legal measures to guarantee the secrecy of its bank clients, Alois said yesterday.

Criminal defense lawyer Ferdinand von Schirach has asked Berlin and Munich prosecutors to investigate the German government as well as the BND over how they acquired the Liechtenstein data, he said in a Bloomberg Television interview.

Paying the Informant

``The German government may have participated in a crime by paying the informant money,'' von Schirach said. ``I don't think the responsible people in the German government looked into these issues thoroughly enough before they acted.''

The Berlin prosecutor's office will review several requests to investigate the German government as well as the BND over how they acquired the Liechtenstein data, a spokeswoman said.

Tschuetscher said yesterday that prosecutors are investigating whether an individual from outside Liechtenstein prompted someone inside the country to reveal company secrets for the benefit of a foreign state.

``Liechtenstein is saying we plucked the fruit from the forbidden tree and that's illegal,'' Dieter Wiefelspuetz, the Social Democrats' parliamentary spokesman for legal and interior affairs, said in a Bloomberg Television interview today. ``Yet that charge is irrelevant. What Germany will do is confront every tax suspect with the option of whether they want to drop their trousers and cooperate or possibly go to jail.''

To contact the reporters on this story: Chad Thomas in Berlin at cthomas16@bloomberg.net; Patrick Donahue in Berlin at pdonahue1@bloomberg.net.

Last Updated: February 20, 2008 11:44 EST