A long-standing dispute between the neighbours flared last week when Germany announced that a double-taxation deal could not pass its parliament in its current form.

Then at the weekend it emerged that Switzerland, whose secretive banking policies have long been a thorn in the side of German tax authorities, had issued arrest warrants for three German tax inspectors.

They are under investigation over the purchase of a stolen CD naming German customers of Credit Suisse bank who had allegedly dodged taxes.

The move sparked outrage in Germany but also drew support from some quarters. Schäuble on Tuesday attempted to calm the waters.

“It makes no sense for us in politics to start attacking each other over Switzerland as if it weren’t a state based on the rule of law or as if it were some banana republic,” he told SWR2 public radio.

“Rather, the problem is that we need to reconcile the conflict between the legal systems of the two countries.”

Chancellor Angela Merkel’s spokesman on Monday denied a serious rift between the countries and said the arrest warrants were evidence of fundamental differences between how the countries look at tax law.

He added that it underlined the need to pass as soon as possible the new tax legislation that recently floundered due to opposition from German regional states led by the centre-left opposition.

The accord, due to have taken effect in January 2013, needs to be ratified by both countries’ parliaments, including the German upper house, the Bundesrat, which represents the 16 states.

Schäuble criticised the opposition-led government of Germany’s most populous state, North Rhine-Westphalia, which is facing pivotal elections in May, of exploiting the issue “for political motives”.

The state employs the three tax investigators who have been charged.