European Union officials yesterday immediately welcomed the call by President Bush to cut off funds for terrorist organisations, even if that meant targeting tax havens.

Following an executive order detailing 27 organisations and individuals believed to be linked to terrorism and whose assets in the US are to be frozen, Mr Bush said: "In Europe, for example, there are probably going to need to be some laws changed in order for those governments to react the way we expect them to."

Although Mr Bush did not specifically refer to tax havens, an EU official said "the heat was now on them. This has been long overdue".

For some time, he added, most European finance ministers had wanted to end the privileges of tax havens but such measures would not have been effective if the US did not back them.

The September 11th attacks on New York and Washington "has changed all that", said another EU official.

"Politically it is now going to be very difficult to defend the continuation of tax havens, no matter where they are in Europe," he said.

It could mean that Lichtenstein's banking system might be targeted along with the status of tax havens such as the Channel Islands and the Isle of Man.

The EU is already taking measures to reinforce legal instruments against money-laundering.

A new directive expands the list of crimes from which the proceeds will be regarded as laundered funds.

Furthermore, the directive intrudes on other professions beyond the banking system, such as casinos, tax consultants and real estate dealers.

The directive, which is expected to be adopted later this year, will oblige them to report suspicious dealings.

Now that Mr Bush has homed in on tax havens, EU and US officials said they expected much more co-operation in terms of sharing information and identifying lists of charities that funded terrorist organisations although both sides would have to agree on those lists.