The Luxembourg government resigned yesterday, brought down by a spying and corruption scandal that shook the tiny country better known for wealthy bankers than political intrigue.

Jean-Claude Juncker, Prime Minister since 1995 and the European Union’s longest serving government chief, tendered his resignation to Grand Duke Henri, the royal head of state who himself has been implicated in media reports of espionage.

The government was forced to resign after junior coalition partners withdraw their support in protest at Juncker’s apparent failure to rein in a secret service spiralling out of control. Juncker has proposed holding a general election in October, seven months ahead of schedule.

The catalyst for the resignation was a parliamentary inquiry published last week that said Luxembourg’s security agency illegally bugged politicians and members of the public, purchased cars for private use and took payments and favours in exchange for access to influential officials.

In a scene reminiscent of a spy novel, former security chief Marco Mille recorded a conversation with Juncker in 2008 using a microphone in his watch.

Mille told Juncker he had reliable reports that Grand Duke Henri was in constant contact with Britain’s secret services, according to one newspaper. The Grand Duke’s office has denied the allegation.

The government was already under pressure due to renewed interest in a mysterious series of sabotage bomb attacks in the 1980s, known as the Bommeleeer affair, whose targets included electricity pylons and an airport radar system as well as a news-paper office.

Two former members of a special police force went on trial for the attacks at the start of this year.

Last month, the government and Finance Minister Luc Frieden survived twin votes of no-confidence in parliament over accusations that the minister had put pressure on investigators to close their inquiry into the bombings.

Juncker, for almost two decades the personification of Luxembourg on the international stage, may well return to lead the Grand Duchy after the snap election.