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EU to keep fuel taxes despite price protests

EU

Euro zone finance ministers will not back tax changes to cushion the blow of soaring oil prices despite French calls for such action and a wave of fuel price protests in France and Britain, a top EU official said.

Euro zone finance ministers and European Central Bank President Jean-Claude Trichet, or the Eurogroup, meet on Monday morning in Frankfurt for a monthly discussion of the economy of the 15 countries sharing the single currency. Euro zone inflation, fuelled by surging oil and food prices, will be the key concern during the talks, at which the ministers are to reiterate their commitment to a deal made in 2005 in Manchester not to cut fuel taxes when oil prices rise. “Ministers at the Ecofin and the Eurogroup level agreed in Manchester a clear position and they will stick to it,” Economic and Monetary Affairs Commissioner Joaquin Almunia told reporters on Wednesday.

In 2005, oil prices jumped to around $71 per barrel in early September when the Manchester meeting took place from around $44 at the start of that year, but the ministers then agreed that cuts in sales or excise tax would only artificially support demand for fuel and send the wrong signal to oil producers. But since then, oil prices have almost doubled and French President Nicolas Sarkozy said on Tuesday the EU should consider freezing sales tax on fuel if the oil price continued to rise. Sarkozy faces record low popularity ratings after a year in office due to rising costs of living as well as a fishermen’s’ blockage of ports in protest over the rising cost of diesel. He therefore proposed using extra revenues from sales taxes on petrol to create a fund for professionals like the protesting fishermen to help offset the jump in prices.

British Prime Minister Gordon Brown warned that the world was facing an oil shock and called for coordinated global action to tackle the price rises as hundreds of protesting British truck drivers caused road chaos in London on Tuesday. Brown pledged to put such global action on oil at the top of the agenda of the next Group of Eight (G8) summit in Japan in July. The G8 comprises the United States, Canada, Japan, Britain, France, Germany, Italy and Russia. France’s Sarkozy said the European Commission was too quick to reject his ideas on creating a fund, financed from the value added tax, for sectors of the economy worst hit by the expensive oil. “It is a proposition and I expect that it would be studied before being rejected,” Sarkozy told a news conference in Warsaw.

Surging oil and food prices boosted consumer inflation in the euro zone to an all-time high of 3.6% in March, and economists expect price growth could be at such levels again in May after oil prices hit record peaks close to $135 a barrel. “Increases in oil prices are a matter of concern,” Almunia said. “In the short term, inflationary consequences are serious.” (Reuters)

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