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Euro ministers disagree with French oil tax proposal

Latest update : 2008-06-02

France's proposal to cap oil taxes in response to the rise in oil prices goes against the general spirit of the European Union, Jean-Claude Juncker, chairman of the euro zone finance ministers, said on Sunday.

FRANKFURT, June 2 (Reuters) - Sky-high fuel and food prices
crashed the party when finance ministers flocked to Frankfurt to
celebrate the European Central Bank's 10th birthday on Monday, a
milestone in Europe's monetary union.

ECB chief Jean-Claude Trichet set the tone, warning that bad
management of the oil crisis in the 1970s -- meaning large wage
rises and low interest rates -- seriously hurt the economy and
jobs, and that the errors of the past must not be repeated.

Truckers blocked a refinery in France and slowed traffic on
several major roads with support from taxi and ambulance drivers
in the latest of protests across several European countries.

"This is an act of desperation. We can't keep up with the
price rise," said Jean-Paul Lombard, head of a truck freight

Feeling the heat, France called on ministers to think about
a European-wide cap on the VAT sales tax levied on fuels, an
idea floated last week by President Nicolas Sarkozy.

That got short shrift from others who feared tax cuts would
pitch countries into a tax-slashing race that ultimately plays
into the hands of oil producers, and not the oil-consumer
countries of Europe.

Austria suggested a tax on speculative commodities trading.

Despite the protest, most ministers at the euro zone talks
said governments could not and should not slash taxes or condone
big wage rises to compensate for price hikes, warning this could
turn a perhaps short-term problem into a long-term one.

Instead, meeting chairman Jean-Claude Juncker, Luxembourg's
prime minister, said ministers had set themselves the deadline
of an EU summit on June 19-20 for European capitals to come up
with highly targeted relief measures for the most needy.

The ministers held talks on the matter at ECB headquarters
before heading off to ECB birthday celebrations at a Frankfurt
opera house, also being attended by central bankers and guests
including German leader Angela Merkel.

"This anniversary is no time for complacency," Trichet said.

Officials from the International Monetary Fund raised their
growth forecast for the euro zone this year, to 1.75 percent
from 1.4, more in line with other forecasts. European officials
said the IMF was still being too optimistic about inflation.
On fuel troubles, French Economy Minister Christine Lagarde
sought to sell to a sceptical audience Sarkozy's suggestion that
the European Union consider capping sales tax on fuel products.

German Finance Minister Peer Steinbrueck and Dutch colleague
Wouter Bos dismissed that idea, saying EU countries had agreed
in 2005 in the British city of Manchester to avoid generalised
tax cuts.

 "I think France already has quite a few problems in
bringing its budget in order. Cutting taxes will not necessarily
make it easier for them," Bos said.

"We should stick to the Manchester declaration," Steinbrueck

Juncker, who acts as permanent chairman and spokesman when
euro zone finance ministers meet, said much the same.

"We stand by this declaration and we think that oil prices,
and food prices as well, will remain high, and that short-term
tax measures cannot really lighten the burden for all those who
suffer ... from higher oil prices in particular," he said.

In a letter released to the media as ministers met, Lagarde
said France supported the EU policy but that this should not
rule out short-term palliative measures.



The trouble in Europe, like the rest of the world, is that
the region is being hit as well by soaring prices for food, an
even bigger part of household budgets.

Austrian Finance Minister Wilhelm Molterer said ministers
should consider a tax to counter speculation in commodities
futures markets.

Molterer told Austrian daily Kurier that $40 billion had
gone into such speculation in the past five months.

"This strong speculative element is responsible for part of
the rise in prices," he said. "Politicians must act here. I will
therefore put forward such a tax to my fellow finance ministers
today. We'll see how they respond to it."

Juncker, asked what came of the idea at the meeting, said
only: "We are taking it into consideration".

Molterer noted that the idea could run into flak in Britain
-- not at the meeting because it is outside the 15-country euro
zone -- as it is a key centre of commodity futures trading.

In poor countries, the soaring cost of food commodities such
as wheat, corn and rice has a direct and immediate impact on

Dozens of leaders are due to meet this week in Rome to
discuss the global food crisis and consider emergency
humanitarian aid as well as perhaps longer-term challenges.

The prices of many food commodities have doubled in the last
two years and are likely to remain high for the next decade even
if they retreat from recent records, according to the OECD and
the U.N. Food and Agriculture Organisation.

Inflation in the euro zone, which also risks a quite sharp
economic slowdown, is running at a record 3.6 percent.

Food prices rose twice as fast as broader prices in the EU
in April, the EU statistics office said, with milk, cheese and
eggs showing the biggest surges, and the worst-hit countries
being the Baltic states of Latvia, Lithuania and Estonia.

Date created : 2008-06-02