EU split on fuel tax while Chavez makes oil threats
PHILIPPA RUNNER
20.06.2008 @ 09:35 CET
French and Italian ideas on using taxes to combat rising fuel prices gained ground at an EU summit on Thursday (19 June) despite hostility from several member states, even as Venezuela's Hugo Chavez threatened to cut EU oil supplies in protest against new deportation rules.
"I wasn't told 'move on, there's nothing to see here'," French president Nicolas Sarkozy said after the first day of the EU meeting in Brussels on his suggestion to cut VAT on fuel, AFP reports. "[It] doesn't solve all the problems but at least that would be a response to a problem that we need to get a hand on."
Merkel (l) and Sarkozy (r) don't see eye to eye on the fuel tax idea (Photo: European Communities)
"Countries can, if they wish, have some taxation of windfall profits of energy companies," European Commission president Jose Manuel Barroso commented, referring to Italy's "Robin Hood" plan to tax oil companies' income to help consumers. "We are ready to study other proposals if the European Council wishes."
The debate came as thousands of Spanish farmers the same day clogged central Madrid to demand fuel tax breaks in the latest round of European street protests against petrol and diesel prices, which have shot up by 20 to 40 percent this year on the back of record crude oil costs.
But Germany and Scandinavian countries renewed their attack on the French VAT plan on Thursday, with chancellor Angela Merkel saying in the German parliament before coming to Brussels that:
"Measures, especially of a fiscal nature, which have been regularly discussed and which at the end of the day will prevent the moves necessary to adapt to a changing market, should, from our point of view, be avoided."
"We need a liberalised energy market in Europe, but I would be reluctant to introduce short-term measures that might distort the well-functioning internal market," Danish prime minister Anders Fogh Rasmussen said as he arrived at the EU summit.
"I know that quite many citizens are expressing that why don't we cut [fuel] taxes?" Finnish leader Matti Vanhanen added. "But the reason for high prices of oil is the difference between demand for oil and the production of oil."
Swedish prime minister Fredrik Reinfeldt instead floated lowering income taxes to encourage people to work longer to pay for fuel.
"I am asking myself...that we might ease up on income taxes to make work pay even further, so that people could react to the fact that an increase in the petrol price could be met by working some extra hours," he said. "If I could get, on the supply side, people to work more, it's also helping the central bank [to combat inflation]."
Chavez makes oil threat
Even as the European leaders discussed how to handle the fuel price crisis, Venezuelan president Hugo Chavez on Thursday issued a threat to cut oil exports to Europe in reaction to a new EU directive on forced expulsion of illegal immigrants.
"Venezuelan oil will not go to the countries that apply this shameful directive. I'll say it now, Venezuelan oil will not go," Mr Chavez said, with the new bill set to impact thousands of migrants from Venezuela's allies such as Bolivia and Ecuador.
The statement was not taken seriously in Brussels: "As far as I know, Venezuela supplies oil mostly to the US...so it would not be that much of a [big] deal," Czech foreign minister Karel Schwarzenberg said.
The Latin American country provides just one percent of the oil imports of major European economies but some European firms, such as France's Total and Norway's Statoil are active in the country, which in the past signalled a wish to diversify its US sales into Europe.
Iran sanctions unlikely
The fuel situation had another impact on EU foreign policy at the top-level meeting in Brussels however, with European leaders reluctant to back a US and UK-led push for sanctions on Iranian oil and gas companies for fear the massive exporter would cut its supplies.
EU diplomats told Reuters any energy sanctions were months away, while Swedish foreign minister Carl Bildt said there was "no rush" in Europe take the step, designed to force Iran to halt its uranium enrichment efforts.
US analyst Frank A. Verrastro of the Washington-based Center for Strategic and International Studies told the newswire that an export retaliation by Iran - which supplies 4 percent of the EU's energy purchases - would have a drastic effect.
"The impact would be immediate and it would be huge," he said. "There is not enough spare capacity in the world to cover the loss of Iran...The markets are bad enough. If you lost a major producer, a big exporter, there is no replacement."