The Europe-wide tax cut proposed by France to combat soaring fuel prices received a cool reception from other countries today.
French President Nicolas Sarkozy last week suggested EU countries jointly cut VAT to ease the burden on drivers and fishermen who have seen the cost of filling up tanks nearly double in the last year.
But the answer was to use less oil, not to cut fuel taxes, ministers from the 15 nations that have the Euro as currency said on arrival for talks at the European Central Bank in Frankfurt today.
German Finance Minister Peer Steinbrueck said rocketing inflation across the euro-zone was “a challenge ... but we should not intervene politically” on oil prices.
Spain’s Pedro Solbes also poured cold water on the Sarkozy plan, saying it would send the wrong signal since Europe is trying to cut back on fossil fuels and use more alternative and renewable sources of power.
“If we want to reduce oil consumption and be more efficient in consumption then to reduce oil prices (by lowering taxes) is not a good idea,” he told reporters.
Wouter Bos of the Netherlands said: “We’ve got to get used to a world with higher oil prices.”
He said the Euro area’s current inflation spike is based on global prices outside of Europe’s control and the only answer was to lessen dependence on oil.
He also took a swipe at France which is seeing government spending soar and risks breaking EU budget rules this year.
“France already has quite a few problems in bringing its budget problem to order ... lowering taxes will not make it easier,” he said.
Soaring prices for the basic goods of daily life – transport, heating and food - is the biggest problem facing the European economy.
Yearly inflation in Euro nations hit a record 3.6% last month, the fastest pace in price increases since it started keeping records for each country in 1996.
Higher prices hurt but governments are limited in what they can do. Mr Sarkozy’s suggestion is one of the few concrete plans put forward but is at odds with a 2005 EU deal not to tinker with taxes to lower overall fuel prices.
Mr Sarkozy has said France can take some stopgap measures on its own to offset the bite of higher crude oil prices, but any decision to lower value added tax “must be European”.
All 27 EU nations must unanimously agree any changes to VAT which they can charge at any rate between 15% and 25%.