Ireland joins Spain in attempt to delay agreement on harmonisation of energy taxes

Ireland joined Spain yesterday in a rearguard action against the German EU Presidency's hopes for agreement by the end of the year on a harmonisation of energy taxes that could dramatically increase Irish excise duties on fuel.

The issue was raised at a meeting of EU Finance Ministers preparing a statement for next week's Cologne EU summit - any commitment there is now likely to be extremely vague.

But the resistance of both countries, against 13 others, was strongly denounced by the German Finance Minister, Mr Hans Eichel. Echoing the words used earlier about Ireland's corporate tax regime by his predecessor, Mr Oscar Lafontaine, Mr Eichel insisted that "solidarity in the Community should not be a one-way street".

The issue which has been on the agenda for the last seven years has acquired an added urgency with the emergence of clear evidence from the Commission that the Union will fail by 2010, on current policies, to achieve legally binding cuts in greenhouse gases of 6 per cent on 1990 levels.

The cuts were agreed in follow-up talks to the Kyoto climate change conference.

And the Commission has warned that Ireland, which under an EU burden-sharing agreement, will be allowed an increase of emissions of 13 per cent in the same period, is likely to exceed them by as much as 45 percentage points.

If 13 out of 15 think this is necessary, Mr Eichel said of the energy tax proposals, "we should expect the other member-states to step into line, not least because of the commitments entered into in Kyoto." He said intense efforts would be made to reach agreement on the issue before the end of the year.

"We will meet our Kyoto obligations . . . we have to do it, and we will," the Minister for Finance, Mr McCreevy, insisted, saying the agreement did not specify the need to make such reductions by means of taxation which he said was not a good mechanism for doing so. He had full confidence in the ability of the Minister for the Environment, Mr Dempsey, to come up with an alternative programme.

While Ireland, unlike Spain, was not opposed in principle to energy taxation, he warned that the gradual reduction in Ireland of the share of energy costs represented by excise duties meant Ireland was among the lowest taxers of fuel in the Union.

Should the proposals go through, sharp increases in prices would result with the consequent effect on inflation and competitiveness. Inflationary pressures could affect the next wage round, he said.

But Mr McCreevy said they would probably eventually end up with a watered-down form of harmonisation.

The ministers also had a brief discussion on duty-free, described by Mr McCreevy as "totally negative". Strong opposition to extending the end-of-June demise of the facility was expressed from the Commission, Denmark, the Netherlands, Italy, Sweden and Finland, dashing once more any hopes of a reprieve at Cologne.

Duty-free industry sources say, however, that the Germans have pledged to raise the issue there again.

At the earlier meeting of Social Affairs Ministers a hoped-for breakthrough in the long-running saga of the European company statute failed to materialise.

Spain alone continues to oppose proposals for worker representation which are the main blockage to agreement on the text for a statute for companies incorporated at a European level.

Duty free, which has been on and off the agenda of the Council of Ministers for 29 years, is likely to end up at the Cologne summit at the end of next week.