EU ministers clash over concessions on energy tax policy

EU Finance Ministers, debating their response to the rise in oil prices, clashed at an informal meeting over the advisability of tax concessions to buy off protesting hauliers in France.

While appealing to OPEC ministers meeting in Vienna to increase production, the ministers decisively ruled out generalised energy tax cuts to counter the effects of oil price rises in any member state.

But after a lengthy row on the text of their statement, they omitted any reference to "general" cuts for fear of appearing to encourage selective concessions to particular sectors. Excise and VAT makes up about 70 per cent of the cost of oil in most member states.

The argument is understood to have pitched French, Belgian, and Italian ministers against the British, Germans and Dutch, with the Minister for Finance, Mr McCreevy, playing a prominent part on the side of the latter.

He made clear on Friday that he was unhappy at the idea of making concessions to pressure groups, and the weekend's deliberations must rule out virtually any chance of either selective or Budget relief.

"Each Minister stated his Government's position of no change in its policy on oil taxation - for economic and environmental reasons," the statement said.

But there was little doubt that the subtext was also political. By making concessions to hauliers, the French government has undermined its partners' determination and ability to hold out.

The Spanish minister, Mr Rodrigo Rato, told journalists that tax cuts were "politically irresponsible" at current price levels because they encouraged consumption when the environmental strategy of the Union required cuts in fuel use.

While the German minister, Mr Hans Eichel, complained that the French had taken their decision without consulting partners, the Dutch minister, Mr Gerrit Zalm, asked "what price economic co-ordination?"

Yet the French president of the council, Mr Laurent Fabius, insisted concessions were not a departure from their fundamental policy of no energy tax cuts.

The conservative Mr Rato had on Friday also launched a veiled attack on the French and Germans in opposing calls for European Central Bank intervention to prop up the euro, insisting that raising EU competitiveness was the only way to take on the dollar. That is code for a call for acceleration of French and German labour market reform.

Ecofin meetings are the most ideological of the ministerial councils, under the veil of the language of economics. And over the weekend Mr McCreevy repeated his contention that, at least on taxation, the liberalisers were winning the argument. Meanwhile, some concern was expressed at the failure of the ECB's president, Mr Wim Duisenberg, to attend - ostensibly because he had a prior engagement. He sent his deputy, Mr Christian Noyer.

Despite official denials, some commentators have seen the perceived slight as a sign of a coolness between the bank and ministers, notably over the pace of EU structural reform. Ministers also discussed the practical aspects of the launch "in less than 500 days" of euro notes and coins. Mr Fabius emphasised a particular need to upgrade the level of information going to small firms.

Ministers previously agreed to the circulation of coinage ahead of January 2002 to allow the old or handicapped to get used to the new shapes. But at the request of the ECB, they rejected proposals to allow early circulation of notes - known as "front loading" - for security reasons.

In a separate discussion on the exchange rate policy of acceding states, ministers look set to perform a significant U-turn at the behest of the International Monetary Fund and some eastern European states.

They are likely at their November meeting to lift a requirement to have their currencies managed by independent central banks when they join the Exchange Rate Mechanism.

Instead, the Baltic states and Bulgaria will be able to continue using "currency boards", a rigid system under which they peg their currency to a reserve currency and the central bank of that currency in effect determines their monetary policy. The Estonians have applied such a system for a decade.