WSJ.com - Some EU Nations Move to Ease Pain Of High Oil Prices
WSJ.com - Some EU Nations Move to Ease Pain Of High Oil Prices
By JOHN W. MILLER
DOW JONES NEWSWIRES
September 15, 2005
BRUSSELS -- Less than a week after European Union finance ministers pledged not to cut fuel taxes unilaterally, some countries have begun finding ways to lower fuel costs amid protests over rising oil prices.
The tax cuts and rebates are the latest response to mounting protests by European truckers, farmers and other heavy oil users stung by prices that have increased to about $65, or about €53, from $45 a barrel a year ago -- most recently because of production disruptions caused by Hurricane Katrina.
Governments are devising different ways of easing the pain of their consumers and businesses, undercutting efforts by EU officials to coordinate one economic policy for the 25-nation bloc. The unilateral moves also might frustrate the EU's efforts to encourage Europeans to cut oil consumption and to prod governments to reduce budget deficits -- a situation made worse by tax cuts.
France and Belgium have announced heating-fuel rebates and selected tax cuts for the poor, and said they are thinking about cutting the excise tax on motor fuel, the very step that EU finance ministers criticized Poland for already taking. Hungary is cutting the value-added-tax on gasoline, but said it only is moving up what was planned anyway. In Germany, opposition leader Angela Merkel, whose party is leading in polls ahead of national elections there Sunday, has promised to consider a tax cut in motor fuel.
Governments defend themselves by saying these are one-time measures -- not tax cuts -- that soothe the pain of higher oil prices rather than encourage consumption.
Possible Tax in Italy
Meanwhile, countries are increasing pressure on oil companies to reduce prices. Italian finance minister Domenico Sinisalco said last week the government is looking at ways to fund a heating-fuel rebate by taxing oil companies. In France, where political leaders have demanded oil companies make deeper cuts than announced last week, government officials plan to meet with oil companies this week.
European officials, particularly those in France, have painful memories of protests in 2000. Angered by fuel prices, French truckers blocked highways and barricaded ports, forcing then-Prime Minister Lionel Jospin to cut fuel taxes.
For now, similar disruptions have been only threatened. Only a few truckers and farmers showed up yesterday at a refinery in northeast England to protest high prices, and organizers said they wouldn't try to stop fuel from leaving refineries. In Belgium, truckers have warned that they might tie up traffic in Brussels on Monday unless they get more relief from the Belgian government.
The differing government responses to the pressure come after EU finance ministers last weekend promised not to indulge in "distortionary measures" such as structural tax cuts, except for helping the poor. Instead, the ministers called on oil companies and oil exporters to cut prices by boosting production, and on Europe and the U.S. to cut consumption.
The crack in the governments' agreed stance is an indication of the dilemma they face. Cutting fuel taxes would reduce revenue that many EU members can ill afford, with 11 countries running budget deficits that exceed an EU limit of 3% of a country's gross domestic product. Doing nothing might mean taking the brunt of increasingly angry consumers, and even ignite inflation.
Economists are warning national leaders that high fuel prices are here to stay, and governments shouldn't try to manipulate them. "Cutting prices only increases consumption," says Gwyn Hacche of HSBC Holdings PLC in London.
Pressuring oil companies is "crazy," adds Michel Van der Stee, an economist for Dutch private bank F. van Lanschot Bankiers. "You cannot ask companies to lower their prices every time the price of a product rises, that wouldn't be much of a market economy, would it?" He praises the Netherlands for promising only to not increase fuel taxes in 2006.
Consumption Curbs
In the long term, economists say, Europe -- with only limited oil supply in the North Sea -- needs to cut consumption. For decades European governments have sought to damp fuel consumption, and thus imports of expensive oil, by imposing high taxes on gasoline and diesel. Taxes account for about 70% of the retail price of gasoline in Europe, versus an average of about 27% in the U.S. Taxes in Europe vary widely, resulting in differing fuel prices. On Aug. 29, for example, the price of a liter of diesel fuel ranged from 83 European cents in Latvia to €1.38 in the U.K., according to CNR, a French government agency that monitors energy prices.
The tax gap between the U.S. and Europe helps explain higher pump prices of gasoline and diesel in Europe, and why many European countries burn about half as much petroleum per capita as does the U.S.
So far, despite the threatened protests and government responses, European motorists appear to be responding to the still-higher prices by driving less. European motorists consumed 2.81 million barrels a day in August, down from 2.87 million barrels a day in August 2004, while U.S. motor-fuel consumption rose to 9.6 million barrels a day from 9.4 million barrels a day, according to the International Energy Agency.
"Five months ago, I decided to only drive when I take my kids somewhere," 38-year-old François Moret said yesterday as he filled his silver Alfa Romeo at an Exxon station in Brussels. "Otherwise, I cycle, walk or take the metro."
By JOHN W. MILLER
DOW JONES NEWSWIRES
September 15, 2005
BRUSSELS -- Less than a week after European Union finance ministers pledged not to cut fuel taxes unilaterally, some countries have begun finding ways to lower fuel costs amid protests over rising oil prices.
The tax cuts and rebates are the latest response to mounting protests by European truckers, farmers and other heavy oil users stung by prices that have increased to about $65, or about €53, from $45 a barrel a year ago -- most recently because of production disruptions caused by Hurricane Katrina.
Governments are devising different ways of easing the pain of their consumers and businesses, undercutting efforts by EU officials to coordinate one economic policy for the 25-nation bloc. The unilateral moves also might frustrate the EU's efforts to encourage Europeans to cut oil consumption and to prod governments to reduce budget deficits -- a situation made worse by tax cuts.
France and Belgium have announced heating-fuel rebates and selected tax cuts for the poor, and said they are thinking about cutting the excise tax on motor fuel, the very step that EU finance ministers criticized Poland for already taking. Hungary is cutting the value-added-tax on gasoline, but said it only is moving up what was planned anyway. In Germany, opposition leader Angela Merkel, whose party is leading in polls ahead of national elections there Sunday, has promised to consider a tax cut in motor fuel.
Governments defend themselves by saying these are one-time measures -- not tax cuts -- that soothe the pain of higher oil prices rather than encourage consumption.
Possible Tax in Italy
Meanwhile, countries are increasing pressure on oil companies to reduce prices. Italian finance minister Domenico Sinisalco said last week the government is looking at ways to fund a heating-fuel rebate by taxing oil companies. In France, where political leaders have demanded oil companies make deeper cuts than announced last week, government officials plan to meet with oil companies this week.
European officials, particularly those in France, have painful memories of protests in 2000. Angered by fuel prices, French truckers blocked highways and barricaded ports, forcing then-Prime Minister Lionel Jospin to cut fuel taxes.
For now, similar disruptions have been only threatened. Only a few truckers and farmers showed up yesterday at a refinery in northeast England to protest high prices, and organizers said they wouldn't try to stop fuel from leaving refineries. In Belgium, truckers have warned that they might tie up traffic in Brussels on Monday unless they get more relief from the Belgian government.
The differing government responses to the pressure come after EU finance ministers last weekend promised not to indulge in "distortionary measures" such as structural tax cuts, except for helping the poor. Instead, the ministers called on oil companies and oil exporters to cut prices by boosting production, and on Europe and the U.S. to cut consumption.
The crack in the governments' agreed stance is an indication of the dilemma they face. Cutting fuel taxes would reduce revenue that many EU members can ill afford, with 11 countries running budget deficits that exceed an EU limit of 3% of a country's gross domestic product. Doing nothing might mean taking the brunt of increasingly angry consumers, and even ignite inflation.
Economists are warning national leaders that high fuel prices are here to stay, and governments shouldn't try to manipulate them. "Cutting prices only increases consumption," says Gwyn Hacche of HSBC Holdings PLC in London.
Pressuring oil companies is "crazy," adds Michel Van der Stee, an economist for Dutch private bank F. van Lanschot Bankiers. "You cannot ask companies to lower their prices every time the price of a product rises, that wouldn't be much of a market economy, would it?" He praises the Netherlands for promising only to not increase fuel taxes in 2006.
Consumption Curbs
In the long term, economists say, Europe -- with only limited oil supply in the North Sea -- needs to cut consumption. For decades European governments have sought to damp fuel consumption, and thus imports of expensive oil, by imposing high taxes on gasoline and diesel. Taxes account for about 70% of the retail price of gasoline in Europe, versus an average of about 27% in the U.S. Taxes in Europe vary widely, resulting in differing fuel prices. On Aug. 29, for example, the price of a liter of diesel fuel ranged from 83 European cents in Latvia to €1.38 in the U.K., according to CNR, a French government agency that monitors energy prices.
The tax gap between the U.S. and Europe helps explain higher pump prices of gasoline and diesel in Europe, and why many European countries burn about half as much petroleum per capita as does the U.S.
So far, despite the threatened protests and government responses, European motorists appear to be responding to the still-higher prices by driving less. European motorists consumed 2.81 million barrels a day in August, down from 2.87 million barrels a day in August 2004, while U.S. motor-fuel consumption rose to 9.6 million barrels a day from 9.4 million barrels a day, according to the International Energy Agency.
"Five months ago, I decided to only drive when I take my kids somewhere," 38-year-old François Moret said yesterday as he filled his silver Alfa Romeo at an Exxon station in Brussels. "Otherwise, I cycle, walk or take the metro."
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