Versailles, 11/09/2000 (Agence Europe) - After a "very constructive and precise discussion on oil prices and the situation created by the rise in prices", the EU Finance Ministers, who met informally in Versailles on Saturday in the presence of President Romano Prodi and Commissioner Pedro Solbes as well as the governors of central banks, firmly invited the oil producing countries to increase their production. They entrusted Laurent Fabius, French President-in-Office of the Ecofin Council, and the European Commission to forward their "unanimous message" (this was done, said Mr Fabius, Sunday midday with contacts being scheduled for "coming days"). This message took the form of the "Terms of Reference" on oil prices, as follows:
"Ministers consider that the current level of oil prices is a source of major concern. Oil prices need to return to a level that preserves worldwide growth. Ministers noted that OPEC Ministers had stated that if the oil price remained above $28 until September 8 they would propose a production increase. OPEC had also agreed that the sustainable oil price is below that figure. Ministers thus call on OPEC to implement measures to ensure that market supplies are better adapted to the global economic situation. They consider that a renewed dialogue between oil producers and consumers is urgently needed.
Each Minister stated his Government's position of no change in its policy on oil taxation - for economic and environmental reasons. Each agreed that the rise in oil price had to be dealt with, as OPEC has promised, by increased production leading to a lower price. The Commission is invited to work with the competent national authorities to examine the way of increasing the current level of competition in the energy sector and in particular in the oil sector in the Union and in the Member States. Ministers suggest that the International Energy Agency should examine the possibility of renewing energy saving measures and adopting a policy promoting source diversification. Ministers stress the need to accelerate the implementation of the EU action plan in these fields in order to reduce the oil dependency of our economies".
During the press conference which, late on Saturday, punctuated the informal Ecofin session, Mr Fabius firmly stressed that, for all Fifteen, "the right way to face up to the significant rise in oil prices and the effect this has on our economies - and, in time, if the situation persists, for the OPEC countries - was to increase production" and to thus bring prices down. "We believe it is indispensable!", he claimed (saying we must wait for this signal from the meeting held by OPEC in Vienna on Sunday). "It is not through taxation that we plan to act", continued the French Minister, adding that "specific measures" taken by some Member States - like France - could not be "interpreted as a change in line". "It is not a matter of having our taxation and budgetary policies brought into question. We are sticking to this!", he underlined. This firmness was echoed in the unambiguous remarks of certain other ministers, mainly Italian Vincenzo Visco ("I do not believe it would be a good idea to use public budgets to finance the private budgets of the oil sheikhs") and Spanish Rato ("Lowering taxes on oil would be an irresponsible policy").
In answer to questions on the fact that the declaration by the Finance Ministers mentioned the figure of $28 a barrel while Commissioner de Palacio had considered, last week, that a normal price should be around $20, Mr Fabius said there should be no discrepancy seen in this, as the Fifteen have simply quoted a figure given by OPEC (Mr Solbes recalled that this was the OPEC starting price of oil production): "I did not say that the goal was to bring it down to $28. In our view, a balanced price would be below", he explained, mentioning a range between $20-25.
To the question of whether the Fifteen planned a rise in inflation and a general fall in demand, Christian Noyer, Vice-President of the European Central bank, said there was no doubt that the rise in oil prices represented an "exogenous shock" with the result of "withdrawing part of the available income in consumer countries". "A laxist monetary policy would encourage inflation" in this context,
which is why "the only right answer is that chosen by the ministers" in so far as "our responsibility is not to absorb the shock by playing on inflation". Commissioner Solbes pointed out that the first half year had brought with it an "explosion with regards inflation" and that the current level of oil prices was not convincing that a slowdown would come about to correspond to forecasts (1.8%).
Concerning the increased competition to be set in place in the energy sector, Mr Fabius felt that efforts had already been approved in each Member State but that the Commission was very "attentive to the fact that competition is growing stronger, mainly between the large companies". In his view, there is a "series of areas" where the principle of competition could be better applied. Pedro Solbes noted, as an example, that prices before VAT were very different between Member States, but that the prices of products were "very similar". He considered that it was necessary to "consolidate these two elements". In his view, the request put by the finance ministers to the Commission aims to have a "more global vision of all these elements", which means that, in some cases, it is a sufficiently open internal market that is lacking.
To the question of knowing what instruments the EU has for influencing OPEC, Mr Fabius developed the following argument: "When one makes a good analysis of the economic situation, any measure that would result in throwing the western economy off balance would have the counter-effect, in time, of weighing on the producer countries. We have seen this in the past. (…) It is in everyone's well understood interest to find a correct price and to stabilise resources". Mr Fabius felt that the current situation was in no way comparable to that thirty years ago as Europe has "become far less dependent" and has made "structural improvements" to its economies, which allow it to "maintain inflation at a low level". The President-in-Office of the Ecofin Council stressed that the Fifteen had wished to float a message of warning to those who could be tempted to "introduce elements of imbalance into a good situation". So, he continued, "Beware! We must not threaten what is an element of growth".