The Eurogroup meeting in Frankfurt at the beginning of the week achieved three significant results, duly highlighted in our publication the day before yesterday but on which the main media bodies provided only a selective report, with each newspaper choosing one or other aspect of it. Nonetheless, the president, Jean-Claude Juncker, has once again been very clear. These three points are:
1. Observation of IMF correcting its forecasts on EU economic development. The IMF had announced a major slowdown in expansion this year and next. It was therefore being influenced by the banking and financial communities, which have an interest in exaggerating the effects and risks of the crisis that they had provoked, with the intention of obtaining maximum support and liquidity, by raising the spectre of a very sharp global slowdown in the economy as a whole. Moreover, the crisis is undoubtedly serious and dangerous but it is being felt, above all, by these banks that pushed speculation beyond admissible boundaries (and there should be no regrets about what happened to them, after the shameful way in which they previously benefited from their manoeuvrings). Banks that contained speculative risk within reasonable limits have suffered less and are now straightening out their balance sheets.
The Eurogroup immediately protested against IMF forecasts by illustrating the more balanced assessments from the European Commission. So far, the IMF has aligned itself, for the mostpart, on the Brussels forecasts but a number of divergences persist (particularly on inflation).
2. Budgetary consolidation deadline in member states shifted from 2010 to 2012. This is both a concession to the real situation and a concession to France. The 2010 date had been set when economic forecasts were more upbeat; neither the financial crisis nor the spike in oil prices had been foreseen. Mr Juncker pointed out that that the date had been explicitly subordinated to the economic cycle. France indicated that it would be unable to meet the Medium Term Objectives (MTO) in 2010. Extending the deadline is obviously important to all member states lagging behind, whereas those that have their MTO on target now have to maintain the performance level that has already been reached. The president of Eurogroup, however, highlighted the fact that the 2012 deadline is definitive and conditions determined by the economic cycle will not change matters. French and Italian ministers (two from the main member states experiencing problems) confirmed their agreement (Italy for 2011).
3. Fiscal measures aiming to limit effects of oil price hikes vary in each country. France suggested that a ceiling should be set on VAT revenue on oil products. At first glance, this measure would appear to be logical. We know that petrol prices at the pump and natural gas prices include a considerable tax factor: the rise in crude oil therefore increases tax revenue; the state could abandon additional income earned, to the benefit of consumers.
The ministerial debate, nevertheless, indicated that an across-the-board measure is impractical as the situation varies in each of the member states (the surplus tax revenue, observed by France and elsewhere, does not exist in all of the other countries) and fiscal discrimination should be avoided. Juncker therefore affirmed that blanket tax counter-measures were impossible and member states would be having a rethink on a variety of measures aimed at cushioning the impact of oil prices on purchasing power. As part of this reflection, the French finance minister announced that his country intended to use surplus tax revenue to fund a number of energy projects and support less well-off households. France will bring this dossier to the next European Council.
The real scandal. Initiatives aimed at protecting the EU's population should be accompanied by robust and decisive political action against current oil price fixing mechanisms. The artificial and speculative character of these mechanisms is not unknown and in April my column focused on this issue (EUROPE 9603). 60% of daily operations at the New York Mercantile Exchange (NYMEX) are on oil that does not exist, paid in dollars for which only 10% of the value is real. And this is how oil prices per barrel are set! It is mind blowing that European institutions are not talking about this, whereas the US minister for justice (Michael Mukasey, Attorney General) last month denounced, using very harsh terms, paper oil and the organised crime of extremely sophisticated individuals, who have billions of dollars at their disposal to organise and manipulate. This is the real scandal. (F.R.)
(F.R.)