Differentiated initiatives? It has been confirmed: the European Council of 19-20 June will have an exchange of views on the possibility of lightening the burden of oil prices on consumers. Jean-Claude Juncker announced this news at the end of the debate at the Eurogroup. Mr Juncker indicated that there had been no agreement on the French suggestion of putting a ceiling on revenue from VAT earned at the petrol pumps, and also affirmed that that the Manchester agreement (September 2005) ruled out any across-the-board tax measures (which could incite producer countries to increase their prices). Mr Juncker did, however, explain that there would be a possibility of differentiated initiatives for lightening the burden, provoked by oil prices, on the poorest sections of society, and said that this question would be raised at the summit (EUROPE 9673).
France's suggestion on VAT was judged inappropriate by several ministers who believe it preferable and more efficient to promote energy savings. Other ideas were highlighted too, with regard to transparency of oil reserves, measures to help those hit hardest (fishermen, lorry drivers, some farmers), as well as an additional tax on oil companies. In connection with this last point, the Italian minister, Giulio Tremonti, announced a swift national initiative and described this as an ethical measure. His colleague from France, Christine Lagarde, however, pointed out that the oil companies had to make enormous investments, which had to be encouraged. Other ministers affirmed that the Tremonti initiative was a populist measure. In two weeks' time we'll see what comes out of the debate between heads of government.
US denunciation. It has to be hoped that the discussion at the summit will not forget the burning issue of oil price-fixing, briefly referred to in this column yesterday. Michael Mukasey was invited on 23 April last to inform Washington about the fight against organised crime and it was expected that he take the mafia and gangsters to task. His target, however, was the new category of criminal who he said had no resemblance at all to street gangs. I'll now look at the translation of his ideas, which appeared in Le Monde on 3 June. He explained that these criminals consisted of “groups of extremely sophisticated individuals, who have billions of dollars, as well as a higher education and the best accountants, bankers and global lobbyists at their disposal”. They strive to “pass themselves off as normal businessmen” but they in fact corrupt the normal functioning of the markets by using the international financial system.
These accusations hit a raw nerve at the US Senate, which organised hearings that called on specialist bodies, which in turn came up with some staggering results. The “futures and options” focusing on theoretical oil could account for 30-35 times the volume in trade for real oil. Paper oil is being traded by betting on future prices, which provokes price hikes. It is on this speculative basis that oil prices per barrel are set! In the event of a reversal in the trend, speculators could certainly lose out but they generally speculate on upward prices and prices are totally disconnected from the real costs and demand for real oil. Why don't oil producers and companies react? They could at least say that they aren't responsible for price increases. There's an obvious reason why they don't - their profits are expanding to the detriment of the world economy.
Similar mechanisms are employed elsewhere, particularly in London and Geneva, for other products, such as metals, and this has existed for some time for basic agricultural products. But in this connection, a more qualified judgement is necessary because these goods are real and it is difficult to distinguish between speculation and normal precautions ensuring product availability. There are serious risks with this speculation - experts are pointing out that the silver and copper sectors are experiencing massive losses and bankruptcies.
Eurozone must act. Oil is the most spectacular and scandalous case in point. It is important that at the beginning of the week, the Eurogroup held an initial but in-depth debate, in addition to the exchange of views at the summit, which will undoubtedly be of a more general nature but will also certainly be followed by other debates that perhaps prompt common orientations and in-principle operational decisions, in concertation with the US. These debates are happening between Eurozone countries. Countries that chose to remain outside this zone will have to take care of themselves.
(F.R.)