Brussels, 20/06/2008 (Agence Europe) - Concerned at the recent hikes in food and oil prices, the European Council recommended that the member states and European Commission should make a coherent response based on short, medium and long-term measures. Ahead of the upcoming summit, the European Commission will assess the feasibility of the tax measures mooted by various parties. After the summit on Friday 20 June, the President of the European Council, the prime minister of Slovenia, Janez Jansa, said EU policies were not the cause of the problems but EU policies could be part of the solution. He said at a press conference that the European Commission had some room for manoeuvre but most measures were national measures and the member states had all the cards in their hands. To start off with, it was a question of softening the impact of the current situation, he said, but added that the problem required a 'structured' response. This 'structured' response should include a u-turn in consumption patterns in the EU and elsewhere, said Jose Manuel Barroso.
Governments are entitled to pass emergency measures for the most vulnerable sections of the population but measures that can be considered, whether in terms of food or oil products, have to be targetted and short-term, explains the European Council conclusions document on the policy implications of high food and oil prices. 'In order to avoid distorting price signals and causing broad-based second round effects on wages and prices' measures introduced by member states to alleviate the impact of recent food price developments on low income households 'should be short-term and targetted,' explains the document. 'Distortionary (sic) fiscal and other policy interventions should be avoided' with regard to the surge in oil and gas prices, explains the European Council conclusion document adopted on Friday 20 June 2008. The EU heads of state welcomed the European Commission's plans set out in its report on food prices (see EUROPE 9664) and discussed by the ECOFIN Council (see EUROPE 9673 and 9675) to 'closely monitor activities in commodity-related financial markets, including speculative trade, and their impact on price movements as well as any policy implications.' This report is expected to be available for the December 2008 European Council. In a recent report on oil prices (see EUROPE 9680), the European Commission said it would be unveiling tax proposals to improve energy efficiency by improving the Eurovignette Directive and the energy tax directive. It will also be reviewing the ideas mooted in this connection to date, like the use of extra VAT returns generated by the high oil prices, a windfall tax on oil companies and a tax to combat speculation on the oil market. 'The European Council invites the upcoming Presidency in cooperation with the Commission to examine the feasibility and impact of measures to smooth the effects of sudden oil and gas rice increases and report before the October European Council.' The European Council also welcomed the Commission's plan to introduce short-term measures to back the long-term restructuring process in the EU fishing industry.
At a press conference on Thursday 19 June, Jose Manuel Barroso mentioned some of the short-term measures highlighted in the report, like the suggestions made by Commissioner Joe Borg for the fishing industry (to be discussed at the Agriculture and Fisheries Council on Tuesday 24 June, particularly the raising of the upper limit on 'de minimis' aid from €30,000 to €100,000). The President of the European Commission then said that the Commission would be suggesting, most likely on 17 September 2008, to continue an EU food aid programme for the last well-off (a programme whose value is reported to have been increased from €300 million to €500 million). Barroso announced the introduction of a new fund for farming in development countries. The exact amount of funding has yet to be decided, but suggestions would be made in the next few weeks, he explained. In 2008, EU funding earmarked but not spent under the agriculture heading of the EU budget would be used for aid programmes, he added. In the longer term, the energy and climate change package is essential, explained Barroso, arguing for a 'structured response' based on the diversification of sources of supply and greater energy efficiency. The European Council also recognised 'the need to rapidly adopt the climate change and energy package' and urged the market to be more competitive and transparent, including on oil stocks. The European Council hoped that dialogue with oil producing countries would be stepped up. Barroso called for the holding of a high-level meeting with oil producing countries.
All EU countries are aware that the oil crisis is of an unequal scale, said the President of France, Nicolas Sarkozy in the evening of Thursday 19 June 2008. He said every country was aware that an EU answer had to be provided, recognising that there was a battery of solutions. Talking about the French suggestion, Sarkozy said it was not about cutting taxes on oil but if oil prices continued to rise, that would raise the issue of proportionate taxation. Everyone can understand, he said, that 20% VAT on a barrel of oil costing $42 in 2004 is not the same as 20% VAT today on a barrel costing $140 dollars. Some countries, like Sweden (and Denmark and Germany) oppose the idea of tax changes, but Sarkozy said he had the support of the Spanish prime minister Jose Luis Zapatero. Nicolas Sarkozy also called for the adoption of the energy and climate change package that, he said, foresaw renewable energy, nuclear energy and energy savings, which is exactly the French view. The most effective measure is to cut demand, said Zapatero, pointing out that the EU accounts for 17% of the world's oil consumption.
The Belgian prime minister Yves Leterme said it was the member states first and foremost that had to find an answer to the problem of plummeting purchasing power. Incomes policy is not an EU policy, he explained, adding that the EU was only responsible for the functioning of the market. Governments can only deal with the problem of the impact of rising food and oil prices by working together, said Gordon Brown, the British prime minister. Brown stressed the need for a summit with oil producing countries. Two days ahead of his state visit to Jeddah in Saudi Arabia, where a summit of oil producing countries, oil consuming countries and oil companies will be held on Sunday, Gordon Brown said: 'The solution is not do decide targets for production. The idea is that oil producers should be recycling their revenues into UK and other consumer countries, especially in the alternative energy markets in these countries'. On the French idea of an upper limit on VAT on oil products, Jean-Claude Juncker, the prime minister and finance minister of Luxembourg, said it did not have the backing of all the delegations for a real reason - VAT income may have gone up in France but it has fallen in other countries, like Germany and for that reason, it could not be an EU measure. Juncker said that the problem raised by Sarkozy was a real problem but the way of dealing with it had not been perfectly designed. (A.B.)