No agreement on tackling fuel prices at EU summit 

Germany rejects French push for VAT cap 

French President Nicolas Sarkozy has been pushing for a cut in value-added tax (VAT) on petrol that would help specific categories of workers such as lorry drivers, farmers and fishermen in response to the mass protests staged throughout Europe in recent weeks. But EU member states cannot make such cuts unilaterally.

Speaking on 21 June after the summit ended, Sarkozy said his intention was to get agreement on a cap on VAT earnings, which would mean "for example that once the barrel of oil hits $150, VAT would continue to be calculated on a price of $130". Agreeing with the French on a VAT cap on fuel, Austrian Chancellor Alfred Gusenbauer also proposed introducing a tax on speculation to contain rising commodity prices. 

However, Germany and Sweden rejected Sarkozy's proposals, making it crystal clear they were opposed to any tax measures that would distort market demand and delay long-term adjustment to an era in which fossil fuels were unlikely to ever be cheap again. 

"Measures, especially of a fiscal nature, which have been regularly discussed and which at the end of the day will prevent the moves necessary to adapt to a changing market, should, from our point of view, be avoided," said German Chancellor Angela Merkel. 

Swedish Prime Minister Fredrik Reinfeldt agreed, saying new subsidies or tax breaks would send the wrong signal "that we can keep on using or even increasing the use of fossil fuels". 

Speaking ahead of the summit, he said his country was instead looking into measures to encourage Swedes to work longer hours and thus earn more money to pay for higher energy costs – notably through income tax cuts. "An increase in petrol prices could be met by working extra hours […] Raising production and productivity would do a lot," he said. 

Yet European Commission President José Manuel Barroso and Energy Commissioner Andrís Piebalgs appeared more open to member states' plans to help those struggling to pay their fuel bills, pointing to countries like Belgium and the United Kingdom, which already make targeted payments to help those most in need. Piebalgs notably voiced sympathy for an Italian plan, approved on 18 June, to raise taxes on oil companies' windfall profits and redistribute these earnings to the poorest. 

"If the governments, for example, have more revenues from the taxation which can be earmarked for vulnerable consumers [...] I think this measure is much faster and can reach the audience we are looking for," said Piebalgs. 

In the final compromise, EU leaders requested that the Commission carry out a feasability study on the French tax proposal, as well as other ideas on containing oil prices. Based on this report, due before the next EU summit takes place in October, France, who will then hold the six-month rotating EU Presidency, will make some more concrete proposals.

Commission emergency aid package 

For its part, the Commission is itself already planning to launch emergency aid measures for the EU citizens and industries hit hardest by soaring food and fuel prices, Barroso told leaders on 19 June. 

To assist poor households, he announced that the bloc would increase its budget for emergency food aid from €300 million to €500 million per year. For the fishing industry, Barroso has proposed increasing the amount of direct aid the EU pays out to fishermen, on condition that this is accompanied by a reduction in fishing capacity (EurActiv 18/06/08). The package should be presented to the Council of Fisheries Ministers in Luxembourg on 24 June. 

Barroso also announced the creation of a fund to support agriculture in developing countries. Rising prices are "a global problem, and even Europe cannot solve it alone. Governments are free to act with emergency measures for the most vulnerable parts of society," he said. 

International energy dialogue 

The Commission also said it would seek to promote dialogue with key producers like Russia, Norway and the OPEC "to open new opportunities for investment and production development," notably at an important meeting in Jeddah, Saudi Arabia, on June 22, where Energy Commissioner Andrís Piebalgs will be present to discuss ways of curtailing soaring oil prices on world markets. 

UK Prime Minister Gordon Brown, who will also be present at the meeting, is expected to offer oil-rich nations a chance to buy more Western companies in exchange for increasing their oil production and lowering energy prices, according to the UK’s Daily telegraph. 

The idea would be for EU nations to be more open to investments from oil-rich countries' sovereign wealth funds – something that EU countries, including France and Germany, are increasingly reluctant to do due to fears that these opaque funds are being used to obtain political influence in strategic sectors, such as energy and defence. At the last EU summit in March, EU leaders endorsed plans to push for an internationally-agreed code of conduct for sovereign wealth funds that would allow countries to block foreign investments carried out via state-owned vehicles "if necessary" (EurActiv 14/03/08). 

Brown is also expected to ask OPEC members to make it easier for international energy firms to invest in their oil and gas fields, increasing world oil production and lowering prices. 

Oil threats 

But as European leaders mulled over energy prices, Venezuelan President Hugo Chavez threatened to close the tap on oil exports to the EU and throw out European companies if the bloc goes ahead with tough new rules on returning illegal immigrants back where they came from. The rules, which allow for the detention of people for up to 18 months before their expulsion, were approved in Parliament yesterday after a compromise was reached with member states (EurActiv 19/06/08).