Eurogroup dismisses French proposal to cut VAT on fuel

Finance ministers of the 15 Eurogroup countries agreed yesterday (2 June) that the French proposal to cut taxes would be the wrong response to soaring oil prices, favouring other reactions, such as discouraging speculation, which will be further debated at the upcoming Summit on 19-20 June.

Rising oil prices and record-high inflation were the dominant issues at the minister’s meeting, who exceptionally came together in Frankfurt to celebrate the tenth anniversary of the European Central Bank (ECB). 

While Commission President José Manuel Barroso hailed the ECB’s role as “guarantor of price stability”, the ministers were looking for ways to ease inflation, which has bounced back to a record-high 3.6% in May after a drop in April, according to the latest Eurostat figures. 

Jean-Claude Juncker, the head of the Eurogroup of finance ministers, said: “That worries me a lot because it is those with the least resources who are the most heavily penalised by inflation,” stressing the need to find ways to ease the burden. 

Juncker dismissed the French idea of tax relief to tackle this problem but acknowledged that “the French president highlighted a real problem” by making the suggestion.

Arguing along Juncker’s line, Spanish Finance Minister Pedro Solbes said after the meeting that “if we want to reduce the level of consumption and be more efficient [the tax cut is] not a good idea”. 

Dutch Finance Minister Wouter Bos joined the chorus of critics, saying: “I think France already has a few problems in (putting) its budget in order so cutting taxes will not necessarily make it easier for them”. 

Widening budget gaps within the euro zone were indeed the other main concern addressed by the ministers, with Juncker calling for balanced budgets by 2012 at the latest. 

In April 2007, eurozone finance ministers had committed to reducing their budget deficits to zero by 2010 as long as economic conditions provided for stricter budgetary discipline. 

“The date of 2012 is a date that absolutely has to be respected. Respect for this is not conditional on the economic cycle,” Juncker warned. 

French President Nicolas Sarkozy had made clear that Paris would likely not make the target until 2012 while Italy has committed to a 2011 deadline. 

After a deficit at 2.7% last year, the French deficit is set to rise to 2.9% of gross domestic product (GDP) this year, according to April forecasts by the Commission. Unless Paris takes action to curb spending next year, the deficit could even widen to 3%, according to the forecasts – the maximum allowed under EU rules. 

Sarkozy has disputed the Commission’s forecasts, charging that they are based on “figures that have not been checked and have even been denied”. 

Encouraging news for the euro zone came from the IMF, which admitted yesterday that growth has proved unexpectedly robust despite the global economic turmoil, indicating that it might adjust its outlook for the area from 1.4% to 1.75% growth. 

Read more with Euractiv

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