(Updates after news conference)
By David Milliken and Niclas Mika
BRUSSELS, July 8 (Reuters) - Germany dismissed French calls
for a cap on fuel tax when EU finance ministers met on Tuesday,
and said there was little governments or the European Central
Bank could do to rein in runaway crude oil prices.
France, represented by Economy Minister Christine Lagarde,
played down the affair, saying discussions were in their early
days and no stone should be left unturned.
Germany also slammed proposals from the European Commission
for a tax system change that would allow French President
Nicolas Sarkozy to deliver on an election pledge to lower the
rate of sales tax the restaurant industry has to pay.
The split on both issues surfaced when finance ministers of
the 27 European Union countries met in Brussels, on the heels of
a Monday gathering of countries in the euro zone that
acknowledged oil-driven inflation and high food prices were a
major headache for households and the economy.
"We have to admit we have to deal in the energy sector with
an external price shock which neither the ECB nor the EU or the
member states can influence," German Finance Minister Peer
Steinbrueck said. "One day we have to acknowledge that, instead
of telling people we can turn this or that screw."
Oil prices have risen nearly 50 percent this year and almost
five-fold in the last five years, mainly because of surging
demand from rapidly developing economies, above all China.
The ECB raised interest rates last week on the grounds that
inflation, mostly caused by rising fuel and food prices, had to
be prevented from getting out of hand.
Europe and the rest of the industrialised world are at pains
to do more than issue statements of concern as the cost of crude
oil surges from one record to another. Food prices have soared
as well, in part because costly oil means expensive fertiliser.
Meeting in Japan, G8 leaders -- from Japan, Britain, Canada,
Germany, France, Italy, Russia and the United States -- said
oil and food price trends threatened economic growth worldwide.
"Concerted efforts are needed to address the underlying
causes for the benefit of all," a statement by the Group of
Eight nations said.
SORRY BUT NO, MR SARKOZY
Steinbrueck in any case made it clear Berlin would not buy
French ideas for responding to world oil price rises via tax
policy.
"Germany is against short-term tax measures which would
prevent the economy from adjusting to higher oil prices,"
Steinbrueck said to a small group of reporters.
French leader Sarkozy, whose country holds the EU's rotating
presidency until the year-end, has suggested value-added tax
(VAT) on fuel be capped at EU level to prevent further pain if
prices keep rising.
He has found little sympathy so far among other EU
governments wary of starting a race downwards in the taxation of
fuel when their long-term goal is to reduce oil dependency and
avoid playing into the hands of oil-producing nations.
Steinbrueck said Berlin understood that some governments
were under intense pressure as a result of soaring fuel costs,
which have sparked wave after wave of protests by truck drivers,
fishermen and others, notably in France and Spain.
"There are differences. Everybody faces enormous pressure at
home," he said. "We know the French president is operating with
freezing VAT on petrol -- this will be a difference between us
and France."
The same reluctance was made clear by Jean-Claude Juncker,
who chairs a forum where ministers from the 15 countries of the
euro zone meet ECB President Jean-Claude Trichet.
"As you know it's not an idea which is supported by everyone
because the situation varies enormously from country to country
in terms of VAT revenue," Juncker told a news conference late on
Monday after the euro zone talks broke up.
"In some countries, VAT revenue has gone up with the oil
price, whereas in other countries, revenue is falling because of
changed consumer behaviour. This means you can't apply the same
rule willy-nilly ... tax measures should not be used to
influence short-term price movements," Juncker said.
"As far as the French proposal is concerned, we don't think
it's the only one worth considering," he added.
Tuesday's meeting at EU level, which involves ministers from
27 countries as opposed to the core euro club, was being chaired
by France's Lagarde.
She said discussions on how to respond to oil prices were at
an early stage but that some creativity would be needed.
"All options must be explored in the face of such an abrupt
and yet long-term rise in oil and commodity prices," she told a
news conference.
Another longer-running rift with Germany over tax also
resurfaced when Steinbrueck restated Berlin's dislike of plans
to let governments allow lower-than-average rates of sales tax
in sectors where international competition is irrelevant.
That plan, just endorsed by the European Commission, would
let Sarkozy deliver on his election promise to reduce the rate
of VAT on sit-down restaurant meals from close to 20 percent to
the 5.5 percent level that applies to fast-food outlets.
Such a move was "not a good thing", said Steinbrueck, whose
country's support is vital because such tax decisions need the
agreement of all EU governments.
(Writing by Brian Love, with reporting also by Marcin Grajewski
and Swaha Pattanaik; Editing by Dale Hudson)
