Sky-high fuel and food prices crashed the party when finance ministers flocked to Frankfurt to celebrate the inflation-fighting European Central Bank's (ECB) 10th birthday yesterday, a milestone in Europe's monetary union.
ECB chief Jean-Claude Trichet set the tone by warning on the eve of the meeting that bad management of the oil crisis in the 1970s caused severe damage to the economy and jobs and that the errors of the past must not be repeated.
Despite mounting protests, several ministers acknowledged the pain but said governments could not and should not slash taxes or condone big wage rises to compensate, warning that this could turn a possibly short-term problem into a long-term one.
PHOTO: AP
Ireland’s Brian Lenihan, worried about the potential impact on national pay negotiations in his own country above all, said wage awards should not be indexed to the latest rises on food and fuel costs.
“If we do that it will store up trouble for ourselves in the future,” Lenihan told reporters as he entered talks with Trichet and ministers from the rest of the 15-nation euro currency group.
The ministers were holding talks on the state of the economy in the morning, before ECB birthday party celebrations attended also by central bankers and guests, including German Chancellor Angela Merkel.
After a week when fishermen protested and blocked ports in Europe over diesel prices, politicians are feeling the heat.
French President Nicolas Sarkozy said last week the EU as a whole should consider capping value-added sales tax on fuel products if prices kept rising.
German Finance Minister Peer Steinbrueck and Dutch colleague Wouter Bos gave that idea short shrift.
“I think France already has quite a few problems in bringing its budget in order. Cutting taxes will not necessarily make it easier for them,” Bos said.
The German minister referred to a statement by eurozone finance ministers in 2005 in Manchester, England, in which they agreed that short-term measures, in particular fiscal ones, were not appropriate responses to rising oil prices, partly because they fear it would play into the hands of oil-producing nations.
“We should stick to the Manchester declaration and not react politically or try to intervene,” Steinbrueck said yesterday.
Jean-Claude Juncker, Luxembourg’s prime minister and chairman of meetings of euro zone finance ministers, said much the same of the Sarkozy suggestion, which French Economy Minister Christine Lagarde was left to explain in Frankfurt.
“I think that this idea goes against the general spirit,” he said in an interview on French radio ahead of the meeting.
Austrian Finance Minister Wilhelm Molterer said he would ask his fellow ministers to consider a tax to counter speculation in commodities futures markets.
Molterer told yesterday’s edition of Austrian daily Kurier that roughly US$40 billion had gone into commodities speculation over the past five months.
“This strong speculative element is responsible for part of the rise in prices,” he said. “Politicians must act here. I will therefore put forward such a tax to my fellow finance ministers today. We’ll see how they respond to it.”
The idea might be problematic for Britain as one of the key centers of commodity futures trading but it had to be addressed, he said.
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