FRANKFURT (Thomson Financial) - French Finance Minister Christine Lagarde has written to the European Commission and her EU counterparts urging them to reduce VAT rates for fuel, and make public the amount of oil held in reserve, in order to protect consumers’ purchasing power.
‘A short-term action seems necessary to me, to respond to the shock in terms of protecting the purchasing power of our least well-off households,’ she said in a letter addressed to EU economic and Monetary Commissioner Joaquin Almunia and Tax Commissioner Laszlo Kovacs.
She said the additional amounts collected in VAT by euro zone governments due to rising oil prices could be used to protect households’ purchasing power.
In the letter, seen by Thomson Financial News, Lagarde said ‘we have entered the era of expensive oil’ and that ‘our first goal must be to prepare our economies for lasting high oil prices’.
She added that while the Manchester agreement signed by ministers in 2005 still applies, ’structural changes take time’ and the debate needs to turn to the effects of rising prices on the least well-off.
‘France, for example, plans to use the additional VAT income due to rising prices which was not included in our budget to support those most affected by rising prices and better finance energy economy programmes.’
In terms of disclosing oil reserves, she said France has been calling for a long time for the EU to publish weekly its reserve stocks of crude oil and petrol products, such as happens in the United States and Japan.
She added that this would help dialogue with oil-producing countries.
Commission spokesman Johannes Laitenberger confirmed the commission had received the letter and would study the proposals.
But the commission last week signalled it did not favour the French initiative, saying cutting taxes would send the wrong signal to oil-producing countries.
Euro zone ministers are discussing the proposals at their meeting in Frankfurt.
Ahead of the gathering, German Finance Minister Peer Steinbrueck told reporters he did not back the French proposal.
‘We should stick to the Manchester declaration and try not to react politically,’ he said.
Dutch Finance Minister Wouter Bos said the only way to combat high oil prices was to moderate consumption.
‘It’s hard to beat speculation… we have to make our economies less dependent on oil,’ Bos said.
Asked about the French proposal, he said: ‘France already has quite a few problems in balancing their budget… cutting taxes will not necessarily make that easier for them.’