BRUSSELS, July 8: Germany dismissed French calls for a cap on fuel tax as 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.

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 per cent 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 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 G8 statement 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,” said Steinbrueck, who spoke 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.

But 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 French Economy Minister Christine Lagarde.

A longer-running rift with Germany over tax also resurfaced in Brussels 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 all such tax decisions need the agreement of all EU governments.—Reuters