Oil Profits Create Discord

Huge oil company profits fueled debate among European finance ministers last Friday of a windfall tax on oil firms.

Luxembourg Prime Minister Jean-Claude Juncker said that a discussion had begun on the matter, although no proposals had actually been made.  "On taxation of oil company profits, as I said, we are at the beginning of a process. I can simply say we started this discussion. I can say no more than that," Juncker said.

Exxon racked up profits of roughly $1,000 a second in the first quarter, while Shell earned about $785 per second, BP some $660 and Total $550 a second.  Not all ministers took the same line. The Slovenians said it sounded good but the Dutch dismissed it outright.  Austrian Finance Minister Karl-Heinz Grasser, who chaired the talks on Friday, echoed what Juncker said about the idea doing the rounds.  "All these taxation ideas are worth considering, but they make sense only if they are implemented globally," Grasser said.  "The idea is in its infancy, there has been no thorough discussion.  I think we should be prudent on taxation and go ahead only globally to avoid distortions in competition between the main economic blocs," he stated.

It was hard to tell whether he said that to kill the idea off diplomatically, but saying nothing could happen without worldwide agreement smacked of another international tax plan that has gone nowhere in recent years for that very reason.  French President Jacques Chirac's long-standing proposal for an international tax to fund poverty relief has won few fans and is a victim of the same logic -- if everyone is not on board, nobody is.  German Deputy Finance Minister Thomas Mirow told reporters there had been no formal discussion in Brussels of an extra oil profit tax, but he said such a thing could develop because it was being backed by Juncker.

The main business of the two-day gatherings in Brussels was a regular discussion of EU market integration and the economic outlook and the tone was more upbeat about growth in the European economy than in recent months, despite the rise in oil prices.  Dutch Finance Minister Gerritt Zalm said new predictions to be published by the     European Commission on Monday would include a slight rise in what has until now been forecast growth of 1.9 percent in the euro currency zone this year, after 1.3 in 2005.  "My personal feeling is the euro zone recovery is stronger than everyone expects," Zalm, said. 

The ministers' primary concern is whether the oil price rise sparks inflation, after warnings by the European Central Bank that it would not hesitate to raise interest rates further to keep such a threat at bay.  ECB President Jean-Claude Trichet said on Thursday that he was worried about the risk of inflation in comments read by the financial markets as a signal that he would raise interest rates in June for a third time since the start of December.