Sarkozy’s EU options seen as limited

The Financial Times ^ | 7/6/2008 | Bertrand Benoit in London and Ben Hall in Paris

[bruinbirdman]

The French presidency of the European Union will be an exercise in “crisis management”, according to Peer Steinbrück, the German finance minister, in particular with rocketing oil prices and the rejection of the Lisbon treaty by Irish voters.

The undiplomatic assessment echoes analysts’ expectations that France’s presidency, which began last week, will be short on new projects and instead have to focus on salvaging Lisbon and seeking answers to the global energy shortage.

“I think the French presidency will be very much influenced by the current challenges. As far as I know they understand themselves that they are sitting in the chair more in terms of crisis management,” Mr Steinbrück told the Financial Times in an interview.

He said Germany would do what it could to support the French presidency. However, in an unusually frank manner, he also made clear Berlin’s opposition to one of Paris’ priorities – an attempt to counter the effects of rising oil prices by capping value added tax on fuel.

“There are some specific questions where we do not agree ... For example I’m not in favour of decreasing taxation on fuel at this point. It is one of the arguments of the French presidency,” Mr Steinbrück said.

France’s initial priorities for its presidency – including an ambitious plan for an EU-wide pact on immigration, a beefed-up integrated EU defence policy and the adoption of joint CO2 emissions targets – have been overshadowed by the Irish referendum No to Lisbon last month and inflationary pressure fuelled by oil prices.

The start of France’s six-month presidency was also marred last week by rows pitching President Nicolas Sarkozy against Peter Mandelson, the EU trade commissioner, Poland’s President Lech Kaczynski – who is refusing to ratify the Lisbon treaty, which aims to overhaul EU institutions – and the European Central Bank.

On oil Mr Steinbrück said western economies needed to adjust to higher prices. “Governments should avoid any distortional fiscal measures because the prices have to contribute to these adjustments, which are necessary. I think we shouldn’t prevent these adjustments.”

The answer, he said, was to improve energy efficiency.

Unlike Paris, which has complained about the impact on European exports of the euro’s appreciation, Mr Steinbrück said these currency movements had helped the 15-nation eurozone stomach the rising oil prices better than other regions, including the UK.