European govts devising novel ways to protect people’s spending power
PARIS/LONDON: Higher oil prices are raising the cost of running a car and heating a home, prompting some European governments to devise novel ways to protect people’s spending power and hopes of a recovery in economic growth.
Economists believe governments can do little however to make up financially for oil prices that set a new record of more than $70 a barrel on Monday, renewing fears of higher fuel and energy bills denting household confidence and expenditure.
Belgian Finance Minister Didier Reynders proposed at the weekend sending a 75-euro government cheque to every home by the end of the year to palliate the effects of more expensive fuel, a step he said was worth around 300 million euros.
France too is considering how to pacify people with refunds out of state coffers, which swell automatically when oil prices rise as the amount of the tax take rises in parallel.
Germany, Italy, Spain and many governments in eastern Europe are holding out so far but there are mounting calls for rebates or other government measures after rises of 10, 20 and even 50 per cent in the cost of petrol or heating oil in the past year.
During the summer months in Europe, cheaper fresh food produce has helped to keep a lid on overall household bills, but this may not last as winter approaches.
Jean-Michel Six, European economist at credit-rating agency Standard & Poor’s, shrugged off the Belgian measure as a “drop in the North Sea” and many other economists are equally sceptical.
But governments, recently obliged to reschedule predictions of economic upturn in Europe, are counting on improvement in the second half of this year after a dip in the second quarter, and relying largely on a revival in consumer spending to get there.
That becomes less likely if car fuel, heat and lighting gobbles up money they might otherwise spend on other goods and services that keep business buzzing and people in jobs rather than further bloating oil company profits.
Morgan Stanley issued a note to clients on Monday saying it had decided to bite the bullet and raise its near-term forecast for oil prices to $70-75 a barrel, $20 a barrel more than the investment bank was counting on just two months ago.
That is more than three times what it was just a few years ago and suggests governments face a lasting problem that would cost them a fortune if oil prices did not ultimately abate, or before any serious inroads are made in terms of alternative energy sources and energy-saving measures.
“For households, these measures may give a very small boost to spending power but they will definitely not be enough to make up for prices rises at the petrol pump,” said Nicolas Bouzou, an economist at the Xerfi economics consultancy.
While ill-ease is mounting, there is little sign so far of the protests that hit France and fanned across Europe in 2000 after the French government caved in to truckers who blockaded motorways, offering them aid to offset a jump in fuel prices.
Dublin’s taxi drivers want the government to let them apply a surcharge, perhaps inspired by the Chinese example of public subsidies for taxi drivers in Beijing and Shanghai.
Radio programmes are replete with complaints from people who are about to fill their tank of home heating oil as Europe heads towards winter and realise the bill this year will be about 30 per cent more than last.
The Irish government has announced no steps so far to fend off the “feel-poor” factor, though Ireland is an exception in Europe with a predicted growth rate of five per cent this year, four times that of the wider euro zone of which it is part.
There is no sign either of any major moves by governments in Germany, Italy, Spain or eastern Europe to offer tax breaks or other incentives to keep the household consumption machine turning over despite increases of 10, 20 and even 50 per cent in the price of petrol or home heating fuel in the past year.—Reuters
