Oil price surge to cloud EU finance ministers’ talks

Agence France Presse

Brussels, May 31:

EU finance ministers are to meet tomorrow for regular talks clouded by the surge in world oil prices which is notably threatening Europe’s fledgling recovery. Soaring crude prices are likely to eclipse the more routine agenda items at such meetings, centred on whether EU member states have stuck to the terms of the bloc’s strict budget rules. The ministers “will examine the development in crude prices as part of their general analysis of Europe’s economic situation”, said an EU source before the talks, which start tomorrow evening and continue till Wednesday.

In particular the EU’s Irish presidency will brief ministers on last week’s meeting of the Group of Seven (G-7) leading industrialised countries and Russia, which sought to press the Organisation of Petroleum Exporting Countries (OPEC) oil producing cartel to boost output to cool down overheating markets. The Brussels meeting will come just ahead of a meeting of the OPEC in Beirut on Thursday. It is unclear if the ministers will publish a formal statement urging the cartel to act.

OPEC has in recent days given growing signals that it could agree a large output hike, beyond a symbolic gesture which had initially been expected. Last Thursday EU energy commissioner Loyola de Palacio warned that the spike in oil prices could start to hit Europe’s fledgling recovery, saying it could shave “a few decimal points off of growth” in the 12-nation eurozone. The crude surge has already begun to hit Europe’s economic fundamentals: inflation was up sharply in May, borne upwards by the rising oil price tide, according to the latest estimates.

Eurozone growth rose to 0.6 per cent in the first three months of this year from 0.4 per cent in the last quarter of 2003. The European Commission this month forecast growth of 0.4-0.8 per cent in the third quarter of this year. Europe’s leaders are keenly aware of the threat posed by rising oil prices. “The only way to burst the current specultive bubble is for OPEC and producer countries to boost production,” said de Palacio , adding that she hoped the oil-producing cartel will agree an increase in Beirut.

Crude prices have shot to record highs of more than $40 a barrel as traders fret about Middle East instability and insatiable demand from major consumers such as the US and China.

A string of deadly suspected al-Qaeda attacks in OPEC kingpin state Saudi Arabia at the weekend will do little to calm the oil markets’ jitters, analysts say. Meanwhile on more mundane matters the EU finance ministers are likely to rubber stamp a proposal by the European Commission to launch a so-called excessive deficit procedure against the Netherlands.

The Dutch government is the latest in Brussels’ firing line for failing to keep its public deficit below the three per cent of GDP ceiling set by the Stability and Growth Pact, which sets the rules underpinning the euro single currency. Real arguments over the beleaguered pact — the credibility of which has been in tatters since EU heavyweights France and Germany were let off the hook last year despite repeatedly breaching the rules — is not expected until July. That is when the EU finance chiefs will study commission proposals for disciplinary measures against Italy, Greece and six of the new members which joined the EU on May 1.