Europe finds itself over an Opec barrel

09.09.2000 - By CATHERINE FIELD PARIS - Mere weeks ago, the European Union was serene about its future, seeing sustained high growth, low inflation and closer convergence among its 15 economies.

That rosy scenario has started to darken, amid fears that the surge in oil prices, if sustained, will trim growth prospects, inflame economic rivalries and cause the sickly euro to weaken further.

The tripling in the cost of crude in two years has laid bare the EU's dependence on foreign oil after nearly 20 years of relative stability in the energy market.

It is an oil shock, said Loyola de Palacio, the EU energy commissioner. "It is clear that there is a negative impact on our economies from the increase in oil prices."

The situation is still very far removed from the 70s, when repeated double-digit oil-price increases killed off Europe's 30-year period of growth, plunging some countries into prolonged turbulence or austerity.

But there are already warning signs. Oil prices have already accounted for a 1 per cent increase in EU inflation this year, prompting the European Central Bank last week to push up the euro's key interest rate by a quarter-point to 4.5 per cent - the sixth consecutive rise in 10 months.

That move has done little to help growth prospects, which some countries are now discreetly beginning to mark down, nor even prop up the euro. The single EU currency continues to set records in its decline, in turn forcing up the cost of buying oil, which is priced in US dollars.

It has now lost a quarter of its value against the greenback since it was launched just 21 months ago.

Dependence on foreign oil accounts for nearly 50 per cent of the EU's energy needs, a figure that will rise to 70 per cent in 2020 on the basis of current trends. Alternative energy sources, which are beloved by the Greens and the media, are still in their infancy. Nuclear power, in the wake of Chernobyl, remains widely detested.

European countries - in love with their cars but protective of their environment, in favour of an efficient single market but loath to surrender their most sensitive national powers - today find themselves, literally, over a barrel.

http://www.nzherald.co.nz/storydisplay.cfm?storyID=150635&thesection=business&thesubsection=

-- Martin Thompson (mthom1927@aol.com), September 09, 2000

Answers

The crash of the Euro--down 4 1/2% against the dollar just since Labor Day--was a foregone conclusion.

The high-wire act the socialist governments of Europe have been playing--high fuel taxes to finance a high level of welfare and social programs--is coming back to haunt them. This high-wire has been a particularly wobbly one, indeed. The fall is coming. Hope they've got a net, else the blood-spattering will be wide-sprea--throughout the world.

-- JackW (jpayne@webtv.net), September 09, 2000.

This whole thing has an eerie feel to it; much like anticipation of y2k.

-- Nancy (nancy7@Hotmail.com), September 09, 2000.

Agreed Nancy - Everyone above the sunbelt is going to get pounded with massive heating bills. For consumers it means less money to spend on Christmas or closer to bankrupty and for businesses it means passing the cost on to consumers which is inflationary (although the feds with cover up any signs of inflation in there statistical reports.) Its a recipe for disaster. The difference between this and Y2K is that the nation spent billions of dollars preparing for Y2K and in this case we'll spend billions enriching OPEC and other oil producing entities. Maybe Uncle Sam will enact a windfall profits tax on the energy companies and transfer it those that can't afford there heating bills. Who knows, but it will be interesting. I live in the Sun Belt and thanks to global warming I don't need to heat the house at all during the winter. A couple space heaters and an electric blanket is ample.

-- Guy Daley (guydaley@bwn.net), September 09, 2000.