Europe Ministers to Focus on Alcohol Tax

The Associated Press
Tuesday, November 28, 2006; 12:59 AM

BRUSSELS, Belgium -- European finance ministers are meeting Tuesday, with talks focusing on the thorny issue of alcohol taxes.

The 25 EU ministers will pick up a battle over higher alcohol taxes and deal with Britain's attempt to curb a value added tax fraud that costs it hundreds of millions of pounds every year.

Each EU nation sets its own taxes, agreeing only on some basic standards that they can only change if all are in favor.

On Monday, finance ministers from the 12 nations that use the euro said they saw no need to act right now on the strength of their currency against the dollar.

Fueled by Europe's recent pickup, the euro hit a four-year high of $1.30 last week, cheering trans-Atlantic Christmas shoppers and oil traders _ cushioned against higher oil prices _ but worrying EU exporters as they saw their U.S. earnings lose value.

"Our present exchange rate has no particular effect requiring our reaction," said Luxembourg Prime Minister Jean-Claude Juncker who led the monthly talks between euro nations.

The United States and Europe are each other's largest trading partners.

"Excessive volatility and disorderly movements in exchange rates are undesirable for economic growth," Juncker told reporters.

Earlier French Finance Minister Thierry Breton said he would urge "collective vigilance" among his colleagues, some of whom said it was too early to worry.

EU Economic and Monetary Affairs Commissioner Joaquin Almunia was upbeat about the euro-zone economy saying he stuck to forecasts that the region would grow around 2.6 percent this year and above 2 percent next year.

If these forecasts are confirmed and countries cut public debt, he said the EU executive would be able to end sanctions against Germany for running a budget deficit above the EU 3 percent limit. He did not say when. A clean slate for Greece was "possibly also" in his sights, he said.

He plans to recommend an all-clear for France on Wednesday, but Italy and Portugal would need to take more action before they got there, he said.

Fearing a backlash from beer drinkers back home, Germany was one of several EU countries foaming over an EU plan to push up minimum tax rates on alcohol by 31 percent, keeping pace with inflation since the levy was last recalculated in 1993.

Efforts to reach a compromise on Nov. 7 went flat but ministers will try again Tuesday, based on either an across-the-board increase of 4.5 percent to match inflation since 2004 when the EU accepted 10 new members or a plan that sees 4.5 percent for beer and 31 percent for other drinks. The new minimum rates will only affect a small number of countries because most are above that level.

But French and British diplomats were Tuesday in "very active and very serious" talks over another issue that all 25 nations need to back. Britain was seeking French support in its bid to change its VAT rules to clamp down on carousel fraud that sees VAT traders exploit cross-border trade by claiming refunds from the British Treasury.

London wants to charge VAT to the final customer for computer chips, mobile phones and personal digital assistants _ high-value, easy-to-transport goods that fraudsters move from country to country to claim refunds on VAT they never paid. This is easy to do because the current system allows refunds throughout the supply chain.

The "reverse charge" Britain is seeking may force criminals to shift operations to other countries or other products. That, and fears that allowing this opt-out may undermine the entire VAT system, has raised French fears.

Germany, on the other hand, would like the reverse charge system to roll out across the EU and is blocking any deal on a wide-ranging package to simplify VAT until all countries support its call for more work on the issue.

The meeting will also debate new maximum levels for duty free, again to update the rate set in 1994. Current plans put forward by Finland, which will lead the talks, foresees a 300 euros ($393) limit for people entering the EU by land or sea and 430 euros ($564) for air passengers.

A lower level at land borders is needed to prevent travelers skirting tax at home by going to lower-cost countries in eastern Europe to buy large amounts of alcohol, EU officials said.

Ministers are also set to criticize Poland for running a budget deficit next year above the 3 percent limit set by EU rules.

The meeting will also decide on how much money the European Investment Bank will be able to lend to other nations just before its current lending mandate expires at the end of this year.

© 2006 The Associated Press