TIME EUROPE
September 25, 2000, Vol. 156 No. 13
Running on Empty
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Britain's Tony Blair could not be seen to yield even that far, mindful that the last Labour government was brought down by public sector strikes in 1979. His government had already cut vehicle registration taxes and dropped a provision inherited from the Tories that raised fuel taxes at 6% above inflation. The Prime Minister took a suitably Churchillian stance, refusing even to meet with the protesters, let alone make new concessions. "Legitimate protest is one thing," he said at one of the three press conferences he held in the course of a mere 48 hours last week. "Trying to bring the country to a halt is quite another ... Were we to yield to that pressure, it would run counter to every democratic principle this country believes in."
In Germany, the debate centered on the controversial "eco-tax," a linchpin of the coalition agreement between Gerhard Schröder's Social Democrats and his governing coalition partners, the Greens. The tax, which has so far added 5¢ to the cost of a liter of motor fuel, is intended both as an environmental measure to discourage fuel use and as a money earner to offset cuts in Germany's employee welfare contributions. The opposition Christian Democrats, eager to gain a bit of tailwind against the maelstrom of a debilitating party finance scandal, have jumped on the eco-tax. On Thursday, 50 cdu members boarded scooters for a protest ride of their own through Berlin. Erwin Teufel, Baden-Württemberg's premier, urged Schröder to "take up the example of the socialist government in France" and lower fuel taxes.
That is not likely, to say the least. Schröder will have noticed that his counterpart across the Rhine, French Prime Minister Lionel Jospin, has reaped no political benefit from bending to what seemed the popular will: polls show Jospin's approval rating has plummeted by 20 percentage points since before the protests began. Says commentator Alain Duhamel: "He's got the worst of both worlds, because he negotiated his way out of the crisis without provoking any explosion, yet is being viewed as a scapegoat for people angered that oil prices went up in the first place."
Whichever tortuous path these governments took to resolve the short term crises, none of them can dismiss the prospect that the people will make themselves heard again. The British protesters will be looking for partial relief on fuel taxes within the next 60 days. But even if Blair and Chancellor of the Exchequer Gordon Brown find an honorable way to do that, they will almost certainly not be able to offset the considerable competitive advantage that foreign truckers, particularly those from Eastern and Central Europe, enjoy as a result of lower fuel costs and lower wages. And while OPEC's decision to increase its output by 800,000 barrels a day creates some relief at the margin, the increased winter demand in the northern hemisphere could postpone price drops for the next few months.
That continued uncertainty over oil prices "isn't going to do much for the euro," says Paul De Grauwe, an economist at the Catholic University of Leuven. That begs the question as to what — if anything — will help stem the almost unerringly downward trend of the common currency. Last Thursday the European Central Bank made a first, somewhat tentative stab at market intervention, buying euros with $2.2 billion in interest income generated by its holdings in other currencies. e.c.b. president Wim Duisenberg insisted that the move was a simple "reserve management operation," but he coyly added: "It was not motivated to damage the euro."
The fundamentals of the eurozone remain relatively good: projected growth in 2001 of around 3% — as high as that of a slowing U.S. economy — inflation rising at a much lower rate than in the U.S., and unemployment falling. But De Grauwe points out that those facts aren't enough to kindle the confidence the euro needs to take off again; as long as the common currency is foundering, analysts will seek to explain it with negative news, such as Europe's rigid labor market. "Once views are established in the market, they aren't beaten easily," he says. "I can't really remember a time when there hasn't been discontent about European politics. But when you have a belief that things are going wrong with the euro, you put that discontent in bold."
Europe's governments can't win these days. The current discontent is paradoxically given wings by the good economic news. "After long, dismal years of recession, people now feel confident that recovery is here to stay and insist that this returned economic health benefits everyone," says Duhamel. "We see rising expectations and the feeling that the proceeds of growth are being sucked away by taxation."
As the crisis over fuel costs ebbed at week's end, Europe's leaders had much to ponder. For starters: perhaps popular feelings deserve every bit as prominent a place in their deliberations as such grandiose and long-term projects as European integration, the E.U.'s eastern enlargement and the development of a common defense policy. Pocketbook issues are the ones that send people into the street. It is a lesson the politicians should not forget. By climbing down from the barricades before public opinion turned against them, the truckers and farmers showed a far finer sensitivity to popular feeling than governments did. And their timely departure leaves open the possibility of going back and doing it again.
With reporting by Bruce Crumley/Paris, J.F.O. McAllister/London and Ursula Sautter/Bonn
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September 25, 2000
COVER STORY
Running on Empty
Protests against rising fuel costs should be a wake-up call for European governments that have lost touch with their electorates
Let Them Ride Bikes
European motorists are fed up with ever-higher fuel taxes
EUROPE
Radical Czechs
As thousands of antiglobalization protesters prepare to take to the streets, Prague braces for the worst
The Police
Can cops in Prague keep their cool?
MIDDLE EAST
Miracle Makers
Israel's Shas Party is tapping into mysticism to give its politics more potency
OLYMPICS
The Real Australia
Americans know a lot about the place, most of it wrong. Our art critic evokes its true glories and flaws as only a native son can
DEPARTMENTS
Techwatch
World Watch
WHAT DO YOU THINK?
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