Countries lowering oil prices will not be retaliated, EU said

The European Union will not retaliate against member states that lower taxes on fuels despite an earlier agreement that countries will not enact individual tax policies, a senior official said Friday.

"The European Commission has no legal power to avoid the enacting of some measures on a national level because this is not illegal," Joaquin Almunia, European Union commissioner in charge of economic and monetary affairs, told the media during a two-day visit in Budapest.

At a meeting of EU finance minister in England last week, an agreement was reached that countries shouldn't take individual tax measures to react to soaring oil prices, ruling out a cut in excise duties or value-added tax rates for oil, according to the AP.

"These kinds of decisions (to reduce taxes on gasoline) are not in accordance with the political commitment of the 25 finance ministers," Almunia said.

The issue gained specific relevance after Poland and Hungary announced they intended to ease the tax burden on fuel.

Poland on Thursday became the first EU country to cut its excise tax on gasoline in response to high oil prices.

The Polish Finance Ministry reduced the excise tax by 16 percent, bringing the cost for a liter of gasoline at the pump to around Ђ1.11 (US$5.21 per gallon).

The Hungarian government is seeking to cut the rate of value-added tax on gasoline by 5 percent to 20 percent from Oct. 1.

The move is part of a larger tax-cut program announced earlier this year that initially was scheduled to take effect Jan.1.

"We will monitor the situation, but we will not react," the commissioner said.

Almunia also warned that record high oil prices have had a negative impact on European economies and said euro-zone economic growth would fail to meet the 2005 target of 1.6 percent.

"There was a downward risk presented by the evolution of oil prices and this risk has materialized in the last month," Almunia said.

The commissioner stressed he was optimistic about European growth in the last two quarters of 2005 and the prospects for next year in light of strengthening global economic acceleration.

"When we publish our next forecast in November, we will report a growth rate below the 1.6 percent target for the euro-zone but also a positive impact and good evolution for 2006," he said.

On photo: Joaquin Almunia, European Union commissioner in charge of economic and monetary affairs.