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The High Cost of Europe's High Temps

By Christina Passariello The heat -- it's all anyone in Europe can talk about. Record temperatures soaring above 100F for almost two weeks now have scorched the Continent from Lisbon to Leeds. Parched, cracked farmland in the east of France is reminiscent of photos from the American Dust Bowl of the 1930s. The Queen of England is allowing sweaty kids to cool off in the fountains outside Buckingham Palace.

Even the Pope, from his summer retreat in Castel Gandolfo in Italy, appealed for an end to the heat wave. "I exhort all to raise to the Lord fervent entreaties so that He may grant the relief of rain to the thirsty Earth," the Holy See said on Aug. 10.

Europe's cruel summer is drying up more than the ground. Disaster-relief budgets are withering from the heat, as governments and farmers unions plead for financial help. To make matters worse, it's the second summer in a row where the weather exacted a costly fiscal toll on the Continent. After last year's floods in central Europe, only scraps are left in European Union and national disaster budgets -- and this season's tab will surpass 2002's $16 billion in flood damages.

WORSE THAN FLOODS. The heat bill is climbing, even before the current wave is over. Fires in Portugal have caused at least $1 billion in damage. By the end of July, German farmers were saying that they could lose 80% of their crop this season because of the drought, and a Spanish agriculture association estimates a $900 million loss since June. Germany, which was hardest hit by last year's floods, has already said this summer's heat will be more costly.

Portugal's economy is the most threatened. In the past two months, nearly 500,000 acres of forest have burned, wiping out a big portion of the country's paper and wood industries. Lisbon declared a state of emergency on Aug. 4, unblocking $113 million in aid from the government. So far, the EU has dispatched firefighters to the region, but Portugal is pushing for financial help.

The EU's Solidarity Fund was set up after the floods to respond to major disasters. Yet, it forked over more than 70% of its $1.13 billion annual budget for flood relief. And Portugal isn't Europe's only country facing extensive fire damage. Spain, Italy, France, and Germany also have burned timberlands. While those countries have larger economies, Portugal's shortfall of a few hundred million euros will put a crucial strain on the national budget, already under scrutiny since Lisbon breached EU deficit limits in 2001.

"A REAL CATASTROPHE." Farmers, too, are clamoring for funds from the coffers of the EU's common agricultural policy (CAP). As the worst stage of the heat wave was only beginning, agriculture ministers met in Brussels on July 22 to discuss the effects of the drought. EU Farm Commissioner Franz Fischler vowed to come up with resources -- but he knows that'll be a difficult task politically.

The CAP's $50 billion budget is already a bone of contention for being so costly -- totaling half of the EU's finances. Next year's budget will be decided mid-October, but Fischler hinted that no major financial package would be forthcoming to help this year's drought, saying he sees little "room for maneuvering and funds to release."

For farmers like Gilbert Limandas, that may be too long to wait. He's a cereal, cattle, and fish farmer and the president of the Rhone-Alps Regional Federation of Farmers. "This heat wave is a real catastrophe for our corn production. Our cows don't have enough to eat. Fish die everyday because of the lack of oxygen in the water and the development of algae," he says.

EMPTY COFFERS. The EU has promised to advance a chunk of the subsidies to farmers this year ahead of schedule, but Limandas is counting on more than that. In his home county of Ain, where the mercury hit 106F on Aug. 13, he estimates the loss at $90 million on annual turnover of $602 million.

It looks like a job for France's Agricultural Calamity Fund, created in the 1960s to help reimburse French farmers for damages that insurance companies wouldn't cover. But the government, which normally contributes the same amount as the farmers, hasn't deposited any money in the fund since 1998. The farmers have kept paying in, but the government transferred $170 million from the $203 million budget to another, debt-ridden farmers' savings fund. The result: France's agricultural fund can't help in this disaster.

So far, the main European farmers associations, the Committee of Agricultural Organizations and the General Committee for Agricultural Cooperation in the European Union, put the loss at more than $5 billion. With the EU's budget already limited, European consumers better brace for more expensive prices in the grocery stores soon. Passariello is an editorial assistant in BusinessWeek's Paris bureau.

Editorial Assistant Jennifer Picard also contributed to this article

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