Oil Prices: Putting The Fire To Politicians' Feet

The hike in oil prices has not yet filtered through Europe's economy. But it's quickly morphing into a political crisis. British truckers caused chaos in London on Sept. 13. Taxi drivers and bus operators have taken to the streets in Germany. Fishermen are occupying ports in Italy. Protests against sky-high European gas taxes, which began in France, have spread across Europe.

Politicians are feeling the heat, especially British Prime Minister Tony Blair, whose country has the highest fuel taxes. He and other European leaders are furious at French Prime Minister Lionel Jospin, who defused protests in France by pledging to cut fuel taxes by $400 million for fishermen, farmers, and truckers. The leaders fear that if they cave in to protesters' demands, they will look weak and face pressure from other groups to cut taxes. Indeed, renewed protests have already broken out in France, where other small-business owners are demanding fuel-tax concessions. But when governments face down the protesters, opposition parties get an easy opportunity to attack on populist grounds.

SAFETY RISKS. Blair insists he won't cut fuel taxes under pressure. But his Labour government's 20% lead in the opinion polls could evaporate if the protests continue, say analysts. Blair met senior executives at BP Amoco, Royal Dutch/Shell, and other oil companies on Sept. 12 in an attempt to get fuel supplies back to normal. But the companies fear for the safety of their staff. A massive and costly police presence will be needed to ensure tankers get past the protesters. "This is the biggest political task Blair has faced to date," says one senior banker. "If he messes up, it could really damage his standing as well as hurt the economy." According to the Confederation of British Industry, the disruption in supplies is costing companies up to $400 million a day. Blair well understands the risks. The situation is reminiscent of the "winter of discontent" of 1979 that brought down the last Labour Prime Minister, James Callaghan.

Oil Prices: Putting the Fire to Politicians' Feet (int'l edition)

Blair's not the only leader under pressure. Fuel supplies are getting through in Germany, but the Christian Democratic Union has used resentment against high German gas prices to launch a full-scale attack on Gerhard Schroder's Social Democrat-Green coalition government. CDU leader Angela Merkel says this is the time to score much-needed points against the government.

So far, only Portugal and Italy have joined France in bowing to demands for lower taxes. Portugal had already frozen fuel prices in March, and Italy looks set to extend temporary tax breaks on fuel prices. In the rest of Europe, it will be a long winter.