Petrol prices. Pumped up

European governments fail to hold the line on petrol prices

EUROPEAN Union finance ministers remember grimly the concessions they made in 2000, when truck drivers last staged protests against a rise in petrol prices. As prices shoot up again, they vowed this time to maintain a united front and refuse to cut fuel taxes. Poland showed itself ready to yield, but last week Britain's Gordon Brown, president of the EU finance ministers' club, persuaded his colleagues to concede no more. (Mr Brown appears to have faced down planned fuel protests in Britain, though panic buying was widespread.)

Yet the show of unity proved short-lived. To the surprise of few, the French were among the first to break ranks, announcing special rebates for road hauliers and farmers. Several other governments facing threatened protests also acted: Belgium, the Netherlands and Hungary all introduced subsidies or tax cuts. Even the British have postponed a planned tax increase.

Other EU countries have adopted a new form of blackmail. Austria threatened a windfall tax on oil-company profits unless petrol prices were cut. The companies claim that the subsequent price fall was not connected, but that is not how it looked to many. France's Jacques Chirac was quick to look for political capital by attempting to wring price concessions out of Big Oil.

Petrol prices may fall back again as the market settles, the effects of Hurricane Katrina fade and oil producers (and refineries) step up production. The naked capitulation to fuel protesters of 2000 may be avoided. But the short-term remedies that are being tried will not help and may prove counterproductive, because they partly insulate fuel users from a strong market signal. Petrol taxes are there to capture and charge motorists and others for the externalities they create, such as pollution and congestion. Yet the real costs of motoring have fallen in the past two decades. To cut fuel taxes when oil prices rise is bad economics as well as dubious politics.

European governments fail to hold the line on petrol prices.