EU finance ministers try to tackle soaring prices

EU governments started talks Saturday on ways to curb soaring prices that have hit their economy hard by holding back consumer spending.

Faced with higher prices at the gas pump and grocery store, Europeans are spending less on other purchases this year - hurting an economy that relied on domestic demand for growth.

EU finance ministers on Friday refused to follow in U.S. footsteps with a massive billion-dollar state spending program to boost growth - meaning they have to seek more indirect ways to encourage spending while inflation stays near record-high levels.

One thing they can do is reduce the standard sales tax band - between 15 percent and 25 percent - for some goods and services. But to do that, they need the unanimous backing of all 27 EU nations. And few governments are willing to change their tax rates to suit their neighbors.

France, which leads talks on Saturday, has long wanted to win reduced rates for restaurants and other small businesses, saying they could boost consumption and help speed up a sluggish economy.

Earlier this year, French President Nicolas Sarkozy also called for lower EU sales tax rates on fuel to help ease the cost of rocketing oil prices - even though heavy hitters such as Germany, Sweden, the European Commission and others oppose this because it will not curb consumption at a time when Europe is trying to become more energy-efficient.

Belgian Finance Minister Didier Reynders said this was now more important than ever as Europe struggles with a sharper-than-expected slowdown.

"With such a situation on the economic side, it's useful to have some margin of maneuver and maybe on VAT," he said as he arrived for the finance ministers' meeting in Nice.

"It's important to do it because there are some sectors with a very important capacity to give more jobs for people, like in restaurants. Why not reduce rates?"

But Austria's Wilhelm Molterer told reporters Saturday that he was skeptical about whether cutting VAT, or the value-added tax, really urges consumers to start spending.

"Targeting VAT reductions is very problematic," he said.

French restaurateurs have long complained that they lose sales to fast food outlets because a sit-down meal charges value-added tax of 19.6 percent against 5.5 percent on takeout food.

But other countries - headed by Germany - are firmly against lower taxes for more industries, fearing that would create more headaches.

It already has. Low tax on diapers would help boost birth rates, claim Czech Republic, Hungary, Malta, Poland, Spain and Portugal. Every nation has a favored sector it wants to help by giving it lower sales tax.

Ministers will also talk about how they could tackle high oil prices, building on an informal pact not to subsidize energy prices as a rule although they can help poor and elderly people who find it hard to pay for heating when prices soar.

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Associated Press writers Emma Vandore, Greg Keller and Barbara Schaeder in Nice contributed to this story.