Running on Empty

When protests against high oil prices began in France a few weeks ago, they seemed like a typically Gallic reflex, a kind of vive la difference exceptionalism. French farmers take to the streets often and enthusiastically, the fishermen on the Atlantic coast have long been ardent practitioners of "direct action," and for that matter les routiers have been known to blockade the autoroutes when the spirit moved them. As they do each time French citizens take to the streets, local and foreign commentators sagely pointed to the strength of France's revolutionary tradition and to the weakness of the French National Assembly the implication being that it couldn't happen elsewhere.

This time those rationalizations proved wrong. It turns out many other Europeans, especially professional road users, are just like the French: fed up and organized enough to make their case with a vengeance. Last week Britain was all but paralyzed as no more than 2,500 truckers and farmers protested at oil refineries and depots throughout the country, persuading tanker drivers to stay inside. In Belgium, only bicycles and pedestrians could negotiate the normally chockablock ring around the city center, which looked like a truck stop parking lot for most of the week. Truckers in the Netherlands, Spain, Poland, Ireland, and Germany mounted protests of their own. Suddenly, an action that seemed to come out of nowhere threatened to bring Europe to a grinding standstill.

European Union politicians often given to waxing europhoric about the 21st century wonders of the Internet and all the neat things that can be done with European-made, wap-enabled cell phones got blindsided by an old-fashioned tax revolt over something very 20th century: the price of motor fuel. "For the first time ever a disruptive and potentially violent French labor protest became exemplary rather than lamentable to the rest of Europe," marveled Franois de Closets, a social commentator in Paris. "If this becomes habit-forming, we may be in for some trouble."

How did European politicians, particularly Britain's poll- and focus-group-driven Tony Blair, manage to miss this tsunami of public discontent? "Arrogant and out of touch" is how Kent trucking firm owner Ron Wood characterized the New Labour government from his perch on the ragged protest line at BP's giant Coryton refinery in southern England. "What comes out is their contempt."

It's one thing for angry demonstrators to feel that way. But what really got the attention of Europe's governments is that the protests, with their eerie echoes of the strike-plagued '70s, set off a sympathetic vibration among ordinary people despite the resulting inconveniences. Polls showed 78% of British adults support the fuel-price protests, and similar sentiments prevailed on the Continent. "You should do this every day it's much more pleasant around here," chirped a fashionably clad young woman to trucker Madani Elalyane, whose big dump truck blocked the Schuman roundabout at the heart of the E.U.'s headquarters in Brussels. Much of that solidarity stems from the pain citizens bear in common with the truckers from fuel prices that have ballooned by more than a third this year alone.

Last week's wake-up call was not merely a response to higher oil prices, though. Europe's governments traditionally present themselves as being able to solve all the electorate's problems. That was always an exaggeration, but in an increasingly integrated global economy, such claims quickly encounter harsh reality. "Globalization has steadily eaten away the central role of the state, and taken much of its former economic dominance and margin of maneuver away," says Dominique Mosi, deputy director of the French Institute of Foreign Relations. "What these protests do is restore some of that centrality to governments by insisting they correct market-driven developments."

For the past decade, Europeans have been told that a stronger, more tightly integrated and ever-larger E.U. would help them withstand the rigors of international competition. They were also assured that a single currency would enable Europe to stand up to the economic might of the U.S. But in the past two years E.U. citizens have come to question the benefits of integration and enlargement. And the steady, if largely benign decline of the euro it hit a new low of 85 last week has two-thirds of Germans saying they'd rather keep their deutsche mark.

Europeans' vague discontent with the state of the world has been exacerbated in recent months by the painful spike in oil prices. The public demands action from its leaders, the ones who promised they would forge a way through the changes wrought by globalization. But the main reason for the run-up in the price of crude oil OPEC's production restrictions coupled with the soaring demand for energy by an expanding global economy are not matters that Tony Blair or German Chancellor Gerhard Schrder or E.U. President Romano Prodi can effectively tackle. Taxation, which makes up the lion's share of pump prices throughout Europe, can be lowered; but then spending must be cut as well. The marketplace and the rules of E.U. membership set tough standards of fiscal prudence that governments disregard at a high cost.

A stronger euro would help lower the cost of motor fuel, since the world price of crude is set in dollars. Indeed, the currency's 26% drop against the dollar since it was introduced in January 1999 is responsible for a hefty portion of Europe's oil price hike since then. But the perils of a politician saying anything about the fledgling currency should by now be abundantly clear. Schrder's frank admission on Sept. 7 that the weak euro's positive effect on European exports made it "more of a reason to be happy than concerned" sent the euro to a new low against the dollar.

Last week's public unrest also shows up another of Europe's dilemmas: the countries have inextricably tied themselves together in the E.U.'s single market, but they often are unable to act in concert or even concordance. For all the heady talk of harmonization of economic policy, European governments reacted to the truckers' protests with a hodgepodge demonstration of how political necessity is still defined on national grounds. The French government started the ball rolling by granting up to $2,400 per truck in rebates on fuel taxes to offset the 36% rise in oil prices since the start of the year. That alone will cost the government $396 million; added to that is $63 million more in retroactive rebates on diesel fuel for farmers.

That response an all but total success for the protesters certainly whetted the appetite of farmers and truckers elsewhere in Europe for direct action. The governments of France's neighbors, however, weren't so quick to cave in to the demonstrators' demands. Even the congenitally weak Belgian government, an unwieldy coalition of liberals, socialists and environmentalists, refused to follow France in mandating a discount diesel price for professional truckers. The government did roll out a package of other deals including postponing the payment deadline for road taxes and reducing levies on insurance payments, but they were small beer compared to the concessions of its larger southern neighbor. "In a comparable situation, Belgium maintained its sangfroid better than France," crowed Brussels daily Le Soir in a front-page editorial.

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Britain's Tony Blair could not be seen to yield even that far, mindful that the last Labour government was brought down by public sector strikes in 1979. His government had already cut vehicle registration taxes and dropped a provision inherited from the Tories that raised fuel taxes at 6% above inflation. The Prime Minister took a suitably Churchillian stance, refusing even to meet with the protesters, let alone make new concessions. "Legitimate protest is one thing," he said at one of the three press conferences he held in the course of a mere 48 hours last week. "Trying to bring the country to a halt is quite another ... Were we to yield to that pressure, it would run counter to every democratic principle this country believes in."

In Germany, the debate centered on the controversial "eco-tax," a linchpin of the coalition agreement between Gerhard Schrder's Social Democrats and his governing coalition partners, the Greens. The tax, which has so far added 5 to the cost of a liter of motor fuel, is intended both as an environmental measure to discourage fuel use and as a money earner to offset cuts in Germany's employee welfare contributions. The opposition Christian Democrats, eager to gain a bit of tailwind against the maelstrom of a debilitating party finance scandal, have jumped on the eco-tax. On Thursday, 50 cdu members boarded scooters for a protest ride of their own through Berlin. Erwin Teufel, Baden-Wrttemberg's premier, urged Schrder to "take up the example of the socialist government in France" and lower fuel taxes.

That is not likely, to say the least. Schrder will have noticed that his counterpart across the Rhine, French Prime Minister Lionel Jospin, has reaped no political benefit from bending to what seemed the popular will: polls show Jospin's approval rating has plummeted by 20 percentage points since before the protests began. Says commentator Alain Duhamel: "He's got the worst of both worlds, because he negotiated his way out of the crisis without provoking any explosion, yet is being viewed as a scapegoat for people angered that oil prices went up in the first place."

Whichever tortuous path these governments took to resolve the short term crises, none of them can dismiss the prospect that the people will make themselves heard again. The British protesters will be looking for partial relief on fuel taxes within the next 60 days. But even if Blair and Chancellor of the Exchequer Gordon Brown find an honorable way to do that, they will almost certainly not be able to offset the considerable competitive advantage that foreign truckers, particularly those from Eastern and Central Europe, enjoy as a result of lower fuel costs and lower wages. And while OPEC's decision to increase its output by 800,000 barrels a day creates some relief at the margin, the increased winter demand in the northern hemisphere could postpone price drops for the next few months.

That continued uncertainty over oil prices "isn't going to do much for the euro," says Paul De Grauwe, an economist at the Catholic University of Leuven. That begs the question as to what if anything will help stem the almost unerringly downward trend of the common currency. Last Thursday the European Central Bank made a first, somewhat tentative stab at market intervention, buying euros with $2.2 billion in interest income generated by its holdings in other currencies. e.c.b. president Wim Duisenberg insisted that the move was a simple "reserve management operation," but he coyly added: "It was not motivated to damage the euro."

The fundamentals of the eurozone remain relatively good: projected growth in 2001 of around 3% as high as that of a slowing U.S. economy inflation rising at a much lower rate than in the U.S., and unemployment falling. But De Grauwe points out that those facts aren't enough to kindle the confidence the euro needs to take off again; as long as the common currency is foundering, analysts will seek to explain it with negative news, such as Europe's rigid labor market. "Once views are established in the market, they aren't beaten easily," he says. "I can't really remember a time when there hasn't been discontent about European politics. But when you have a belief that things are going wrong with the euro, you put that discontent in bold."

Europe's governments can't win these days. The current discontent is paradoxically given wings by the good economic news. "After long, dismal years of recession, people now feel confident that recovery is here to stay and insist that this returned economic health benefits everyone," says Duhamel. "We see rising expectations and the feeling that the proceeds of growth are being sucked away by taxation."

As the crisis over fuel costs ebbed at week's end, Europe's leaders had much to ponder. For starters: perhaps popular feelings deserve every bit as prominent a place in their deliberations as such grandiose and long-term projects as European integration, the E.U.'s eastern enlargement and the development of a common defense policy. Pocketbook issues are the ones that send people into the street. It is a lesson the politicians should not forget. By climbing down from the barricades before public opinion turned against them, the truckers and farmers showed a far finer sensitivity to popular feeling than governments did. And their timely departure leaves open the possibility of going back and doing it again.

With reporting by Bruce Crumley/Paris, J.F.O. McAllister/London and Ursula Sautter/Bonn