Oil and food divide France, Germany at EU talks

By David Milliken and Niclas Mika

BRUSSELS (Reuters) - Germany dismissed French calls for a cap on fuel tax when EU finance ministers met on Tuesday, and said there was little governments or the European Central Bank could do to rein in runaway crude oil prices.

France, represented by Economy Minister Christine Lagarde, played down the affair, saying discussions were in their early days and no stone should be left unturned.

Germany also slammed proposals from the European Commission for a tax system change that would allow French President Nicolas Sarkozy to deliver on an election pledge to lower the rate of sales tax the restaurant industry has to pay.

The split on both issues surfaced when finance ministers of the 27 European Union countries met in Brussels, on the heels of a Monday gathering of countries in the euro zone that acknowledged oil-driven inflation and high food prices were a major headache for households and the economy.

"We have to admit we have to deal in the energy sector with an external price shock which neither the ECB nor the EU or the member states can influence," German Finance Minister Peer Steinbrueck said. "One day we have to acknowledge that, instead of telling people we can turn this or that screw."

Oil prices have risen nearly 50 percent this year and almost five-fold in the last five years, mainly because of surging demand from rapidly developing economies, above all China.

The ECB raised interest rates last week on the grounds that inflation, mostly caused by rising fuel and food prices, had to be prevented from getting out of hand.

Europe and the rest of the industrialised world are at pains to do more than issue statements of concern as the cost of crude oil surges from one record to another. Food prices have soared as well, in part because costly oil means expensive fertiliser.