RHINELAND-PFALZ OFFICIALS CALL FOR DRASTIC

UNCLAS SECTION 01 OF 02 FRANKFURT 002252

SIPDIS

SENSITIVE

E.O. 12958: N/A
TAGS: PGOV PREL PINR ECON GM
SUBJECT: RHINELAND-PFALZ OFFICIALS CALL FOR DRASTIC
ECONOMIC REFORMS



1. (SBU) Summary: In meetings with the Consul General on
March 11 and 12, Rhineland-Pfalz Minister for Economics,
Transportation, Agriculture and Viniculture, Hans-Artur
Bauckhage (FDP) and State Secretary Karl-Heinz Klaer (SPD),
Representative of the State in Berlin and Brussels, called
for comprehensive and speedy economic reform in Germany.
Both politicians agreed Germany needs reform but doubted
whether Chancellor Schroeder had the political will to do
battle with the unions and the left wing of the SPD.
Bauckhage indicated that the support for the national
coalition could erode even further if unemployment remains
close to five million by the end of the year. Klaer and
Bauckhage regretted the ongoing tensions in German-American
relations. End Summary.


2. (SBU) Rhineland-Pfalz Minister for Economics,
Transportation, Agriculture and Viniculture, Hans-Artur
Bauckhage (FDP) and State Secretary Karl-Heinz Klaer (SPD),
Representative of the State in Berlin and Brussels, met with
the Consul General on March 11 and 12. Klaer stated that
the CDU majority in the Bundesrat creates a difficult
environment for the SPD-Green Party government. If
Schroeder had a cabinet as good as Roosevelt's, he could
push forward regardless, but he does not. Negotiating
compromises on legislation costs valuable time. According
to Klaer, Schroeder should copy Clinton's strategy and co-
opt some of the opposition's ideas. He noted that for
Schroeder this would mean loss of the support of the SPD
caucus, however.


3. (SBU) Much will depend on Schroeder's major policy speech
on Friday, March 14. Expectations were raised too high,
Klaer said, making them too hard to meet. Recalling his
experience as speechwriter to former chancellor Willy
Brandt, the proven strategy is to lower expectations
beforehand, giving the policy speech more room to succeed.
He also emphasized that Rhineland-Pfalz Minister President
Kurt Beck (SPD) made clear to Schroeder that the current
economic situation is truly dire. Klaer said that Schroeder
must announce drastic reform measures, even if it means a
further loss of electoral support. Schroeder's problem will
be with the SPD Bundestag caucus, however, not with the SPD
party, which he described as "virtually dead." Klaer was
also very critical of the 2000 tax reform. A reform of the
federal-state revenue sharing system was needed along with
it: tax reforms alone are useless.


4. (SBU) Klaer regretted the tensions in German-American
relations and stated that Minister-President Beck would
personally insist on ensuring that the U.S. military will be
able to perform its missions from Germany during a possible
Iraq war. Security measures to protect American
installations will be further enhanced in case of a military
conflict.


5. (SBU) Klaer, who is also the state's representative in
Brussels, is satisfied with the progress of the European
Convention. A result can be presented at the end of 2003,
which then has to be passed by the EU member states. The EU
expansion candidates are also represented in the convention.
He reported that in the beginning Great Britain tried to
dominate the Convention but failed. The Convention is
following the 200-year-old American constitutional example.


6. (SBU) Economics Minister Bauckhage expressed similar
concerns about the state of the German economy. Germany's
social system and its bureaucratic apparatus need a complete
overhaul. Bauckhage stated that Minister-President Beck
also considers drastic reforms essential and unavoidable.
Unlike Klaer, however, he could not assess the degree of
Beck's influence on the national SPD leadership. Bauckhage
felt Germany was in danger of sliding into the same
situation as Japan. "The door to deflation has been
opened," he said. People have lost faith in the government,
they are saving their money and consumption is collapsing.
He also criticized the planned investment program of the SPD-
Green government as ineffective: he doubts that Schroeder
has the political will to push through reform. He predicted
that the national government might sail into heavy weather
if unemployment is still close to five million by the end of
2003, but admitted that the problems date back to the late
years of Chancellor Helmut Kohl's administration. The FDP
should have left the national coalition when the CDU failed
to implement tax reform. Bauckhage also called for a
simplification of the German tax system. "Everyone in the
Chancellery should take Economics 101," he said.


7. (SBU) Bauckhage also emphasized the need for an
effective, rational immigration law. Immigration is an
emotional issue and should be handled with care by all
parties. There are certain taboos in Germany, which should
not be touched by politicians, referring to Moellemann's
controversial campaign brochure, viewed as anti-Semitic,
which Bauckhage felt cost the FDP and the CDU the election
victory last fall.


8. (SBU) Bauckhage also criticized Schroeder's strategy of
playing the Iraq card during national and state election
campaigns. Schroeder's foreign policy has already created
problems in diplomatic circles and might lead Germany into
international isolation. He said the strained bilateral
relationship will have a negative impact on U.S. military
installations in Ramstein and Spangdahlen, which are of
considerable economic importance to the state. Bauckhage
worried that troops now deployed in Iraq may not return to
Germany.


9. (SBU) Comment: The SPD-FDP coalition in Rheinland-Pfalz
is unique in Germany. Both coalition partners agree that
drastic reforms are needed at the national level
immediately. There is palpable concern, however, in both
the Rheinland-Pfalz SPD and FDP, that resistance to change
in unions and the SPD Bundestag caucus is too great.
Schroeder might fail in his efforts to move the country
forward. The Rheinland-Pfalz SPD hopes that Minister-
President Beck, who supports reform, can use his influence
at the national level to help move things in the right
direction. There is also real concern in the state about
tensions in the German-American relationship. With two
large U.S. military bases in economically weak regions,
thousands of jobs could be lost if bases downsize or close.
In addition to the already desolate economic situation,
leading politicians in the state are afraid that U.S. troops
might leave Rheinland-Pfalz. End Comment.


10. (U) This message was coordinated with Embassy Berlin.

BODDE