GME: GETTING THE BALANCE RIGHT BETWEEN THE G-8 AND

C O N F I D E N T I A L SECTION 01 OF 02 BRUSSELS 001919

SIPDIS

NSC FOR EDSON
DEPT FOR EUR/ERA, E, EB AND NEA/PI

E.O. 12958: DECL: 05/03/2009
TAGS: PREL EAID EUN USEU BRUSSELS
SUBJECT: GME: GETTING THE BALANCE RIGHT BETWEEN THE G-8 AND
US-EU SUMMITS

Classified By: USEU Poloff Lee Litzenberger; Reasons 1.5 (b,d)


1. (C) Summary. According to an EU official working on
the issue, the EU is becoming increasingly skeptical of the
U.S.'s GME proposals for the G8 summit. Citing Commissioner
Patten, the official said the G8 should stick to a political
statement supporting regional reform; the U.S.-EU summit
should focus on a plan of action. On the U.S. proposal to
establish a facility to finance small and medium enterprises,
he said, "The EU is already doing this -- and on a much
larger scale than the U.S. proposes." Microfinancing, the
official said, is a good idea but is labor intensive and
unpopular with governments in the region, who claim it funds
Islamic fundamentalism. The EU is concerned that U.S.
proposals for the G8 will divert EU member state resources
from the EU's Barcelona Process, just as the EU is
negotiating its 2007-13 budget. EU officials are considering
the U.S.'s ideas, but have been distracted by the need to
prepare for the May 5-6 Euromed ministerial meeting in
Dublin. End Summary.

EU uneasy over U.S. proposals for G8 summit
--------------

2. (C) On April 30, European Commission Director for the
Barcelona Process, Patrick Laurent, provided visiting U.S.
Treasury Department officials his views of the U.S. proposals
for GME at the G8 Sea Island summit. He said the EU is
considering the U.S. proposals, but is increasingly skeptical
of them as they become more detailed and specific. Laurent
acknowledged there is a consensus for a broad strategy to
support reform in the region, but beyond that, views tend to
diverge. He said there was no agreed definition of GME, and
regional leaders don't like the term -- the Saudis, he said,
resent being put in the same group as countries in the
Maghreb. The U.S. seems to be moving the G8 to agree to
specific financing instruments -- a mistake, in Laurent's
view, that was taking the summit in the wrong direction.

G8 should issue statement; U.S./EU should do action plan
--------------

3. (C) Citing EC Commissioner Chris Patten, Laurent said
the G8 summit should issue a political statement (which he
said would send an important signal to the region); the
U.S.-EU summit should follow-up with an action plan.
Discussion of GME at the G8 summit began with an a la carte
list of ideas. Now, however, the latest U.S. proposals are
getting into implementation and programs. The G8, Laurent
argued, is a macro-economic forum, not a place to discuss
programs. Going that route will raise expectations, but
won't result in getting the pledges needed to meet them. The
U.S. ideas seemed to focus on creating financing
"instruments". EU implementation of these proposals would be
difficult, Laurent said. The U.S. proposals altogether
amount to only $100-150 million; the EU is already providing
ten times that amount to the region. The EU doesn't need
GME. The EU already has initiatives in place in the region
-- its Euromed program (based on country specific action
plans) and, more recently, its new European Neighborhood
strategy.

Diversion of resources from EU programs?
--------------

4. (C) Laurent also expressed concern that the U.S.
proposals, if implemented, would reduce EU member state
ability to fund the EU's Euromed initiative. The EC was
seeking a three-fold increase in Euromed funding (from 800m
euros to 2.4 billion per year) for the 2007-2013 period.
Laurent said he doubted the EC's ability to meet its target,
but it is making a major push to increase funding to the
region. If France, Italy, Germany and the UK commit to
financing a G8 initiative in the region, Laurent is concerned
that the funds will come out of the Euromed budget. EU
members, he said, "should respect the primacy of existing EU
instruments".

U.S. Proposals for SME's and Microfinancing
--------------

5. (C) Laurent said the U.S. proposal to create a facility
to finance small and medium enterprises (SMEs) was a case in
point. The EU was already doing this, and on a much larger
scale than envisioned in the U.S. proposal.
FEMIP, the European Investment Bank's Facility for
Euro-Mediterranean Investment and Partnership, directed more
than a third of the 2.1 billion euros it loaned to the region
in 2003 to support private business development. On the U.S.
proposal to provide microfinancing, Laurent said this was a
good idea in principle, but that it was very labor intensive
and unpopular with governments in the region, who claim these
programs can end up funding Islamic fundamentalists. For
these reasons, the EU was moving away from micro-financing.

Let the U.S.-EU Summit Lay Out an Action Plan
--------------

6. (C) Laurent said it makes sense for the G8 to set broad
priorities and objectives, but he argued that the U.S.-EU
summit was best suited to working out the details of an
action plan that would identify "things the U.S. and EU can
do side by side" in the region to promote reform. He
cautioned, however, that any initiative would need support
and "ownership" in the region, and this would take time to
build. For example, Laurent said that the EU has tried to
set up a regional development bank in the Euromed region in
the past, but failed due in part to member state objections.
He speculated that if the U.S. were to announce its intention
to fund a bank in the Gulf area, where the EU does not
provide assistance, it could spur the EU to make another
effort at establishing a bank for Mediterranean Arab
countries. This was a hypothetical example of how the U.S.
and the EU could work in tandem.

Comment
--------------

7. (C) Laurent's comments reflect his institutional bias
for promoting the EU's substantial ongoing programs in the
region, and his aversion to any initiative that might
undercut the budget for these programs. They are likely to
carry weight within the Commission as the EU considers the
U.S. proposals for the G8 summit, but EU policymakers have
been distracted by the need to prepare for the May 5-6
Euromed ministerial in Dublin and have not focused on
responding to our ideas yet. To the extent our proposals are
interpreted here as competing for funds (at least from
France, Italy, Germany and the UK) for the EU's Euromed
program, it will be viewed with skepticism in Brussels. On
the positive side, it appears the EU is prepared to work with
us to hammer out some kind of action plan for the U.S.-EU
summit that will demonstrate our shared commitment to promote
reform in the region. The challenge for us in the coming
weeks will be finding the right balance between the two
summits.

SCHNABEL