SCENESETTER FOR CODEL SHELBY'S MAY 29-JUNE 1 VISIT

UNCLAS SECTION 01 OF 02 ATHENS 001440

SIPDIS

FOR H -- PLEASE PASS TO CODEL SHELBY FROM AMBASSADOR
CHARLIES RIES

E.O. 12958: N/A
TAGS: ECON GR OREP PGOV PREL CODEL
SUBJECT: SCENESETTER FOR CODEL SHELBY'S MAY 29-JUNE 1 VISIT
TO ATHENS

REF: STATE 92588


1. (SBU) Embassy Athens warmly welcomes your May 29- June 1
visit. We have arranged a meeting with Foreign Minister
Molyviatis to discuss general political and economic topics,
as well as a meeting and lunch with Central Bank Governor
Garganas to discuss banking policy. Finally, you will have
the chance to discuss terrorist financing and financial
concerns with Deputy Minister of Economy and Finance Doukas.
I look forward to meeting with you and the Embassy will do
all it can to make your visit a productive one.


2. (SBU) Your visit to Greece comes in the immediate
aftermath of Prime Minister Karamanlis,s May 20 meeting with
the President in Washington. The two leaders affirmed their
strategic partnership, and discussed a variety of issues,
including democratization in the broader Middle East region,
Iraq and Afghanistan, the Balkans and relations among Greece,
Turkey and Cyprus. Greece wants to be helpful, particularly
in the Balkans and Middle East. Greece is also helping to
fund the NATO training mission in Iraq, and has a contingent
of soldiers in Afghanistan.


3. (SBU) The GoG has been very helpful on the issue of
terror financing, cooperating fully with us on all levels.
The Ministry of Economy and Finance has the lead on the
issue, but the Bank of Greece also plays a large role in
notifying commercial banks and credit institutions of U.S.
terrorist designations. However, it is worth noting that
Greece,s ability to detect terrorist money, or money
laundering in general, is limited. In particular, some
smaller banks outside of Athens are still not computerized,
making the tracking of money flows difficult.


4. (U) Economically, Greece has been suffering for years
from chronic trade and current account deficits, compounded
by declining competitiveness. Karamanlis is under European
Commission pressure to reduce the government deficit at the
same time that GDP growth is projected to fall, due largely
to the end of construction projects related to last year's
Olympic Games. He also must privatize a variety of
state-owned sectors, including transportation and energy,
while minimizing structural dislocation that could cause
social unrest (or at least be politically damaging) in a
country accustomed to lifetime employment and generous
retirement packages.


5. (SBU) None of these reforms will be easy, given that
inflationary pressure from rising health care and pension
costs are expected to exceed those of any other EU member, a
strong euro continues to weaken already lackluster Greek
exports, and the growth in tax revenue continues to fall
behind the rate of inflation in a country infamous for its
tax evasion problems. GDP growth in 2004 was 4.2 percent,
buoyed by both construction and consumption during the
Olympic period. Unemployment averaged 10.5 percent in 2004,
although it hit a first quarter peak of 11.3 percent.
Consumer price inflation rose by 3 percent, down from 3.4
percent in 2003, but still well above the 2.1 percent
European average. 2005-06 forecasts estimate GDP growth from
2.7 to 3.2 percent, and a government deficit ranging from 3.2
to 4 percent of GDP.


6. (SBU) The Bank of Greece, Greece,s central bank, is seen
as a fair broker and often publishes forecasts at odds with
the more optimistic projections from the GoG. In particular
Governor Garganas has been active in warning the government
it must control its aggregate public debt, over 112 percent
of GDP, and exercise better fiscal discipline. He has been a
voice of caution on pension funds in the country, many of
which are either currently unfunded (such as those for the
banking industry) or are facing unfunded liability in the
near future. Garganas has also urged the GoG to increase the
pace of privatization in the country.


7. (U) Karamanlis, in power since March 2004, has faced many
challenges since his election. Southeast Europe is a tough
neighborhood, with the countries of the ex-Yugoslavia
struggling to move beyond the wars that wracked the Balkans
in the 90's. As the only country in the region that is a
member of both NATO and the EU, Greece has a special role to
play in bringing security and prosperity to the Balkans.
Greece is also working to revive negotiations on the future
of Cyprus, which has been an open question since the
referendum on the UN Secretary General,s plan last April
failed to gain Greek-Cypriot approval. The Greek Government
has pursued a policy of rapprochement with Turkey, and is a
staunch supporter of Turkey,s accession to the European
Union. Unresolved air/sea space demarcations in the Aegean
exacerbate tensions between the two countries, however.


8. (SBU) The good news is that our relations with the Greek
government are good and getting better, despite policy
differences (Iraq, Kyoto, the ICC). Our primary objective
now is to find ways to encourage Greece to become a more
active partner on our regional and global agendas. This is
particularly true given Greece,s current two-year (2005-07)
seat on the UN Security Council and willingness to take an
active part in resolving long-standing problems in the
Balkans, including the status of KOSOVO and bringing war
criminals to justice. An issue that may arise during your
visit, however, is the ongoing name dispute between Greece
and Macedonia. When the U.S. recognized the Republic of
Macedonia by its constitutional name last November, there was
an outcry here in Greece. While the U.S. took the decision
to help prevent ethnic unrest in Macedonia, the Greeks saw
our decision as undermining the UN process to resolve the
name issue. Our action has actually reenergized the UN
process. We support the UN talks and will use whatever name
the two sides agree on.


9. (U) Again, I welcome your visit to Greece, and look
forward to productive and informative meetings.
RIES