SCENESETTER FOR VISIT OF NEA PDAS JAMES F. JEFFREY

C O N F I D E N T I A L BERLIN 003433 SIPDIS SIPDIS STATE FOR NEA/FO, NEA/IR, EUR/AGS E.O. 12958: DECL: 12/05/2016 TAGS: PGOV PREL GM SUBJECT: SCENESETTER FOR VISIT OF NEA PDAS JAMES F. JEFFREY Classified By: POLITICAL MINISTER COUNSELOR JOHN BAUMAN FOR REASONS 1.4 (b)/(d) ¶1. (C) After a brief honeymoon during her first year in office, Chancellor Angela Merkel and her Grand Coalition government face low opinion ratings at home. This owes largely to difficulties with domestic economic, social, and political restructuring; the debate about the role of German troops overseas plays a role as well. The approaching presidencies of the EU and G-8 will put Merkel and her government in the spotlight. ¶2. (C) After focusing on foreign policy in its initial months, the government turned its attention to its extensive domestic agenda, which included a value-added tax increase, corporate tax relief, passage of an EU-mandated anti-discrimination law, and reforms to Germany's health insurance system. They reached broad agreement on a 3 percent value added tax increase, which will enter into effect in 2007. Progress on economic reform has been slow due to differences not only between the coalition parties, but also among Chancellor Merkel and the CDU Ministers-President in several states. Successful reforms are key to Germany again becoming an engine for European and global economic growth, to enable Germany to play a more active role as a global partner for the U.S., and to help free market forces win in the EU. Several months of declining unemployment and rising growth may help to redress some of the public opinion losses Merkel and her government have suffered since the summer. ¶3. (C) Despite the good economic news, there is a general sense Merkel and her Coalition need to tackle pension, labor market, tax, regulatory and other economic problems dating back to the Kohl era. At the same time, there is little consensus in how to move ahead. Business leaders tell her and other senior Coalition figures they are unhappy with the lack of progress to date; the press snipes at every idea and highlights every politician's utterance that suggests differences among the Coalition partners. Business leaders often note their companies may be doing well worldwide, but that does not mean they are doing well in Germany. Flagship German companies may be looking more at operations in China or India or the U.S. than at sales in Germany. ¶4. (C) FOREIGN POLICY: The grand coalition continues to manage foreign policy with little friction. The CDU and SPD have few, if any, differences over key issues such as Iran, Russia and the Middle East. There are differences, such as over Turkish accession to the EU; although policy is clearly spelled out in the coalition agreement, Merkel is increasingly vocal about her opposition to Turkish EU membership. ¶5. (C) EU PRESIDENCY: When the Germans hold the EU presidency next year they will highlight a new "neighborhood policy" for countries like Ukraine and Georgia that would strengthen ties with the EU. The Germans have also made strengthening ties between the EU and Central Asia a priority for their presidency and hope to prepare the ground, during their presidency, for a new Partnership and Cooperation Agreement to be signed between the EU and Russia. ¶6. (C) SECURITY POLICY: Chancellor Merkel has emphasized the "primacy of NATO" in Germany's defense and security policy. Her government recently approved a White Paper on defense that represents a new level of Germany ambition to meet its security responsibilities. The White Paper stresses the concept of "networked security" -- coordination of civilian and military efforts to achieve security goals. Germany continues to be one of the largest contributors to NATO operations, including ISAF, and is committed to the success of ISAF's engagement in Afghanistan. However, the Germans have continued to resist strongly, most recently at the Riga Summit, calls by Allies to eliminate caveats that inhibit them from deploying troops to southern Afghanistan. ¶7. (C) IRAN: Germany stands against Iran acquiring nuclear weapons. Its historically close ties with Iran continue to complicate their current relationship, as concerns about Tehran's nuclear program and human rights conflict with Germany's strong economic interests there. The Germans say they do not consider broad-based sanctions to be an effective instrument. One major factor in its reluctance to sign onto tougher sanctions is Germany's continued economic interests and trade relationship with Iran. From January to November 2005 Germany exported over four billion euro in goods to Iran. Despite the current political climate, German industry is still making large deals with the Iranian government: Siemens is reported to have recently signed a $450 million deal with the GOI to produce train cars for the expansion of the Iranian rail system. ¶8. (C) While Iran is not a top priority for the German EU Presidency, MFA officials have noted that they will pursue human rights issues in their country-specific Presidency planning and programming, focusing on strengthening Iranian civil society. Meanwhile, German media have started picking up the issue of the December 11-12 Tehran Holocaust conference, which is expected to prominently feature Holocaust deniers. The MFA's office for Holocaust issues and anti-Semitism has told Post that they plan to make a "factual, nonemotional" statement, noting concern (but not outrage) about the event, Germany's semi-public Federal Office for Civic Education, together with a number of NGOs, is co-sponsoring a bona fide Holocaust conference in Berlin to coincide with the Tehran conference. ¶9. (C) LEBANON/SYRIA: The Germans have been very active in the diplomacy surrounding the UNIFIL deployment to Lebanon. Chancellor Merkel sees the UNIFIL mission largely through the prism of Germany's historic responsibility to protect Israel. The German naval contingent of UNIFIL has about 1,000 troops, and is the first significant German troop deployment to the Middle East. Germany has deployed no ground troops, largely over concerns that German soldiers might get involved in an exchange of fire with Israeli troops, which is viewed as unthinkable because of Germany's history. Germany has also provided Lebanon with scanning equipment to detect weapons crossing the border with Syria or entering ports. A small group of German customs officers is helping to train Lebanese customs officers. The Germans have strongly resisted an active role by their officers in actually monitoring the border. ¶10. (C) The Germans believe that the Lebanon issue--in particular preventing weapons from entering Lebanon from Syria-- can ultimately only be solved by inducing Syria to be more cooperative through engagement. There are differences of opinion between the Chancellery and Foreign Ministry about the timing of such engagement. Foreign Minister Steinmeier has cautiously pursued contacts with Syria, most recently in talks with Syrian President Bashar al-Assad and FM Waleed al-Mu'allim December 4. During his visit to Damascus, Steinmeier called on Syria to respect Lebanese sovereignty, to exert a "moderating" influence on Hizbollah in order to end the anti-government demonstrations in Beirut, and to support the Hariri tribunal. ¶11. (C) IRAQ: Our efforts to push for increased German support for Iraqi reconstruction continue to meet with a mixed response. We have continued to use the list you provided to senior German officials during your December 2005 visit to push Germany for action, but progress stalled after early and welcome Merkel government moves to address Iraq debt and join IRFFI. German officials frequently cite the Baghdad security climate as an obstacle to sending visitors, stationing officials, or providing training anywhere in Iraq. Steinmeier has invited Iraq,s foreign minister to Berlin in a sign of political support and expressed his own interest in visiting Baghdad at some point in the future. Germany is considering expanding some training programs, e.g., for civil servants, and restarting its police training program for Iraqis in the UAE. We remain convinced Germany, given its experience in democratic/economic development elsewhere in the world, its resources, and its decades-long involvement in Iraq can do more. We have informally proposed to them that if the international community decides on the need for a senior level Iraq Compact meeting in the near future, Germany should offer to host it, especially given its 2007 G-8 Presidency and its EU Presidency during the first half of ¶2007. ¶12. (U) MEPP: Germany, in particular Chancellor Merkel, remains strong supporters of Israel, while also continuing to publicly voice support for the Quartet. In his December 2 meeting with Palestinian President Mahmoud Abbas, Steinmeier promised to work for reactivating of the Quartet during Germany's EU presidency. KOENIG