SECRETARY PAULSON'S LUNCH WITH CHANCELLOR BROWN

C O N F I D E N T I A L LONDON 008207

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NOFORN
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E.O. 12958: DECL: 11/28/2016
TAGS: EFIN ETRD EAID SENV UK
SUBJECT: SECRETARY PAULSON'S LUNCH WITH CHANCELLOR BROWN


Classified By: Ambassador Robert Tuttle for reasons 1.5 (b) and (d)


1. (C/NF) Summary: Chancellor Gordon Brown hosted visiting
Secretary of the Treasury Henry Paulson for lunch November 28

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at Number 11 Downing Street. They discussed climate change,
advance market commitments to provide vaccines in developing
countries, the future of the Doha Round, and the need to be
ready for any future financial shock.


2. (SBU/NF) The Chancellor was joined at the lunch by
Governor of the Bank of England Mervyn King, Financial
Services Authority Chairman Callum McCarthy, Chief Secretary
to the Treasury Stephen Timms, Economic Secretary to the
Treasury Ed Balls, HM Treasury Managing Director for
International and Finance Jon Cunliffe, and Economic Adviser
to the Chancellor Shriti Vadera. Secretary Paulson was
joined by Ambassador Robert Tuttle, Undersecretary of the
Treasury Timothy Adams, and Senior Adviser Michele Davis.
End summary.

Financial Stability


3. (C/NF) Secretary Paulson commented that the world economy
is as strong as it has ever been, adding that there had not
been a global financial shock in a long time. But he noted
that finance ministries must be ready to act in the event of
a shock. Bank of England Governor Mervyn King agreed, noting
his fear that markets had become accustomed to low interest
and inflation rates, and expressing his concern that any
sharp increase in interest rates could exacerbate an eventual
crisis. The participants also discussed the likely German G8
proposal on hedge funds. All agreed on the need to monitor
the growth and activities of hedge funds. Both the U.S. and
the UK said that they had conducted simulation exercises on
how they would handle a financial crisis. Secretary Paulson
and Chancellor Brown agreed that the U.S. and the UK should
conduct a joint tabletop crisis exercise.

Climate Change


4. (C/NF) Chancellor Brown, citing the recent Stern report,
underlined the importance of taking action against climate
change. He noted that he had recently spoken to World Bank
President Paul Wolfowitz to urge the World Bank to encourage
developing countries to invest in alternative energy sources.
The Chancellor also congratulated Secretary Paulson on his
open approach to the issue of climate change. Secretary
Paulson offered little hope that the U.S. would change its
position on carbon trading at the federal level, but noted
that the U.S. may propose some new initiatives on climate
change under the theme of "energy security."

Advance Market Commitments


5. (C/NF) Chancellor Brown encouraged Secretary Paulson to
participate in the UK-led initiative involving advance market
commitments (AMC) to encourage pharmaceutical companies to
build capacity now to produce pneumonia vaccines for use in
the developing world. Secretary Paulson noted that it was an
excellent idea, but said that the U.S. does not have the
funds to participate in the program. Chancellor Brown
responded that even a symbolic participation by the U.S.
would be very helpful.

Doha Round


6. (C/NF) Secretary Paulson stressed that market access is
the key to resolving the deadlock in the Doha Round. He
noted that conventional wisdom surrounding the impossibility
of concluding the round might be overstated, saying that with
Doha, a new farm bill, and the expiration of trade promotion
authority all coming simultaneously, "you never know what can
happen." Chancellor Brown complained about the high level of
EU agricultural subsidies. He said that by 2012, ten percent
of the EU's budget will go to France in the form of
subsidies. He also said that, as Poland fully integrates in
the EU's common agricultural policy, it would be a huge
beneficiary of EU subsidies.


7. (U) This cable has been cleared by U.S. Treasury.

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