CHANCELLOR MERKEL PREVIEWS G-8 SUMMIT

UNCLAS SECTION 01 OF 02 BERLIN 001071

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SUBJECT: CHANCELLOR MERKEL PREVIEWS G-8 SUMMIT


1. Summary: German Chancellor Merkel emphasized climate
change, hedge funds, Africa, and closer cooperation with
emerging economies as core themes for the June 6-8 G-8 Summit
in her remarks before the Bundestag May 24. Merkel
acknowledged the debate on climate change is contentious, but
argued developed countries need to take a leadership role to
encourage emerging economies to act. Merkel listed increased
energy efficiency, alternative and renewable energies, as
well as clean energy, as key solutions. In a May 25
newspaper interview, Merkel's chief of staff Thomas de
Maiziere rejected attempts to put blame solely on the United
States, saying Russia and emerging economies such as India
and China are "difficult partners," as well. DeMaiziere said
the U.S. was "willing to move" on energy efficiency and
predicted this would test the EU's ability to keep up.
Merkel did not anticipate issues involving hedge funds would
be resolved at the Summit, adding Germany would pursue the
issue beyond its G-8 presidency. On Doha, Merkel said the EU
is ready to move forward if other WTO members are. End
Summary.


2. German Chancellor Angela Merkel's speech before the
Bundestag May 24 outlined Germany's agenda in the run-up to
the G-8 Heiligendamm Summit, scheduled for June 6-8. Merkel
told the audience that globalization presents G-8 countries
with opportunities, not just challenges and risks. Germany,
with eight million jobs dependent on exports, will benefit
from free trade as much as developing countries and emerging
economies. She noted that 45 percent of the German GDP stems
from exports. Merkel identified seven core themes for
Heiligendamm: Global Growth; Innovation; Cross-Border
Investment; Social Standards for Globalization; Climate
Change; Liberalization of Global Trade; and Africa.

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Outreach
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3. Regarding cooperation with emerging markets, Merkel
described the dialogue with the Outreach Five (China, India,
Mexico, South Africa, and Brazil) as crucial. She noted
there would be a meeting with representatives from those
countries as part of the G-8 Summit on June 8. According to
Merkel, there are no plans to expand the G-8 to G-13, but it
is necessary to continue to carry on an "issue-oriented
dialogue with these countries beyond the Heiligendamm
Summit." Challenges such as climate change and IPR can only
be tackled jointly, she noted.

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Climate Change
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4. Merkel emphasized the need to reduce CO2 emissions and
ensure that global average temperature increases do not
exceed pre-industrial levels by more than 2 degrees Celsius.
She conceded the tone of the climate change debate is
controversial -- as was the case at the U.S.-EU Summit -- and
said the G-8 needs to adopt a common position. The world,s
leading industrialized countries need to take a leadership
role; only then can they encourage emerging economies to
follow suit. Merkel also stressed the need for more
efficient, clean energy use in the form of new power plants,
energy efficient buildings, and new fuels.


5. In a May 25 interview with Berliner Zeitung, Merkel's
chief of staff, Thomas de Maiziere, warned against "premature
judgment," saying he still expected "considerable movement at
the Summit by all participants." He cautioned against an
expectation of agreeing on specific results comparable to
those produced by the Spring European Council meeting. De
Maiziere rejected attempts to put all blame for the lack of
progress on the United States, pointing to Russia and the
emerging economies as difficult partners on the issue, as
well. "In the area of energy efficiency the U.S. was willing
to move" he said and predicted that this would test the
Europeans' ability to keep up. At that point, de Maiziere
said, "it would be all about technology and industrial
capabilities."

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BERLIN 00001071 002 OF 002


World Economy / Global Growth
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6. Turning to the "Global Growth" chapter, Merkel pointed out
the important role of hedge funds for financial markets. She
stressed the need for greater transparency in order to limit
the risks of destabilizing effects associated with hedge
funds and called for a "code of conduct" and standards for
risk management. Merkel said she did not expect a quick
solution at the Summit; nevertheless, Germany will pursue the
issue beyond its G-8 presidency. In the May 25 Berliner
Zeitung interview, de Maiziere rejected the notion that
Germany's efforts on hedge funds had not produced tangible
results. The German initiative raised the profile of the
issue and placed it on the international agenda, he said,
stressing "we have had more progress in the last three months
(on hedge funds) than we had in the last three to four years."


7. On IPR, Merkel said that protection of intellectual
property rights is important for fostering innovation. The
G-8 members need to work with emerging economies to combat
counterfeiting, piracy, and other IPR infractions. Merkel
stated the G-8 must emphasize that foreign investment is a
key component for growth and encourage countries to lower
barriers. Merkel urged trading partners to continue opening
their markets if they expect to have access to "our markets."
Merkel told the audience that the G-8 needs to push for
dialogue with emerging economies on the social aspects of
globalization and send strong signals for establishing social
standards. Merkel mentioned the ILO, OECD, and UN Global
Compact as fora for establishing standards for corporate
social responsibility.


8. On global trade, the Chancellor underlined the small
window of opportunity to conclude the WTO Doha Round
successfully and all of the members should be prepared to
compromise to get a deal done. The EU is ready to move
forward if other members are.

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Africa
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9. Merkel stressed the need to deepen and widen cooperation
with African countries. She announced the five founding
countries of the New Partnership for African Development
(NEPAD) -- Algeria, Egypt, Nigeria, Senegal, and South Africa
-- would be present at the Summit on June 8. Merkel said she
saw this as a sign for the support of good governance by the
G-8. Merkel mentioned Africa's economic growth and described
it as a continent that's "on the move." However, Merkel
noted there is plenty of work to be done, citing recent
elections in Nigeria and the demolition of poor neighborhoods
in Zimbabwe as examples.


10. Merkel said Germany will honor its pledge to increase
funding of development assistance (it aims for 0.7 percent of
GDP) with a sizable portion going to improve health care
systems in Africa, specifically in combating HIV/AIDS.
Merkel noted Germany would free up an additional 400 million
euros in 2007 to combat HIV/AIDS and would look for G-8
contributions to the Global Fund and replenishment
conference.

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"A Human Face"
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11. Merkel concluded by saying Germany's G-8 agenda
demonstrates that Germany is aware of its responsibilities.
By tackling global challenges, Germany hopes to show the
world the G-8's "human face."

TIMKEN JR