GERMAN VIEWS ON ADDITIONAL EU DESIGNATIONS OF

C O N F I D E N T I A L BERLIN 002140

SIPDIS

SIPDIS, P, T, E, NEA, ISN, EUR, EEB,

E.O. 12958: DECL: 11/29/2017
TAGS: KNNP MNUC PARM EFIN ETRD ECON PREL IR EU GM
SUBJECT: GERMAN VIEWS ON ADDITIONAL EU DESIGNATIONS OF
IRANIAN ENTITIES AND INDIVIDUALS

REF: STATE 160808

Classified By: DCM John M. Koenig for reasons 1.4
(b) and (d).


1. (C) SUMMARY: German Government officials are still
deliberating at a very senior level how they will proceed on
the UK and French proposal to add Banks Melli and Saderat and
the Ex-Im Bank of Iran to the April 2007 EU list of
designated individuals/entities. German officials regard the
UN path as the most important to demonstrate international
community solidarity, insisting that EU autonomous measures
in advance of efforts to achieve a third UNSCR would give
China and Russia an excuse - and an economic incentive - to
back out of the UN process. German officials also note that
Germany will pay a higher economic price for additional
autonomous designations/measures than its EU counterparts.
These arguments notwithstanding, we have begun to see
indications inside the Chancellery that Germany would be
willing to agree to designate only Bank Melli but have that
designation take effect only after a certain delay (perhaps
in January, by which point the UNSCR process would be assumed
to have run its course). Embassy Berlin has stressed with
German Government officials at all levels that increased
pressure on Tehran is the only way to succeed in persuading
the regime to comply with its international obligations.
However, German officials insist that including all three
banks in EU listings in advance of a third UNSCR looks less
like an "expansion" under existing measures, and more like
"new" measures. Convincing the Germans to change their
position will likely require sustained engagement at very
senior levels. END SUMMARY.


2. (C) Emboffs delivered reftel demarche to key officials and
action officers in the Chancellery, MFA, and Economics
Ministry on November 28.

CHANCELLERY VIEWS


3. (C) Chancellery National Security Advisor Christoph
Heusgen noted on November 28 that he has not been following
the EU discussions in great detail, but has spoken with the
UK NSA MacDonald on the matter. Heusgen told DCM the German
interagency is currently examining possible further banking
designations, especially Bank Melli. Heusgen did not know
what the timing for a decision would be. He said MacDonald
told him this was the bank that would have the most impact if
Germany moved on sanctions. With regard to shifting of
funds, Heusgen said the Germans observed such activity in the
case of Bank Sepah, which they closed, and maintain that it
undoubtedly would occur in the case of Melli, since the
prospective designation is already out in the press. The
Germans are also concerned about the impact of broader
designations of Iranian banks on credit guarantees; in a
worst case, German taxpayers could be left holding the bag
for several hundred million Euros. (COMMENT: Heusgen seemed
to give more weight to the economic and business impact on
Germany than he has in the past. END COMMENT.)


4. (C) On trade, Heusgen said the Chancellor wants to focus
measures on areas where German technology/products are hard
to replace with substitutes from other exporters, e.g. China,
as she explained in Crawford. The Chancellery is targeting
the oil and gas sector, including machine and technology
supports, and Germany will take this line in the November 30
EU meeting. The Chancellor is also using "moral suasion" to
persuade high-tech firms to withdraw from the Iranian market.
The Chancellor met Monday evening with German Federation of
Industries (BDI) President Thumann and other BDI officials
and urged them to join her tough line on trade with Iran; she
told Heusgen that the attendees "understand the general line."

MFA NONPROLIFERATION DIVISION


5. (C) MFA Nonproliferation and Arms Control Office Director
Helmut Hofmann (the Arms Control Commissioner and his Deputy
were both outside Berlin) told POLMC that Germany's position
on listing (including banks, insurance, and transportation
firms) was currently under deliberation among German agencies
at "very high" levels. When asked if these deliberations
would be finished in time for the November 30 EU experts
meeting and December 1 P5 1 PolDir meeting, Hofmann retorted
that the Germans are aware of the dates but did not know if
deliberations would be finished by then. He added that
Germany is the country that will be most affected by further
steps and thus it wants to study these options carefully. He

echoed Heusgen's note that German taxpayers may be left
holding a several hundred million Euro bill should Iranian
companies default on payments; he also added that it is "easy
for countries to express wishes and desires when they are not
the ones affected."


6. (C) Asked if Germany is willing in principle to add banks
to the EU list, Hofmann said Germany is "ready." But if
several banks were listed, this would look less like an
"expansion" under existing measures, and more like "new"
measures. Hoffman said that in his personal opinion evidence
was still lacking in the case of some banks, but emphasized
that the decision is now at the political level.


7. (C) Asked whether EU listings would have immediate effect,
Hofmann responded that Germany wants to see where the UNSCR
process goes and does not want to see other steps (EU-only)
interfere with the UNSCR process. He does not foresee
anything taking effect in the next two to three weeks. POLMC
noted that while the desire for universality is understood,
we may be more likely to succeed through by EU3 1 unity. At
previous P5 1 meetings, replied Hofmann, the Russians
complained loudly and at length about USG "unilateral"
efforts (our designations in October); while Germany did not
agree with Russia's complaint, Hofmann asked if we really
want to give the Russians a pretext that could allow them to
sidetrack efforts.


8. (C) Hofmann added that he had heard figures that Germany's
trade with Iran might be declining by as much as 50 percent
(COMMENT: German Government economic experts tell us German
trade with Iran is projected to drop by 30 percent in 2007.
END COMMENT). Hofmann said the Finance and Economics
Ministries have real concerns about the listings but did not
elaborate. He raised the concern that it might not be in
Germany's or the West's long-term interest to push the
Iranians into the arms of China and Russia politically or
China and India economically. POLMC pointed out that that
time was not in our favor - there were shorter term issues
that were more pressing - halting Iran's progress toward a
nuclear weapons capability - and we needed to raise the
pressure on Iran.


9. (C) Hofmann suggested that if the proposed banks were
listed, then the situation could turn into a "type of
embargo." POLMC disagreed; there are other banks, including
private banks not involved in proliferation or terrorist
finance. Hofmann then asked why "reputable" German banks had
withdrawn from the Iranian market (under U.S. pressure, he
implied); POLMC pointed out that they did so voluntarily,
taking reputational and other risk, as well as due diligence
factors into consideration. (NOTE: In a departure from his
normal talking points, Hofmann made no attempt to justify the
situation at the IAEA.)

MFA ECONOMIC POLICY DIVISION


10. (C) MFA Economic Policy Officer Claudia Schuett pointed
to language in the October GAERC Conclusions stating that EU
action would "support the UN process." Schuett insisted that
EU autonomous measures in advance of a third resolution would
"undermine, not support" the UN process, by giving China and
Russia an economic incentive to continue dragging their feet.
Schuett reiterated that Germany will support EU autonomous
measures but that the key issue for Germany is timing.
Schuett argued it is premature to pursue EU measures as long
as there is still a chance to keep Russia and China on board.
As soon the text of a third resolution is finalized, or as
soon as it becomes clear China and Russia do not intend to
support a third resolution, Germany will support EU
autonomous action. She asserted this was consistent with the
Chancellor's position.


11. (C) Schuett noted that listing additional entities and/or
individuals (regardless of when such listings occur) will
require an EU Council decision to amend the April 2007
Council Common Position. From a logistical/mechanical
standpoint, she said, the Germans do not necessarily
distinguish between "new" and "expanded" listings/measures.
The key, she said again, is timing. Germany fears that
additional listings/measures now would be seen as an attempt
to "predetermine" a third UNSCR or give China and Russia an
economic incentive and/or excuse to back out of the UN
process.


12. (C) EconOff countered that, at this point, EU autonomous


measures might be the only lever we have to get Russia and
China to stop dragging their feet in New York. EconOff
stressed the importance of not just saying "no" to such
measures, but to propose constructive alternatives to address
Russian and Chinese intransigence. Schuett - thinking aloud
- said Volker Stanzel (German Ambassador to China prior to
becoming PolDir) was best positioned - at least within the
MFA - to convince China to support a third UNSCR.

ECONOMICS MINISTRY


13. (C) Ernst Roeder-Messell in the Economics Ministry's
Foreign Trade Law Division echoed Schuett's analysis. For
Germany, Roeder-Messell said, the question is "what
constitutes support versus what constitutes pre-emption" of a
UN resolution. On the question of EU autonomous sanctions,
Roeder-Messell argued, all German ministries are following
the Chancellor's lead. Merkel, he said, has repeatedly - and
publicly - expressed a strong preference for UN sanctions
first, followed by EU sanctions. "Russia and China are
looking for excuses" to back out of the UN process. Noting
that Chinese trade with Iran has continued to increase,
Roeder-Messell insisted EU autonomous measures before a third
UNSCR would give China an economic incentive to take
advantage of EU trade cuts by continuing to stall action in
New York.


14. (C) Roeder-Messell said German policymakers are still
discussing a German position on including Bank Melli and Bank
Saderat in EU listings, but remained concerned that listing a
major Iranian bank before the UNSCR would create an even
greater economic incentive for China to delay UN action.
"China will say thank you very much" and use its barter
arrangements with Iran to ramp up trade even further,
Roeder-Messell stated. Asked to comment on an article in Der
Spiegel magazine on the economic effect of listing Bank
Melli, Roeder-Messell said the German Government sees Bank
Melli as a foreign policy problem, not a commercial/trade
problem. "Commercial pain is acceptable" if: 1) it hurts
Iran's weapons program and 2) influences Iran's decision to
suspend enrichment. He reiterated that Iran will not agree
to suspend if Russia and China simply fill the commercial
void left by EU sanctions.
TIMKEN JR