GERMANY/IRAN - U/S JEFFERY DISCUSSES ADDITIONAL EU

S E C R E T BERLIN 002159

SIPDIS

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

E.O. 12958: DECL: 12/02/2017
TAGS: KNNP MNUC PARM EFIN ETRD ECON PREL IR EU GM
SUBJECT: GERMANY/IRAN - U/S JEFFERY DISCUSSES ADDITIONAL EU
DESIGNATIONS WITH ECONOMICS MINISTRY STATE SECRETARY
PFAFFENBACH

REF: A. BERLIN 2140


B. STATE 160808

Classified By: EMIN Robert A. Pollard for reasons 1.4
(b) and (d).


1. (S) SUMMARY: Undersecretary Reuben Jeffery met with
German Economics Ministry State Secretary Bernd Pfaffenbach
in Berlin December 3 to request German support for additional
EU autonomous measures against Iran in advance of a third UN
Security Council resolution. Pfaffenbach reported that
Chancellor Merkel had returned from her November 10 visit to
Crawford convinced of the need for further steps to reduce
German trade with Iran. Pfaffenbach reiterated Germany's
preference for EU autonomous measures in lieu of, or as a
supplement to, a third UNSCR. When pressed, Pfaffenbach said
that Germany is prepared to support EU autonomous measures
listing Iran's Bank Melli, on the condition that the measures
not be announced until January. Pfaffenbach said ministries
are considering possible next steps. Pfaffenbach reported
that German trade with Iran had already decreased
dramatically, but insisted that total elimination of export
credit guarantees would reduce German trade with Iran to zero
- a prospect that German business would not relish. (NOTE:
The meeting occurred prior to the release of the new U.S.
National Intelligence Estimate on Iran. END NOTE.) END
SUMMARY.


2. (S) In response to U/S Jeffery's request that Germany
reconsider its position on supporting additional EU
autonomous measures in advance of a third UN resolution,
Pfaffenbach said the German Government understands and shares
U.S. concerns. Although Germany is a major trading partner
for Iran, German trade with Iran had "declined dramatically"
since the beginning of 2007 (NOTE: approximately 18 percent).
The German Government agrees that preventing an Iranian
nuclear threat is more important than any economic or
business concerns. Moreover, German industry accepts the
need for prohibitions on exporting "harmful things" -- i.e.,
sensitive technology -- to Iran. Notwithstanding the
concerns expressed by the German business community about
further cuts in trade, Pfaffenbach said, the German
Government is prepared to do so.


3. (S) Pfaffenbach said Chancellor Merkel returned from her
November 10 visit to Crawford convinced of the need to cut
business ties further. He said Merkel has asked the
Economics Ministry to "reflect on possible additional steps."
Nonetheless, the German Government shares industry concerns
about recent dramatic increases in exports to Iran from China
and India, as well as exports through the UAE. He reiterated
that Germany has cut its Hermes export credit guarantees, but
asserted that total elimination of export credit guarantees
would reduce German trade with Iran to zero. The risk for
German business, he explained, would simply be too high.
(COMMENT: German Government officials repeatedly insist that
a total ban on export guarantees could also lead the
Government of Iran to direct Iranian firms not to pay their
outstanding import bills, which would cost the German
Goverment up to EUR 5.5 billion Euro and seriously disrupt
German trade with Iran. END COMMENT.)


4. (S) Pfaffenbach reiterated Germany's preference for a
strong UNSCR, and said Germany is prepared to support EU
autonomous measures after a third resolution or in the event
work toward a third resolution fails. That said, senior
officials in the Chancellery, MFA, Economics Ministry, and
Finance Ministry continue to discuss the issue of EU
autonomous measures and are prepared to consider including
Bank Melli in EU autonomous measures that would be announced
in January.


5. (S) Pfaffenbach said German banks have been vocal in their
opposition to including additional Iranian banks in future
UN/EU listings. Putting another major Iranian bank on the
list, German banks argue, would eliminate most, if not all,
channels for financing business with Iran. He said Germany
has mixed feelings about energy-specific measures -- while
such measures would certainly be harmful to Iran, they would
almost certainly result in increased oil prices, as well.


6. (S) Jeffery said the USG supports financial measures
because of their multiplier effect and because the
international financial community is responsive to such
measures. Jeffery said the USG continues to discourage


investment in Iran's energy sector, primarily because this is
where the regime derives its economic support. With respect
to German concerns about India, China, and Russia, Jeffery
said, the fact that European companies continue to do
business with Iran gives the Iranian government credibility.
He noted Tehran has also been able to exploit perceived gaps
between the U.S. and the EU. Finally, Jeffery said EU action
now would strengthen our collective hand with China, Russia,
and India and could help prevent further postponement of UNSC
action.


7. (S) Pfaffenbach insisted that the German and
U.S./UK/French positions are not that far apart. He
reiterated the Chancellor's instructions to the Economics
Ministry and others to consider further steps. He said that
German senior officials had emerged from a high-level
interagency "brainstorming session" the week before convinced
of the need for further action in the UNSC, but also united
in their commitment to support additional EU steps, as well.
He said the Chancellor and the Economics Ministry will
continue their "moral suasion" efforts with German industry.
Pfaffenbach reported that he personally had encouraged German
business to withdraw their investments in Iran. German
Economics Minister Glos and Chancellor Merkel both agree that
"this goes beyond business."


8. (U) U/S Jeffery's office has cleared this message.
TIMKEN JR