USEU AMBASSADOR C. BOYDEN GRAY'S MEETINGS WITH

C O N F I D E N T I A L SECTION 01 OF 03 BERLIN 000334

SIPDIS

SIPDIS

E.O. 12958: DECL: 02/16/2017
TAGS: ENRG ETRD SENV PGOV PREL EU GM
SUBJECT: USEU AMBASSADOR C. BOYDEN GRAY'S MEETINGS WITH
GERMAN OFFICIALS


Classified By: EMIN ROBERT F. CEKUTA FOR REASONS 1.5 (B) AND (D).


1. (C) SUMMARY. On February 7, USEU Ambassador C. Boyden
Gray met with German Chancellery State Secretary Dr. Hans
Beus, Chancellery Director of Coordination for European
Policy Andreas Hermes, and the Chancellery's Economic Advisor
Dr. Jens Weidmann to discuss key issues in Germany's EU
Presidency. Principle focal points were the Chancellor's
transatlantic economic initiative and energy/climate change.
Both issues, the German side said, will figure prominently in
the March 8-9 European Council. Weidmann and Beus noted how
the Chancellor's initiative is an important part of the
effort to cut red tape, improve the business climate, and
establish better regulatory practices in both the EU and
Germany. Hermes also stated that the Chancellor's initiative
is designed to boost links with the U.S. and to move away
from the Schroeder government's emphasis on stronger ties
with Russia. Weidmann passed a copy of the new German paper
on the initiative that had been discussed that day in COREPER
(NOTE. Embassy Berlin has emailed the test of the paper to
EUR/ERA and to USEU. END NOTE.) END SUMMARY.

Transatlantic Initiative
--------------

2. (C) Weidmann said he appreciated the warm welcome he
received in Washington and also the U.S. response to the
German proposal on a transatlantic marketplace. The
Chancellery featured the U.S. thinking along with further
input from the German ministries in the new paper they
drafted for COREPER . Weidmann provided Ambassador Gray a
copy of the new paper (text subsequently emailed to EUR/ERA).
The Germans plan to use this paper as the basis for
discussion among the U.S., the German Presidency, and
Commission contact points. The focus will be on the goals
the German Presidency hopes to achieve through the
initiative, as well as the potential statement formulation
and how to make a binding commitment to improve cooperation
and provide the resources needed to achieve this end,
including ensuring there is political level engagement when
necessary. Hermes emphasized the transatlantic initiative is
not just an economic program, but also has a political role.
He explained the Chancellor sees it as a means to strengthen
transatlantic ties and "counterbalance" the SPD's focus on
Russia.


3. (C) Beus described the ties between the Chancellor's
transatlantic initiative and her focus on the need for
deregulation/regulatory reform in Germany and the EU. He
emphasized the goal is not just an attempt to harmonize
regulations across the Atlantic, but to simplify the overall
regulatory burden for the business community. The problem in
Germany and the EU, he said, has been that the government
will establish a goal and then put a lot of bureaucracy in
place in an effort to realize it. The practice is different
in the U.S., he continued. The Chancellery would like to
take steps through the initiative to reduce bureaucracy and
adopt practices more in line with the U.S. model. Beus
highlighted the Commission's proposal to cut 25% of reporting
requirements by 2012. This measure, and how to integrate a
reduction of the regulatory burden for businesses into the
overall transatlantic relationship, will be a major focus of
the March 8-9 European Council meeting.


4. (C) Ambassador Gray replied that Europe is where the U.S.
was 10 or 15 years ago on deregulation and that our
experience should be of use to the European push for smarter
regulation. The OMB has a played a major role in encouraging
good regulation by requiring cost-benefit analyses of new
regulations. The EU's Impact Assessment Board could play a
similar role. Hermes added that the Chancellor believes the
Impact Assessment Board may not be independent enough to play
the role needed for ensuring regulatory reform. He said
there is a belief impact assessments are tailored more to
political realities than economic realities. Gray also said
the Commission's proposal for a target of a 25% reduction
will be of interest in Washington where some have wondered
whether the EU's push for transatlantic regulatory
cooperation is an attempt to impose an EU-like regulatory
burden on U.S. companies. Beus reiterated the overall goal
of the proposal is convergence and simplification.

5. (C) Weidmann said that Germany is also looking at ways to
win the support of the other 26 member states for the
proposal. The Chancellery wants to involve legislators in
the process and hopes to do so at a March 19 CDU conference
on the initiative. Weidmann emphasized that there needs to
be a way to create an interface between legislators and
regulators. He suggested a good tactic may be to publicize
the cost of not implementing this proposal. Ambassador Gray
emphasized that the Europeans recognize the role of Congress
in this process. He said the interface Weidmann referred to
could be a joint economic committee of both houses and
offered to explore this with Senator Bennett. Weidmann said
an important point is how to sustain the initiative after
Germany no longer holds the EU presidency; Barroso must be
brought into the issue as well to ensure continuity. Gray
replied the Commission definitely needs to be involved and
the Impact Assessment Board is the best place to start.
Neither Mandelson nor the other commissioners have the
expertise to deal with this issue, but they also do not want
to see it under the control of their rivals. Weidmann agreed
and said the only way to avoid friction between the different
director generals on the transatlantic initiative it to
coordinate it in the President's office. He said he would
discuss it in more detail in the upcoming DVC with Deputy
National Security Advisor for Economics David McCormick.

ENERGY/CLIMATE
--------------

6. (C) Beus also discussed the Commission's proposal for
unbundling energy production from delivery. He said there
are two different proposals to reach this target. One would
force separate ownership of production and delivery
infrastructure. The other option is to allow the same
ownership of these systems, but to separate the management of
the production and delivery networks within companies. The
German government prefers the second option. Beus emphasized
that the first option would cause considerable problems for
Germany. Ambassador Gray explained the second option more
closely resembled the U.S. system and the use of independent
system operators to manage power grids. Hermes commented
that the Commission's push for unbundling seemed
ideologically based. Regulation is needed at some level, but
interconnection is also necessary for competition. (NOTE: On
Feb. 7 thousands of members of the Energy Workers' and
Service Employees' unions demonstrated in Berlin against the
EC's unbundling proposal, arguing that it will endanger jobs
and impair the efficiency of Germany's electrical power
supply system, which the unions claim is the most reliable in
the EU. END NOTE.)


7. (U) On climate protection, Beus emphasized reducing
greenhouse gases is a top goal for both Germany's EU and G-8
presidencies. At the same time it is important to note the
EU's emissions are only 15-20% of the worldwide total.
Without engaging developing economies such as China and
India, post 2012 reduction targets will be meaningless.
Germany is focusing on post-Kyoto targets to 2020 that
balance the need to decrease emissions and allow for economic
growth. Energy/climate change will be high on the agenda for
European Council on March 8-9.


8. (U) Ambassador Gray agreed that climate change is a major
challenge. He said the U.S. position on this subject was not
well understood. Contrary to what is often believed in
Europe, President Bush has not denied climate change nor the
role humans play in causing it. The U.S. has focused its
effort on investing in new technologies to decrease
greenhouse gases. There is healthy competition to develop
clean energy technologies, a competition that must continue
and should be encouraged. While there is no magic bullet,
but several promising technologies. Ambassador Gray added
the U.S. and EU need to work together to engage countries
such as China and India to ensure they don't ignore climate
change.


9. (C) Beus agreed, saying we do not have the luxury of
allowing China to develop economically and only start to
focus decades from now on environment and climate change.
China needs to be encouraged to look at climate change and
its environmental impact at the same time that they develop
their economy. The EU and U.S. need to work together to
influence China. We must also pay attention to developments
in India. Ambassador Gray said one tactic could be to engage
India on this issue to help China see the benefits of
environmental protection and emission reductions.

STRENGTHENING COMPETITION
--------------

10. (U) Beus also discussed the desire to inject more
competition into various markets, e.g., rail and
telecommunications. While the focus has been on unbundling
in these markets, the overall goal is to find ways to broaden
competition and lower prices for consumers. Ambassador Gray
responded by describing how the U.S. telecommunications
industry achieved strong competition by allowing strong
rivalry between cable and telephone networks. Unbundling in
and of itself is not the key, instead the U.S. has found
enhanced competition is crucial to stimulating investment and
keeping down consumer prices in a variety of markets.


11. (U) This cable has been cleared with USEU Ambassador C.
Boyden Gray.
TIMKEN JR