DEPUTY TREASURY SECRETARY MEETS WITH TOP

C O N F I D E N T I A L SECTION 01 OF 03 BERLIN 000547 SIPDIS SIPDIS E.O. 12958: DECL: 03/19/2017 TAGS: EFIN ECON PREL ETTC GM IR IZ SUBJECT: DEPUTY TREASURY SECRETARY MEETS WITH TOP CHANCELLERY OFFICIALS Classified By: EMIN Robert F. Cekuta for reasons 1.4 (b) and (d) ¶1. (C) Summary -- Meeting separately with Head of the Federal Chancellery/Minister without Portfolio Thomas de Maiziere and with Chancellery Director General for Economics Jens Weidmann March 19, Treasury Deputy Secretary Kimmitt discussed Chancellor Merkel's transatlantic economic initiative, international sanctions on Iran, progress on the International Compact with Iraq, and German plans for restructuring European Recovery Program (ERP) funds. On the transatlantic initiative, de Maiziere and Weidmann agreed on the importance of following through on efforts at cutting the red-tape hampering U.S. and EU business and regulatory convergence so that it will be seen as a success, not just on April 30, 2007, but in the coming years as well. They agreed with the importance of signing the U.S./EU Civil Aviation Agreement to show the two sides' determination to live up to the Initiative's purpose as well as with the model the Financial Markets Regulatory Dialogue could provide for other sectors. De Maiziere specifically asked that Treasury Deputy Secretary Kimmitt pass back a request pertaining to how SIPDIS climate issues might be handled in the April 30 U.S./EU Summit and at the Heiligendamm G-8 Summit June 6-8. End summary. The Chancellor's Transatlantic Initiative -------------- ¶2. (C) Minister de Maiziere thanked Secretary Paulson and Deputy Secretary Kimmitt for their support for the Chancellor's transatlantic economic initiative. Both Weidmann and de Maiziere agreed with the Treasury Deputy Secretary that it will be important for the Initiative to be SIPDIS considered a success in the years to come, not just at the April 30 Summit. Discussing the Initiative and how it fits with the goals of cutting red-tape hampering business, of boosting economic growth, and of fostering regulatory convergence and closer transatlantic ties, Weidmann and de Maiziere also asked how USG and Commission structures would link up. Weidmann was concerned over whether Verheugen would be the best person in the EU Commission to head implementation for the European side, noting that he is not responsible for all regulatory areas. Deputy Secretary Kimmitt responded that while the best course will likely be to have multiple bilateral groups of regulators (one EU Commissioner and one U.S. Cabinet Secretary) work together, e.g., long the lines of the Financial Markets Regulatory Dialogue, there should be one person responsible for monitoring progress and reporting to each side's leader. Verheugen is the Commissioner responsible for reducing the overall regulatory burden in the EU. In the U.S., OMB has the lead role in managing the regulatory/deregulatory process. While noting the German Government had been interested in Treasury taking the lead in the Initiative, it might be better, Deputy Secretary Kimmitt continued, if OMB were to head up the work on the U.S. side. Weidmann would have to discuss these questions further with Deputy National Security Advisor for International Economic Affairs McCormick. Weidmann also told the Deputy Treasury Secretary that the progress made in his last round of talks on the Initiative made him wondered if a framework agreement would still be necessary. ¶3. (C) Deputy Secretary Kimmitt noted with both de Maiziere and Weidmann that the EU's approval of the U.S./EU Civil Aviation Agreement would be a sign of serious support for what Merkel is seeking to do in terms of removing regulatory barriers. Minister de Maiziere said he is "quite optimistic about the UK." While making reference to the United States' special relationship with the UK in terms of helping bring HMG along, de Maiziere added it is Germany's "duty to get them in line." Weidmann also said Germany sees the Civil Aviation Agreement as a deliverable for the April Summit. Iran -------------- ¶4. (C) Responding to Treasury Deputy Secretary Kimmitt's points on further UNSC sanctions on Iran, including listing Bank Sepah because of its involvement in Iranian missile development efforts, de Maiziere said Germany agrees with the U.S. on the purpose of and progress made in developing the additional sanctions. He added Germany's goal is a course that puts needed pressure on Iran while at the same time BERLIN 00000547 002 OF 003 avoids allowing the regime to "paint itself as a martyr." It is crucial the Iranian public and the clerics conclude that Ahmedi-Nejad's policies have isolated the country. Russia is irritated with Iran, de Maiziere continued, and the current tactics of the U.S. and others in the Security Council are working as well to bring along the Chinese. He added it is important, however, "from time to time to dangle a carrot;" Deputy Treasury Secretary Kimmitt noted we have made it clear what would be possible if Iran returned to the negotiating table and turned away from seeking to develop nuclear weapons. He pointed to the participation in international meetings with Iran, e.g., at the neighbors conference in Baghdad and in the March 16 meeting at the UN on the International Compact on Iraq. He stressed that the sanctions' goal is to influence Iranian behavior and it is important to avoid a repeat of past instances when sanctions seemed to be more a cause for fighting among allies than an effective tool of international diplomacy. The Treasury Deputy Secretary also noted conversations with third country officials who said they did not have the legal basis for imposing economic sanctions on their own and stressed the importance for UNSC and EU action in helping meet this need. De Maiziere added that concern in Sunni-dominated states over "a Shi'a arc" in the Middle East and potential problems with their own Shi'a minorities, e.g., Saudi Arabia and the Gulf States, complicates developing and implementing international sanctions on Iran. ¶5. (C) The Treasury Deputy Secretary also raised continued concerns about Hermes and other German Government programs providing export credits for German firms doing business with Iran. It is important, he noted, that the German Government not/not make up for the increased risk premiums resulting from the Iranian government's terrorism and proliferation policies. De Maiziere's staff argued the German customers have had to pay higher risk premiums, particularly since OECD members agreed to raise the risk level from 2 to 5. De Maiziere said he would look into the situation further. Iraq -------------- ¶6. (C) Raising the International Compact on Iraq, Treasury Deputy Secretary Kimmitt noted over 60 countries approved the plan at the March 16 meeting at the UN. It is important now that the international community endorses it further and provides additional support for Iraq's Government and the country's reconstruction. The next meeting on the Compact is likely to take place by the end of April and may occur in Riyadh or Istanbul. That meeting will also likely be at the ministerial level and it would be important Germany -- especially given its role as EU and G-8 presidency country -- participate at that level. De Maiziere said he understood and would try to have a German minister go if other ministers were attending. ERP Funds -------------- ¶7. (C) The Treasury Deputy Secretary raised German Government plans to restructure ERP funds and move two billion euro into the state-owned Kreditanstalt fuer Wiederaufbau (KfW) with both Weidmann and Minister de Maiziere. Besides noting concerns over how the proposed move might fit with the 1953 treaty and the need to inform Congress, Deputy Secretary Kimmitt stressed the importance of not doing something that will take one of our most successful programs and get it tied up with current controversies (e.g., status of German state-owned companies, financing for EADS, possible KfW export credit programs connected with Iran),or that might enable KfW to offer loans at better terms due to the larger capital base it would have after the transfer of two billion euro. ¶8. (C) The Minister said the ERP restructuring issue is a sensitive one. The funds continue to support small and medium enterprises, as originally agreed, and one reason for the transfer of additional money is conviction among some politicians is that more should be done to help SMEs. The German Government, de Maiziere continued, does not intend to use the increased funding in KfW as venture capital to advance projects in which the state is interested and the oversight committee in the Bundestag acts to ensure the money goes to their SME constituency. Weidmann said the German BERLIN 00000547 003 OF 003 Government would not do anything that enabled KfW to compete with private sector German banks and that KfW is not involved in financing EADS. Since the Chairmanship of the Board of KfW alternates between the Minister of Economics and the Minister of Finance, the Government has influence over the institution. ¶9. (C) Thinking further about the USG's concerns, Minister de Maiziere suggested developing a paper from the Economic and Finance Ministries that would be sent through the Chancellery on the restructuring plan. The USG could then use this plan with Congress in response to concerns/questions raised. Deputy Secretary Kimmitt thought that could be a useful step and de Maiziere agreed to have such a paper put together and passed to the Embassy. Handling Climate Change in the U.S./EU and G-8 Summits -------------- -------------- ¶10. (C) Minister de Maiziere noted he had a specific request for Deputy Secretary Kimmitt, how to handle climate change at the April 30 U.S./EU Summit and at the June 6 - 8 G-8 Summit. He said the Chancellor would raise the issue in her videoconference next week with the President. However, while noting the German intention of avoiding surprises and ensuring transparency, de Maiziere said there is strong pressure within the EU on the issue, that Canada seems to be coming around to the EU views, and that PM Blair is taking a more aggressive stance in what looks to be his last summit. Both energy efficiency and state of the art technology can make important contributions to emissions reduction, but the Summits will need to look at more these in terms of dealing with climate change. Weidmann said there are strong public expectations that the U.S. and EU will at least talk about climate issues in the April Summit and it is important to keep that event linked with the meeting of leaders in Heiligendamm. Responding to the Treasury Deputy Secretary's questions about what reports the Chancellery is receiving from the Sherpas, Weidmann said Economic Ministry State Secretary (and Sherpa) Bernd Pfaffenbach noted there is SIPDIS strong resistance by the USG to further movement -- including at the March 15 - 17 meeting of G-8 Environment Ministers in Potsdam. Deputy Secretary Kimmitt appreciated the alert and noted our interest in addressing energy security together with climate change and pointed to President Bush's remarks in this year's State of the Union speech. He noted the Sherpas' role in the G-8 process, and agreed to pass the message to colleagues in the White House. ¶11. (U) Treasury Deputy Secretary Kimmitt cleared this message prior to his departure from Berlin. KOENIG