FRANCE: DEPUTY SECRETARY KIMMITT DISCUSSES G8 ISSUES,

S E C R E T SECTION 01 OF 02 PARIS 001710

SIPDIS

SIPDIS

STATE FOR EB, EUR/WE, NEA
TREASURY FOR TFI, IA

E.O. 12958: DECL: 04/26/2017
TAGS: EFIN PREL ETTC PARM IR IQ FR LI
SUBJECT: FRANCE: DEPUTY SECRETARY KIMMITT DISCUSSES G8 ISSUES,
IRAQ, IRAN, LIBERIA

Classified by Economic Counselor Stuart Dwyer for reasons 1.4
(b) and (d)


1. (S) SUMMARY: Treasury Deputy Secretary Kimmitt met with
Xavier Musca, DG for Economic Policy, April 27 to discuss G8
issues, Iraq, Iran and Liberia. Musca indicated concerns that
European-led sanctions would lead to a vacuum to be filled in
Iran by China and Russia. He promised to look into greater
European Investment Bank support to the Iraq Compact. He
indicated greater flexibility on Liberia in the African
Development Bank would be difficult since the money would have
to come from aid to former French colonies, and he considers
Liberia to be more a legacy of the U.S. sphere of influence. He
is not in favor of the G8 supporting direct regulation of hedge
funds, and thinks the G8 should reach agreement on IMF quotas
reform. END SUMMARY

DISCUSSION AT THE MINISTRY OF ECONOMY
--------------

2. (SBU) Participants in the meeting included:

MFA:
Xavier Musca, Treasury Director General
Jean-Christophe Donnelier, Under Secretary for
International Relations, DGTPE
Thierry Franq, Assistant Secretary for Finance, DGPTE
Nicolas Wawresky, Deputy Director (Euamo3),DGTPE
Stephanie Talbot, Deputy Director of International Monetary
Systems and Summit Preparation (Multifin 4),DGTPE

U.S.:
The Deputy Secretary of the Treasury
Stuart Dwyer, Economic Counselor
TFCO Otto Van Maerssen (notetaker)


3. (SBU) Treasury Deputy Secretary Robert Kimmitt met in Paris
April 27 with Xavier Musca, Director General of Treasury and
Economic Policy at the Ministry of Economy, to discuss G8
issues, Iraq, Iran sanctions, and Liberia.

IRAQ
--------------

4. (C) Kimmitt encouraged ministerial representation at the
launch on May 3 of the International Compact for Iraq, and
French support of European Investment Bank projects in Iraq.
Musca noted the French elections mean that the period is not
favorable for ministerial representation. He said that security
concerns continue to hinder EIB projects, but promised to look
at EIB involvement more closely.

IRAN
--------------

5. (S) Kimmitt noted USG concerns about the Central Bank of
Iran's activities in terror finance and proliferation, and
pressed for greater alignment of policies on export credits,
focused on illicit activity.


6. (S) Musca said the decisions on Iran emanate from the
Foreign Ministry, but noted that France had had no problem in
implementing the UN Security Council resolutions. France is not
the country with most at stake in Iran economically, but is
involved in car manufacturing and other legitimate business.
France would comply with a general ban on business, if it came
to that, but Musca wants to maintain a multilateral approach.
He is concerned that Russia and China might move into Iran
if/when the Europeans withdraw. Expressing a personal view,
Musca said he would not want to push Iran into the Russian
sphere of influence, since that would just make sanctions
useless. Kimmitt agreed on the need for targeted multilateral
sanctions.

LIBERIA
--------------

7. (C) Kimmitt asked about the French position on Liberian
arrears. Musca did not recall the details, but said his
starting point was that the U.S. should bear the burden - in
Francophone Africa, France paid; in Southeast Asia, the Japanese
paid; the U.S. should do more for Liberia. That said, France
does support an IMF solution since it can be financed without
creating too many problems. Musca promised to take a closer
look at the African Development Bank issue, but commented that
France has been criticized internally for not using its
development aid money effectively, and that the political mood
is that it needs to focus on Francophone countries to take the
pressure off of immigration.

G8 ISSUES: HEDGE FUNDS, IMF REFORM, FDI

PARIS 00001710 002 OF 002


--------------

8. (SBU) Kimmitt raised the question of France's view on what
to do about hedge funds in the G8 context, given that Germany
keeps throwing out new ideas. Musca said he does not view the
issue as one that poses stability risk, and does not think
direct regulation is the answer. He would prefer to have the G8
encourage industry to develop codes of conduct, and handle
investor protection in the normal regulatory framework. Finance
Assistant Secretary Franq suggested the matter be turned over to
IOSCO. Musca said he is open to other ideas, and inquired
whether the USG was surprised by the French reaction. Kimmitt
indicated he would have to give it more thought, especially the
IOSCO point, but was not surprised by Musca's analysis.


9. (SBU) Musca raised IMF reform and quotas, saying he wanted
to "sort out a solution" with the USG. He worries that the G7
is putting itself into a bind, and the USG has lost its sense of
urgency. He thinks the U.S. position, looking at purchasing
power parity (PPP),is to shift pressure from China to India,
and is too focused on the long term benefit without asking what
we will get from China in return. He urged a G7 debate to
resolve the problem before the fall. Kimmitt agreed to resolve
the issue internally and revisit it in Potsdam.


10. (SBU) Kimmitt raised the question of open investment,
noting the White House plans to put out a policy statement on
May 10 to try to knock back protectionist sentiment. Musca said
protectionism does exist, but there is no need to overstate it.
But he agreed with the Deputy Secretary's observation that
state-owned companies from Russia, China and the Gulf States
will present policy problems. Such acquisitions pose a
sensitive problem for Europe due to Maastricht Treaty
obligations, and Musca is not at all sure the French would have
legal authority to oppose, for example, a GAZPROM takeover of
EDF or Gaz de France.


12. (U) The Deputy Secretary cleared this message.

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