GOF RESTRUCTURING: IMPLICATIONS FOR ECONOMIC AGENDA

UNCLAS SECTION 01 OF 03 PARIS 002196 SIPDIS SENSITIVE SIPDIS E.O. 12956: N/A TAGS: ECON PGOV ETRD FR SUBJECT: GOF RESTRUCTURING: IMPLICATIONS FOR ECONOMIC AGENDA REF: A) Paris 2027 B) Paris 2065 C) Paris 2043 PARIS 00002196 001.2 OF 003 ¶1. (SBU) Summary: Reorganization of the French government's economic, social and transportation ministries (reftels) will create new challenges and opportunities for our interaction with the French on economic issues. The incorporation of transport and energy into Minister of State Alain Juppe's "super ministry" for sustainable development may lend coherence to policymaking, but might limit our ability to influence policy by reducing the number of independent power centers in the GOF. For now trade falls under Minister of Economy, Finance and Employment Borloo, though a state secretary for foreign commerce is likely to be named following legislative elections in June. Part of the development portfolio will devolve to the newly-created Ministry of Immigration, Integration, National Identity and Co-development, reflecting an emphasis in development policy on the source countries for French immigration flows. Otherwise the main impact of the restructuring will be on Sarkozy's domestic reform agenda. We expect the Elysee to play a more activist role in both foreign and domestic economic policymaking. End summary. Two Ministries for Economic and State Reform -------------- ¶2. (SBU) One of the most powerful baronies in the French Government, the Ministry of Economy, Finance, and Industry, has been split into two separate ministries. The Ministry of Budget, Public Accounts and Civil Service, headed by former treasurer of the UMP Party and former Junior Minister of State Reform Eric Woerth, will manage the budgets of the State, local authorities and Social Security, with a view to controlling public expenditures. At the same time, the new ministry will oversee reform of the state, including President Sarkozy's campaign promise to thin the ranks of civil servants through attrition. While Sarkozy has committed to tackling public debt, currently 63.9% of GDP, initial statements by both Woerth and PM Francois Fillon indicate a willingness to tolerate an initial increase in deficit spending as the government follows through on campaign promises to cut taxes. ¶3. (SBU) Equally dramatic in its long-term effect is the establishment of the Ministry of Economy, Finance and Employment. The merger of economic and employment policy reflects a major shift in government strategy. Employment and unemployment issues have traditionally been handled together within a Ministry of Employment and Social Affairs. The focus was not on job creation -- with the exception of government-subsidized jobs -- but rather on financial assistance and income-substitution schemes for the unemployed. The Fillon Government hopes that the explicit link between employment and policymaking for long-term economic growth will help to trigger a shift in French mentalities. ¶4. (SBU) Although government "attribution letters" delineating the formal responsibilities of the various ministries have yet to be issued, we assume the French Tresor (Treasury),which handles debt issues and IFI relations among other matters, will remain largely intact. It will continue to operate under the aegis of Borloo's Ministry of Economy, Finance and Employment. Tresor Director General Xavier Musca - nominated for his position by then-Finance Minister Sarkozy in 2004 - is likely to remain in his current position. ¶5. (SBU) Borloo's ministry also appears likely to maintain responsibility for key aspects of French industrial policy, including front-burner issues such as the possible evolution of EADS/Airbus shareholding structures, and the proposed merger - still in abeyance - between energy companies GDF and Suez. But it is clear that the Elysee, and Prime Minister Fillon, will play an active role in critical dossiers. Sarkozy's post-inauguration jaunt to Airbus headquarters in Toulouse was emblematic: Borloo accompanied the president but remained in the shadows and said little. And it is PM Fillon who has done most of the talking on GDF/Suez, telling the press on the margins of a May 23 GDF shareholders meeting that the government was open to the proposed merger, but also wanted to entertain other options before making its position known in late June or early July. The New "Green" Ministry -------------- ¶6. (SBU) Another powerful civil service barony, Transportation and Public Works, is being merged into the new "super-ministry" of the Environment, Sustainable Development and Planning. The move has the potential to create cultural clashes that will take time to overcome, even with political heavy-weight and former Prime Minister Alain Juppe at the helm (ref B). Former Minister of Agriculture (and former Trade Minister) Dominique Bussereau will serve as State Secretary for Transportation within the ministry. Juppe has given SIPDIS an early indication of areas of interest - and potential conflict -- including a call for attacking CO2 emissions in the air transport sector, and a challenge to the auto industry to improve pollution standards. PARIS 00002196 002.2 OF 003 ¶7. (SBU) While there continues to be a lack of clarity on who will have responsibility for what in energy policy, employees within the Ministry of Economy's existing energy directorate assume their mission will fall under the purview of the Sustainable Development ministry. Energy and Raw Materials Directorate DAS-equivalent Sophie Galey-Leruste told us she was excited about the change, noting that Juppe would "get things done" thanks to the influence he enjoys as a result of his long political career, and as the number two in the government. ¶8. (SBU) Galey-Leruste seemed unconcerned by potential intra-ministerial rivalries, noting that the nexus of energy, transportation and the environment had featured prominently at the May 14 - 15 IEA ministerial and was indicative of the synergies to be had in bringing the issues together in one ministry. She also suggested that energy policy would enjoy a higher profile in the new ministry than it had in the Ministry of Economy, where it was one of several equal sectoral directorates. For his part, Alain Juppe has said that his ministry would be responsible for defining the general orientation of energy policy, implying that implementation might fall to others. Who Gets Trade? -------------- ¶9. (SBU) It appears that trade will remain within the Ministry of Economy, Finance and Employment, most likely under a state secretary for foreign commerce to be appointed following the second round of legislative elections on June 17. DAS-equivalent for the Americas Philippe Beaudry tells us that Agriculture Minister (and former Trade Minister) Christine Lagarde has asked for the broad WTO portfolio, in addition to her agriculture responsibilities. The government's "attribution decree" of May 23 indicates that Lagarde will hold onto the responsibilities given to the previous minister of agriculture, and in addition will "participate in the implementation of government policy on international trade." What that means in practice is unclear, but given Lagarde's experience with the details of Doha, we can assume that she will continue to play a role in defining French policy on the broader issues under negotiation. ¶10. (SBU) We should not expect the appointment of Lagarde as Minister of Agriculture to signal a major shift in French policy on Doha (ref C). In her initial public appearances she has strongly defended the French position, and said the ball is "in the Americans' court." Although both she and Sarkozy may be more sensitive to the potential upside to the French economy of a positive outcome on NAMA issues, neither will want to risk the wrath of French farmers while the government is in the midst of pushing a broad domestic economic reform agenda. Development -------------- ¶11. (SBU) In an interesting twist Sarkozy has hived off the sphere of "co-development" from the rest of the GOF's development bureaucracy and attached it to the newly-created Ministry of Immigration, Integration, National Identity and Co-Development run by close ally Brice Hortefeux. Formerly a backwater at the Quai d'Orsay, co-development refers to French programs that promote the return of immigrant workers to their countries of origin, or that attempt to leverage the economic impact of remittances and skills to promote economic development in their home countries. The reorganization gives new prominence to development efforts that can be presented as a response to illegal immigration flows. Though it is unlikely to have much immediate impact on long-established development programs, it signals an interest in reorienting French development efforts and may spill over into broader GOF strategy. Labor, Social Relations and Solidarity -------------- ¶12. (SBU) Responding to French labor unions' concerns over initial plans to transfer employment issues to the Ministry of Economy, the Fillon Government has maintained a Labor, Social Relations and Solidarity Ministry and put it in the hands of Xavier Bertrand, former Junior Minister for Health Insurance. Bertrand will be responsible for negotiations with the labor unions and employers, particularly on the sensitive issues of minimum service in public transportation and schools, and on the unification of France's bifurcated labor market. Bertrand will have responsibility for the four "social summits" on labor representation, flexibility, gender equality issues and work safety announced by President Sarkozy, to take place in September. On these and other issues, he will work hand-in-hand with Woerth and Borloo. The Culture Ministry Remains Intact -------------- ¶13. (SBU) The Culture Ministry was also slated to disappear into a larger Ministry of Knowledge, which would have grouped Culture, Higher Education and Research. The president and prime minister reportedly failed to find a personality that matched their ambition, PARIS 00002196 003.2 OF 003 hence two separate ministries. The new Culture Minister, Christine Albanel, previously served as Director of the Chateau de Versailles and as speechwriter to Jacques Chirac. Nothing in her background would indicate that she has the background to prepare her for the highly technical issues on her agenda, including the new digital copyright bill as well as the shift from analog to digital television and the new EU directive "Television without Borders." Comment -------------- ¶14. (SBU) Sarkozy and Fillon have orchestrated what many observers have called a "big bang" of the French government. The challenge of pushing forward with a broad economic policy agenda, while simultaneously undertaking a major restructuring of the responsible ministries, cannot be overstated. But polling data show strong public support for Sarkozy's strategy. If confirmed by June legislative elections, Sarkozy may enjoy a sufficiently strong tailwind to overcome bureaucratic and other obstacles to his signature policy proposals. WHITE