U/S REUBEN JEFFERY MEETS WITH FRENCH ECONOMIC

C O N F I D E N T I A L SECTION 01 OF 03 PARIS 003179

SIPDIS

STATE PASS USTR, FAS

SIPDIS

E.O. 12958: DECL: 07/09/2017
TAGS: ECON ETRD ELAB EUN PREL SENV UNO FR

SUBJECT: U/S REUBEN JEFFERY MEETS WITH FRENCH ECONOMIC
OFFICIALS, AMCHAM

REF: A/ PARIS 3046 B/ PARIS 2643


1. (SBU) Summary: Under Secretary of State for Economic, Energy
and Agricultural Affairs Reuben Jeffery, in his first official
visit to France July 18-21, underscored the breadth of U.S.
economic ties with France and reaffirmed U.S. support for OECD
and IEA (septel). In Jeffery's bilateral meetings in Paris with
the President's office; Prime Minister's office; Ministry of
Finance, Economy and Employment; Ministry of Foreign Affairs;
and the American Chamber of Commerce, U/S Jeffery articulated
his interest in working closely with the new French government
on the array of issues that come under his purview. End
summary.

Elysee
--------------

2. (C) U/S Jeffery, in a very positive introductory meeting
with Francois Perol, Deputy Secretary General (Economic Issues)
of the Elysee Palace and Ramon Fernandez, Counselor for Economic
Affairs, thanked France for its close cooperation with the
United States, particularly regarding Lebanon and Iran. Perol
noted that while France and the United States were very closely
aligned on Iran, France had nuanced differences with the United
States on the issue of export credit policy. Perol commented
that in his personal view the United States should focus on
Iran's dependency on refined oil product imports as a possible
leverage point, and should coordinate with Saudi Arabia on this
issue.


3. (C) Perol raised the candidature of Dominique Strauss-Kahn
to head the International Monetary Fund (IMF) and requested U.S.
support for his nomination. Perol noted that Strauss-Kahn will
be in the United States the week of July 23 and would travel to
Latin America afterwards.

Matignon
--------------

4. (C) Jacques Lapouge, the Prime Minister's diplomatic
advisor, explained that the PM's office was responsible under
the new government for implementing policy. Lapouge explained
that the current legislative priorities for the new French
administration (reduction of payroll, inheritance and corporate
taxes, university reform, and the introduction of minimum
services during transport strikes) were intended to create "an
economic shock" to prod economic growth, which has lagged in
France. Lapouge noted that the government is also focusing on
institutional reform (Sarkozy has recently appointed a new body
to review reforming the French state),and that the PM's office
is tasked with reducing the size of France's government.
Lapouge observed that the cover of a recent edition of the
French economic magazine Nouvelle Economie was titled, "A
Sarkozian Revolution," which was in his view an appropriate term
for what is taking place in France. In response to questioning
from the Under Secretary on the pace of reform, Lapouge noted
there had been little resistance thus far (largely because the
opposition Socialist party was in turmoil),but that he expected
the first major test for the government to come from the trade
unions in the autumn.


5. (C) Lapouge, in a tour de horizon covering key economic
issues, stressed that despite Sarkozy's recent attacks on the
European Central Bank (ECB) and his request for greater
understanding from his EU partners regarding France's budget
deficit, France remained committed to eurozone-wide targets on
government spending and deficits. But it may require a little
extra time to achieve a balanced budget (2012, rather than 2010
as previously agreed). Lapouge stressed that on trade,
Sarkozy's government would be different from Chirac's and show
"pragmatism," concentrating on achieving balance and real
benefits for Europe. Regarding the draft texts of the WTO
Agriculture and NAMA negotiating groups, Lapouge said France
felt the NAMA paper was better than expected but that the
agricultural paper had been disappointing and had crossed not
just French but also EU red lines.


6. (C) In response to U/S Jeffery's review of the G8 summit in
Germany, Lapouge commented that the meeting had produced
positive results in the end. Lapouge stressed that there were
still many question marks in Europe about American intentions
regarding climate change. U.S. reluctance to accept a
compulsory approach to emissions reductions remained a serious
problem, he said. Lapouge asked whether the United States had
accepted the UN (Bali) framework and was not out to kill the
post-Kyoto process. He noted that France could live with
different but concurrent systems for reducing emissions, but
reiterated that any U.S. approach would need to have mandatory
emission limits. The meeting concluded with both sides noting a
shared interest in work on bio-fuels and other areas that could

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have a significant positive impact for developing nations. This
was particularly important given budget constraints that will
make it very difficult, particularly for France, to increase
official development assistance (ODA). In that context Lapouge
encouraged acceptance of France's approach to innovative
financing of development, including UNITAID.

Ministry of Finance, Economy and Employment
--------------

7. (C) Xavier Musca, Director General of the Treasury and
Chairman of the Paris Club (PC),met with Jeffery hours after
chairing a contentious meeting of the Paris Club. He asked the
U/S for clarification of the U.S. position regarding a debt
buy-back proposal for Gabon that had been championed by France.
(Note: President Sarkozy will be visiting Gabon in late July.)
The United States was the only PC member not to have signed the
Agreed Minute allowing for a discounted debt buy-back. Musca
said he was "shocked" that the United States had refused to sign
the Gabon minute, as solidarity was one of the key elements of
the Paris Club. Musca noted Japan and Canada also said they
would not participate in the proposed buy-back, but had joined
consensus. Musca signaled that the upcoming fall review of
Jordan's debt may now be much more difficult due to the U.S.
stance regarding Gabon. (Note: septel will report on discussion
in the Paris Club.)


8. (C) Turning to other issues, Musca highlighted the challenge
of non-cooperative lenders, specifically China, and stated that
the West's strategy (moving from grants to loans and tying
assistance and lending to better governance, accountability and
transparency) is pushing developing countries into the hands of
the Chinese. Integrating China is not proving an easy task,
according to Musca, who noted that China has made significant
inroads in African lending due to the tightening of loan
requirements demanded by traditional "responsible" lenders.
Musca also noted that the ability of the Paris Club and
international financial institutions to influence nations such
as Argentina is hampered by pressure from the private sector,
which has significant exposure in such emerging markets. More
positively, Musca commented that securing Brazilian membership
in the Paris Club, a first for a developing economy, would be a
very positive development. Musca concluded that the role of
"vulture funds" (private entities that buy up distressed
sovereign debt with the intent to litigate) is likely to become
an increasingly contentious issue in international debt
negotiations.

Quai d'Orsay
--------------

9. (C) At the Ministry of Foreign Affairs (MFA),U/S Jeffery
held a brief meeting with Jacques Maillard, Acting Director for
Economic and Financial Affairs and with Sebastien Hua, Assistant
to the past Sous-Sherpa. Both officials were transitioning to
new positions (Maillard is to be the next French Ambassador to
Mauritius and Hua is moving to the French Mission to the UN).
Discussion focused on Jeffery's role as the new Sous-Sherpa for
the United States in the G8 process and next steps following the
Heiligendamm G8 Summit. The MFA is particularly interested in
U.S. confirmation of the date for the proposed emitters meeting
in the United States to discuss the President's May 31 climate
proposal. Maillard welcomed the U.S. proposal but underscored
the concern expressed by Jacques Lapouge that the U.S.
initiative not be used to undermine the UN process. Maillard
also echoed Xavier Musca's concerns regarding Chinese lending in
Africa and the constraints on French official development
assistance. Budget constraints, according to Maillard, also
explain in part France's interest in "innovative financing"
(such as air line taxes or similar levies) to fund new
development priorities. Hua noted that the issue of
intellectual property rights (IPR) was reviewed at the G8 and is
a French priority. Hua asked that the U.S. consult with France
as it develops more detailed plans for a new IPR "gold
standard"" protection regime.

AmCham France
--------------

10. (SBU) AmCham France hosted an off-the-record informal
luncheon for U/S Jeffery with the key leadership of the American
Chamber of Commerce in France. Representatives from GE, Morgan
Stanley, Cisco, Cadillac, KKR, and other major U.S. corporations
briefed the U/S on the business climate in France. Business
representatives were unanimous that trade and investment (in
both directions) is likely to continue to increase and that
concerns over labor regulations are likely to ease under the new
Sarkozy government.


11. (U) This cable has been cleared by E staff.


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