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 PARIS 00003179 002 OF 003 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. PARIS 00003179 003 OF 003 STAPLETON