Identifier
Created
Classification
Origin
08BRUSSELS1677
2008-10-30 15:21:00
UNCLASSIFIED
USEU Brussels
Cable title:
EUROPEAN UNION VIEWS ON NOVEMBER 15 G20 SUMMIT
how-toVZCZCXRO9230 PP RUEHAG RUEHDF RUEHIK RUEHLZ RUEHROV DE RUEHBS #1677/01 3041521 ZNR UUUUU ZZH P 301521Z OCT 08 FM USEU BRUSSELS TO RUEHC/SECSTATE WASHDC PRIORITY INFO RUCNMEM/EU MEMBER STATES COLLECTIVE PRIORITY RUEHAK/AMEMBASSY ANKARA PRIORITY RUEHBJ/AMEMBASSY BEIJING PRIORITY RUEHBR/AMEMBASSY BRASILIA PRIORITY RUEHBU/AMEMBASSY BUENOS AIRES PRIORITY RUEHBY/AMEMBASSY CANBERRA PRIORITY RUEHJA/AMEMBASSY JAKARTA PRIORITY RUEHME/AMEMBASSY MEXICO PRIORITY RUEHMO/AMEMBASSY MOSCOW PRIORITY RUEHNE/AMEMBASSY NEW DELHI PRIORITY RUEHOT/AMEMBASSY OTTAWA PRIORITY RUEHSA/AMEMBASSY PRETORIA PRIORITY RUEHRH/AMEMBASSY RIYADH PRIORITY RUEHUL/AMEMBASSY SEOUL PRIORITY RUEHKO/AMEMBASSY TOKYO PRIORITY RUEATRS/DEPT OF TREASURY WASHDC PRIORITY
UNCLAS SECTION 01 OF 02 BRUSSELS 001677
SIPDIS
STATE FOR EEB:DNELSON, EEB/OMA:MSAKAUE, AWHITTINGTON,
EUR/ERA:JKESSLER, BROCKWELL
TREASURY FOR WMURDEN, WMONROE, CCARNES
SENSITIVE BUT UNCLASSIFIED - ENTIRE TEXT
NOT FOR INTERNET DISTRIBUTION
E.O. 12958: N/A
TAGS: ECON EFIN EUN
SUBJECT: EUROPEAN UNION VIEWS ON NOVEMBER 15 G20 SUMMIT
REF: STATE 114420
UNCLAS SECTION 01 OF 02 BRUSSELS 001677
SIPDIS
STATE FOR EEB:DNELSON, EEB/OMA:MSAKAUE, AWHITTINGTON,
EUR/ERA:JKESSLER, BROCKWELL
TREASURY FOR WMURDEN, WMONROE, CCARNES
SENSITIVE BUT UNCLASSIFIED - ENTIRE TEXT
NOT FOR INTERNET DISTRIBUTION
E.O. 12958: N/A
TAGS: ECON EFIN EUN
SUBJECT: EUROPEAN UNION VIEWS ON NOVEMBER 15 G20 SUMMIT
REF: STATE 114420
1. (SBU) SUMMARY. Below please find post responses to reftel
questions on expected priorities and objectives for the
European Union (particularly European Commission) at the
November 15 G20 Summit. French President Nicolas Sarkozy, in
his role as President of the Council of the European Union,
and Jose Manuel Barroso, President of the European
Commission, will both represent the European Union at the
Summit. Post will follow with more detailed reporting on EU
priorities for the Summit, to be reported septel. END
SUMMARY.
Begin responses to questions:
I. Key Objectives and Priorities/Desired Outcomes of the
Summit
The French Presidency proposes a massive overhaul of
international financial architecture. President Barroso will
seek to curtail France's more extreme proposals, but he
supports discussions at the Summit on a framework of stronger
regulation for the global financial system and "addressing
global imbalances," while avoiding protectionism. The
Commission also seeks an EU seat at international financial
institutions and will use the crisis to boost its role.
II. Key Concerns
The lack of effective regulatory coordination of European
banks is a key concern for the Commission. While the U.S.
should not get in middle of Commission-Member State
disagreements over prerogatives, the Commission can be a
useful ally to restrain more interventionist and anti-market
Member States such as France. Financial stability is the
primary goal, but the Commission is also concerned with
minimizing distorting effects on competition of financial
market
interventions and is conducting reviews of interventions for
compliance with EU State Aid rules.
III. Impact of Financial Market Crisis on the Financial
Sector
The financial sector in the European Union has lost about
$183 billion due to the crisis to date, and numerous banks
have failed or been bailed out. So far, the crisis has had
only a marginal effect on lending to the private sector.
Lending to households was slowing before the crisis began,
while lending to corporates started decelerating in March of
this year and remains at a healthy 12.6 percent (year/year)
annual growth rate. The strong negative effect on consumer
and investor confidence is the real story.
IV. Actions Taken to Address the Financial Crisis
The EU recognizes that while its bank regulation is still
done on a national basis, bank operations and their problems
are extending across borders, and this inconsistency must be
addressed via improved and consolidated supervision. Member
states have conducted financial sector interventions
exceeding 1.8 trillion euros. The EU has raised minimum
deposit insurance to 50,000 euros immediately and 100,000
euros within a year. The ECB has dramatically increased
lending to EU banks, implemented full allotment auctions at a
fixed rate, expanded its USD swap arrangement with the Fed,
and lowered collateral requirements to allow more securities
to be pledged for ECB credit by banks. The Commission has
proposed revisions to the Capital Requirements Directive,
setting new minimum prudential ratios for EU
BRUSSELS 00001677 002 OF 002
banks and calling for originators to keep a portion of
securitized assets on their balance sheets, and will propose
(possibly November 5) greater regulation of credit rating
agencies. The Commission will issue a plan November 26
to boost EU economic growth, including a doubling of the EU's
crisis fund, capital increases for the EIB, accelerating
investment in key sectors such as green technology, clean
cars and infrastructure, and possible soft loans to the
automotive sector.
V. Current Economic Situation/Near-Term Outlook
Economic growth in the EU is projected to be zero in the
third and fourth quarters of 2008, and expected growth for
2008 has been reduced to 1.4 percent from 2.0 percent in
earlier forecasts. Germany, Spain, the UK, Ireland, and
Denmark entered recessions in the second half of 2008. An
economic recovery for the region is not expected until
2010.
SILVERBERG
.
SIPDIS
STATE FOR EEB:DNELSON, EEB/OMA:MSAKAUE, AWHITTINGTON,
EUR/ERA:JKESSLER, BROCKWELL
TREASURY FOR WMURDEN, WMONROE, CCARNES
SENSITIVE BUT UNCLASSIFIED - ENTIRE TEXT
NOT FOR INTERNET DISTRIBUTION
E.O. 12958: N/A
TAGS: ECON EFIN EUN
SUBJECT: EUROPEAN UNION VIEWS ON NOVEMBER 15 G20 SUMMIT
REF: STATE 114420
1. (SBU) SUMMARY. Below please find post responses to reftel
questions on expected priorities and objectives for the
European Union (particularly European Commission) at the
November 15 G20 Summit. French President Nicolas Sarkozy, in
his role as President of the Council of the European Union,
and Jose Manuel Barroso, President of the European
Commission, will both represent the European Union at the
Summit. Post will follow with more detailed reporting on EU
priorities for the Summit, to be reported septel. END
SUMMARY.
Begin responses to questions:
I. Key Objectives and Priorities/Desired Outcomes of the
Summit
The French Presidency proposes a massive overhaul of
international financial architecture. President Barroso will
seek to curtail France's more extreme proposals, but he
supports discussions at the Summit on a framework of stronger
regulation for the global financial system and "addressing
global imbalances," while avoiding protectionism. The
Commission also seeks an EU seat at international financial
institutions and will use the crisis to boost its role.
II. Key Concerns
The lack of effective regulatory coordination of European
banks is a key concern for the Commission. While the U.S.
should not get in middle of Commission-Member State
disagreements over prerogatives, the Commission can be a
useful ally to restrain more interventionist and anti-market
Member States such as France. Financial stability is the
primary goal, but the Commission is also concerned with
minimizing distorting effects on competition of financial
market
interventions and is conducting reviews of interventions for
compliance with EU State Aid rules.
III. Impact of Financial Market Crisis on the Financial
Sector
The financial sector in the European Union has lost about
$183 billion due to the crisis to date, and numerous banks
have failed or been bailed out. So far, the crisis has had
only a marginal effect on lending to the private sector.
Lending to households was slowing before the crisis began,
while lending to corporates started decelerating in March of
this year and remains at a healthy 12.6 percent (year/year)
annual growth rate. The strong negative effect on consumer
and investor confidence is the real story.
IV. Actions Taken to Address the Financial Crisis
The EU recognizes that while its bank regulation is still
done on a national basis, bank operations and their problems
are extending across borders, and this inconsistency must be
addressed via improved and consolidated supervision. Member
states have conducted financial sector interventions
exceeding 1.8 trillion euros. The EU has raised minimum
deposit insurance to 50,000 euros immediately and 100,000
euros within a year. The ECB has dramatically increased
lending to EU banks, implemented full allotment auctions at a
fixed rate, expanded its USD swap arrangement with the Fed,
and lowered collateral requirements to allow more securities
to be pledged for ECB credit by banks. The Commission has
proposed revisions to the Capital Requirements Directive,
setting new minimum prudential ratios for EU
BRUSSELS 00001677 002 OF 002
banks and calling for originators to keep a portion of
securitized assets on their balance sheets, and will propose
(possibly November 5) greater regulation of credit rating
agencies. The Commission will issue a plan November 26
to boost EU economic growth, including a doubling of the EU's
crisis fund, capital increases for the EIB, accelerating
investment in key sectors such as green technology, clean
cars and infrastructure, and possible soft loans to the
automotive sector.
V. Current Economic Situation/Near-Term Outlook
Economic growth in the EU is projected to be zero in the
third and fourth quarters of 2008, and expected growth for
2008 has been reduced to 1.4 percent from 2.0 percent in
earlier forecasts. Germany, Spain, the UK, Ireland, and
Denmark entered recessions in the second half of 2008. An
economic recovery for the region is not expected until
2010.
SILVERBERG
.