A EUROGROUP COUP FOR SARKOZY?

C O N F I D E N T I A L SECTION 01 OF 02 PARIS 001949

SIPDIS

E.O. 12958: DECL: 10/23/2018
TAGS: EFIN ECON PREL PGOV FR
SUBJECT: A EUROGROUP COUP FOR SARKOZY?

REF: PARIS 1902

Classified By: EMIN Seth Winnick for reasons 1.4 (b) and (d)


1. (C) Summary: President Sarkozy,s October 21 speech
before the European Parliament in Strasbourg, touching on a
number of issues related to the financial crisis, is being
interpreted by some observers here as a trial balloon for a
Sarkozy presidency of a transformed (head-of-state)
Eurogroup. Sarkozy would hold that position until 2010, when
the next Eurogroup member, Spain, takes over the Council
presidency. An Elysee advisor tells us the speculation is
off the mark. But Sarkozy,s insistence on Spanish
participation in the November 15 Washington Summit takes
place against that back story. Whatever Sarkozy,s
ambitions, he clearly sees the October 12 Eurogroup summit in
Paris as a precursor for a more robust Eurogroup role in the
"economic governance" of Europe. End summary.

Financial Summit, SWFs, Auto Industry
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2. (SBU) The economic themes of President Sarkozy,s October
21 speech before the European Parliament in Strasbourg
covered familiar territory. Sarkozy suggested that upcoming
summits on the financial crisis should touch on: tax havens;
overall regulatory environment ("no financial institution
should be permitted to work in an unregulated environment");
ensuring that remuneration doesn,t incentivize excessive
risk-taking; ensuring accounting standards don,t contribute
to pro-cyclical market fluctuations; and an examination of
exchange rate regimes.


3. (SBU) Sarkozy,s remarks on sovereign wealth funds and the
auto industry also generated considerable commentary. He
suggested each member state "reflect on the opportunity to
create a sovereign wealth fund" so that European citizens "in
several months" don,t wake up to find that foreign SWFs have
bought up European companies at cut-rate prices. (Comment:
Sarkozy on several occasions has suggested that France,s
parastatal Caisse des Depots play such a role, though one
Finance Ministry official told us that France could, at best,
muster a "sovereign hedge fund" that would need to borrow to
invest. End comment.)


4. (SBU) On the auto industry Sarkozy said he had "looked
with interest" on what the United States had done with its
USD 25 billion loan. Could Europe leave its industry at a
competitive disadvantage with the United States? Europe
needed to have a "unified response to the competition from
other parts of the world."

King of the Eurogroup?
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5. (C) What has set off the chattering classes here though
were Sarkozy,s views ) real or imputed ) on the future of
the Eurogroup and the "economic governance" of Europe.
Sarkozy has made clear he sees the October 12 Eurogroup
Summit as a model for how to accomplish economic policy
coordination ) the coveted "gouvernance economique" -- in
the EU. His diplomatic advisor Jean-David Levitte told the
Ambassador as much on October 16 (reftel). Sarkozy expanded
on the theme at the October 15-16 European Council meeting,
as well as in Strasbourg. In Brussels he told a press
conference the Eurogroup Summit had shown what could be
accomplished in a head-of-state format, and the utility of
having dispassionate discussions with the ECB president.


6. (U) He told his Strasbourg audience that it would be
impossible for the euro zone to "continue without a
clearly-identified economic government." The ECB must be
independent, but it must "be able to discuss with an economic
government," he said. The "true economic government" is the
Eurogroup, in heads of state format. In crises such as the
current one, Sarkozy said, finance ministers do not have the
political heft to take the necessary decisions. Sarkozy
asked whether Europe would accept that, having shown unity in
its response to the financial crisis, it would opt for
disunity in coordinating policy to cope with the economic
fallout from the crisis.


7. (U) Asked how frequently he would envision gathering
Eurogroup heads of state, Sarkozy said he favored a pragmatic
approach that would reflect the seriousness of the economic
situation. But it,s "not reasonable to wait another eight
years" before getting Eurogroup heads of state together
again. Whether or not there should be a Eurogroup president
is "not critical," he said, Jean-Claude Junker "could (be
president of Eurogroup in both formats)," if necessary.


8. (SBU) The daily Le Monde has reported that Sarkozy,s

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remarks underlie a plan to serve as president of the
Eurogroup until 2010, when presumably Spain could take on the
mantle when it assumes the Council presidency (following the
non-eurogroup presidencies of the Czech Republic and Sweden).
According to Le Monde, Elysee advisors have informally
confirmed that hypothesis, and the paper quotes European
Affairs Junior Minister Jean-Pierre Jouyet as saying such a
state of affairs would "seem natural." Nevertheless, Elysee
Deputy Diplomatic Advisor Damien Loras downplayed the idea in
a brief conversation with EMIN on 10/23.


9. (C) Comment: Certainly the idea of serving as president
of the Eurogroup would hold great appeal for Sarkozy, who
made "economic governance" a centerpiece of his EU economic
policy following his 2007 election. He has clearly reveled
in his current position as president of the Council at a time
of crisis and it is hard to imagine him lowering his profile
come January, 2009. We,ll need to hear more than what we
heard in Strasbourg to be convinced that Sarkozy is serious
about this. But we should be sensitive to this back story as
we interact with the French on financial crisis issues in the
coming months.
STAPLETON