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 - - - - - - - - - - - - - - - - - - - ¶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? - - - - - - - - - - - ¶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 PARIS 00001949 002 OF 002 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