SARKOZY WANTS TO TALK SUBSTANCE NOVEMBER 15

C O N F I D E N T I A L SECTION 01 OF 02 PARIS 001976

SIPDIS

E.O. 19528: DECL: 10/27/18
TAGS: EFIN ECON PREL FR
SUBJECT: SARKOZY WANTS TO TALK SUBSTANCE NOVEMBER 15

CLASSIFIED BY EMIN SETH WINNICK FOR REASONS 1.4 (B) AND
(D)


1. (U) This is an action request. See para 9.


2. (C) Summary: European Affairs Minister Jouyet's Chief
of Staff Denis Simonneau and economic affairs advisors
told EMIN not to underestimate President Sarkozy's
commitment to "refounding capitalism" during the
upcoming series of summits. The French goal for
November 15 would be agreement on which issues to
address, and how to address them. Accounting standards,
remuneration, and financial institution supervision and
leverage issues would be among likely topics President
Sarkozy will raise. In the wake of the crisis all
governments will come under political pressure to impose
changes in financial market regulation, the summits
should help coordinate responses to avoid extra-
territorial cross-chop. Simonneau said the EU was
unified in its call for reform of the global financial
system, differences with member state partners (notably
Germany) centered largely on economic policy
coordination and the French notion of "economic
governance." Simonneau downplayed the significance of
possible further Eurogroup heads-of-state meetings,
noting the G-4 had met in January without concern over
usurpation of Slovene presidency prerogatives. End
summary.

ASEM and Beyond
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3. (SBU) Denis Simonneau, Chief of Staff to Junior
European Affairs Minister Jouyet, Deputy Chief of Staff
Benoit de la Chapelle Bizot and Economic Affairs Advisor
Thomas Lambert opened a 10/27 meeting with EMIN end
Econcouns with a brief on financial market discussions
at the 10/24 EU-Asia Summit. Participants (some 43
heads of state, minus PMs Brown and Berlusconi) shared a
"common reflection" on the need for reform of
international financial architecture, with buy-in from
the "capitalists" such as Japan, to the Chinese.
Simonneau said the GOJ had laid down a marker as G8
president that Japan had opinions on a number of issues
that it would bring to the table.


4. (C) Between now and the November 15 summit, Simonneau
said key events that would shape French thinking
included the November 4 ECOFIN, the informal EU heads of
state meeting on November 7, and possibly a COREPER to
refine a common EU position. Simonneau underscored the
precedent-setting nature of the EU approach: never had
the EU come together in this way in advance of a G7/8
meeting to reach a common position.

What France Wants
- - - - - - - - -


5. (SBU) Simmoneau and his deputies said a key goal of
the summit process would be to coordinate national
responses to the crisis. In Europe as well as in the
United States there would be "normal and legitimate"
political calls to address perceived policy lacunae in
the wake of the crisis. France hoped to avoid a
repetition of Sarbanes-Oxley, where, it believed, a
national response had extra-territorial consequences on
the global financial community that had not been
coordinated. The spirit of convergence that prevails in
current financial dialogue must be continued in the
policy responses to the current crisis.


6. (SBU) In Washington, Simonneau said, the French want
participants to agree on the concrete issues to be
addressed in the summits, and how best to address them
(whether through the creation of working groups, or some
other means). Simonneau cautioned that it would be a
mistake to underestimate President Sarkozy's intent to
"refound capitalism." Among the hands-on issues Sarkozy
would likely want to address: accounting standards and
mark-to-market practices; financial institution
supervision and leverage standards; securitization
issues (the French noted current EU proposals to require
financial institutions to maintain a portion of
originated products on their books); pro-cyclical
remuneration policies and their impact on excessive
risk-taking.

What France Wants With Its EU Partners
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PARIS 00001976 002 OF 002



7. (C) Probed for French thinking on the future of the
Eurogroup, Simmoneau downplayed the significance of
President Sarkozy's suggestions that it could continue
to meet, as needed, in head-of-state format. There was
no intent to marginalize the upcoming Czech or Swedish
EU presidencies. After the November 15 summit the
Eurogroup could decide whether there was a need to come
together again, and what role, if any, it should play in
head-of-state format. Simonneau reminded that the G-4
had gathered in the UK under the Slovene presidency and
nobody had batted an eye. If there was a silver lining
in the current crisis, it was that the EU had shown
itself capable of quickly coordinating a common
position, and that non-Eurozone members had seen the
utility of working closely with the Eurogroup


8. (C) On relations with Germany, Simonneau said he had
perceived a German aloofness at the outset of the
crisis, due, he thought, in part to a sense that German
policy had been virtuous and thus there was a reluctance
to get involved, and to a challenging electoral
calendar. While differences in economic policy
approaches remained - from European "economic
governance" to sovereign wealth funds - there was strong
consensus on the need for reform of the international
financial architecture. Simonneau noted that President
Sarkozy and Chancellor Merkel had cosigned a letter
earlier this year calling for stronger regulation of
hedge funds.

Doha?
- - -


9. (C) EMIN stated the U.S. saw the November 15 summit
also as an opportunity to push for finalizing the Doha
round, and encouraged French support. Noting that it was
largely the emerging economies that hadn't stepped up to
the plate, Simonneau suggested the current context
created a more difficult environment in which to reach a
deal. With agricultural prices dropping and economic
growth flagging, there was little likelihood that
emerging economies would be better-positioned to do a
deal now than when growth prospects looked stronger.
Simonneau concluded by cautioning against loading up the
summit agenda. It would be important to avoid debate
that risked ending in failure.


10. (C) Action request: The French are moving quickly
to develop concrete action items for the November 15
summit. They are keenly interested in USG reactions.
The sooner we can get concrete proposals to the French,
the better our chances of focusing thinking here on what
is and isn't achievable. Post requests substantive
points to share with the GOF as early as possible.

STAPLETON