MERKEL PROPOSES A WORLD ECONOMIC COUNCIL

UNCLAS SECTION 01 OF 03 BERLIN 000159 SENSITIVE STATE FOR EEB(NELSON),EEB/OMA(SAKAUE, WHITTINGTON), EEB/IFD/ODF(LEATHAM),IO/EDA(DOWNES),DRL/ILCSR AND EUR/AGS LABOR FOR ILAB(BRUMFIELD) TREASURY FOR ICN(KOHLER),IMB(MURDEN,MONROE,CARNES) AND OASIA SIPDIS E.O. 12958: N/A TAGS: ECON EFIN GM OECD PREL WTRO IO SUBJECT: MERKEL PROPOSES A WORLD ECONOMIC COUNCIL BERLIN 00000159 001.2 OF 003 ¶1. (SBU) SUMMARY: What does German Chancellor Angela Merkel mean by a "World Economic Council"? The concept, first enunciated by the Chancellor in December 2008, is a moving target that has recently been eclipsed by a parallel proposal for a global "Economic Charter." At its root lies Merkel's premise that we must understand the origins of the economic crisis in order to avert another meltdown. Her conclusion is that the international financial system is broken and in need of repair. Despite recruiting the heads of the IMF, World Bank, WTO, OECD, and ILO to her cause, however, Merkel's proposals are attracting surprisingly little attention. This may be because her ideas are only half-baked and mainly designed to appeal to voters hungry for leadership on the economy. END SUMMARY. THE LITTLE NOTICED SUMMIT -------------- ¶2. (U) On February 5, the heads of five leading economic international organizations (IOs) assembled in Berlin for a meeting hosted by Chancellor Angela Merkel to discuss the global economic situation. Dominique Strauss-Kahn of the International Monetary Fund (IMF),Robert Zoellick of the World Bank, Pascal Lamy of the World Trade Organization (WTO),Angel Gurria of the Organization for Economic Cooperation and Development (OECD),and Juan Somavia of the International Labor Organization (ILO) issued a joint statement with the Chancellor endorsing a "stronger, cleaner and fairer economy." The statement specifies five areas for cooperation: 1) developing an overarching framework to prevent future crises; 2) strengthening the international financial architecture; 3) promoting free trade; 4) combating climate change; and 5) fighting poverty in developing countries. These themes would underpin a "new charter for sustainable economic governance," according to the statement. Certain OECD instruments, the ILO's "Decent Work Agenda," and the accession requirements of the other international organizations would serve as the basis of the Economic Charter. ¶3. (U) Surprisingly, the joint statement did not mention the Chancellor's idea of a World Economic Council. Rather, the Economic Charter proposal seems to have taken center stage. During a press conference following her meeting with the IO chiefs Merkel did mention the possibility of a World Economic Council, but only Juan Somavia of the ILO offered any support for the idea. For his part, Angel Gurria of the OECD welcomed the proposal for an Economic Charter, but did not mention the World Economic Council. The others were conspicuously silent on Merkel's proposals. This "lukewarm" public support, as it was characterized by the "Financial Times Deutschland," might in part explain why this gathering of the IO A-List received such little attention in both the German and international press. EVOLUTION OF AN IDEA -------------- ¶4. (U) Chancellor Merkel first floated the idea of a World Economic Council in early December 2008 at a CDU party convention in Stuttgart. "Just as there is the UN Security Council for security issues, we need a World Economic Council for economic issues," she told delegates, adding that the G-20 did not represent the entire world. Merkel and her Finance Minister Peer Steinbrueck have long criticized unbridled, "Anglo-Saxon" capitalism, and called for constraining it at the international level. In November 2008, Steinbrueck recommended to G-7 Finance Ministers meeting in Washington establishing international standards and enhancing international cooperation. Merkel's concept of a World Economic Council has its roots in this thinking. Since Stuttgart, Merkel has publicly mentioned creating a new Council at least four additional times, adding nuance and complexity with each presentation. By the time she spoke on January 30 at the World Economic Forum in Davos, her ideas BERLIN 00000159 002.2 OF 003 had evolved to include the Economic Charter. MERKEL'S PET PROJECT -------------- ¶5. (SBU) At a February 6, 2009 meeting with EMIN and Econoff, Chancellery economic advisors Andreas Nicolin and Johannes Scheube downplayed the idea of a World Economic Council under UN auspices, saying it might be "unrealistic" and was only a "long-term goal." Merkel's reference to the UN Security Council was "just an analogy," Nicolin said, somewhat disingenuously. As for the Economic Charter, thinking was still in the "idea stage," according to Scheube. The concepts were of personal interest to the Chancellor, and discussions were so far confined to the Chancellery, Nicolin confided. Nicolin thought it would be unproductive to engage the various government ministries at this point, as they might try to pick the proposal apart or bury it in minutiae. Nicolin and Steube gave the sense the proposals had been cooked up in Merkel's "kitchen cabinet." (NOTE: Embassy Econoffs had previously sought clarification of Merkel's proposals through contacts at the Ministries of Finance, Economics and Development, but none could offer any information, and most were skeptical or dismissive of the notion.) ¶6. (SBU) Now that the heads of the five key economic IOs had signed onto her ideas, explained Scheube, the Chancellor intended to promote the Economic Charter concept within Europe. (NOTE: The five IOs' deliberative bodies have not discussed Merkel's proposals, according to Nicolin.) On February 22, leaders of the EU G-20 members were coming to Berlin to prepare for the April 2 G-20 Summit in London, he said. Once they were on board, explained Scheube, the next step would be to bring a proposal before G-20 leaders in London. The Chancellor was still "open to suggestions" on the best way forward, and hoped for input from developed and developing countries, said Nicolin. Nicolin informed that Merkel was already in contact with UK Prime Minister Brown about the possibility of inviting the heads of the five IOs to the London Summit. THE VIEW FROM OUTSIDE -------------- ¶7. (SBU) Merkel's ideas have met with bewilderment or indifference in most quarters. A senior German banker working for a U.S. bank (and also advising Merkel's CDU on economic matters) told EMIN that election-year politics could be behind Merkel's proposals. Creating a World Economic Council at the United Nations was her idea, he said, but it was still very much a work in progress. The banker did not think anything would ever come of it, however, adding that "the last thing we need is another commission." In his view, the point was for Merkel to take a high-profile international posture on an issue that might resonate with voters in the September national elections -- in this case, "fixing the system" so that the man in the street would be protected from future financial disasters. Yet German newspapers have paid scant attention to Merkel's proposals, and did surprisingly little reporting on what was a somewhat remarkable achievement -- assembling the heads of the IMF, World Bank, WTO, OECD and ILO in Berlin. COMMENT -------------- ¶8. (SBU) Though Merkel may genuinely believe in her ideas, election-year politics are very likely at work. Most Germans attribute the economic crisis to outside forces (i.e., the United States),so Merkel may hope her international reform proposals will be viewed as addressing the root causes of the BERLIN 00000159 003.2 OF 003 crisis. In contrast, Merkel's rival for the Chancellorship, Foreign Minister Frank-Walter Steinmeier (SPD),is seen as struggling to find his voice on economic issues. (NOTE: According to press reports, Steinmeier opposes Merkel's proposals.) Having been sidelined on economic issues during the French EU Presidency by Sarkozy, Merkel can also, by proposing overarching reforms, reclaim some of the spotlight. Judging from the atmospherics of the February 5 press conference with the five IOs as well as the February 6 meeting with Chancellery economic advisors, the World Economic Council idea is fading. As for the Economic Charter, whether or not the proposal survives until the G-20 Summit in London depends in part on how persuasive the Chancellor is when her EU G-20 colleagues come to Berlin later this month. Koenig