MERKEL PROPOSES A WORLD ECONOMIC COUNCIL

UNCLAS SECTION 01 OF 03 BERLIN 000159

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E.O. 12958: N/A
TAGS: ECON EFIN GM OECD PREL WTRO IO
SUBJECT: MERKEL PROPOSES A WORLD ECONOMIC COUNCIL

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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

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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

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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