MERKEL'S CHARTER GETS GREEN LIGHT FROM G-20 SHERPAS

UNCLAS SECTION 01 OF 07 BERLIN 000758

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E.O. 12958: N/A
TAGS: ECON EFIN GM OECD PREL WTRO IO
SUBJECT: MERKEL'S CHARTER GETS GREEN LIGHT FROM G-20 SHERPAS

REF: BERLIN 159

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1. (SBU) SUMMARY. One of Chancellor Merkel's highest
priority global economic initiatives got a boost from G-20
Sherpas at a meeting in Berlin on June 12, 2009. The
Chancellor's top economic advisors presented her vision for a
Charter for Sustainable Activity, which is Merkel's
contribution to preventing another global crisis by
establishing a broad set of principles for countries in
economic affairs. The scope of the project is vast,
encompassing finance, trade and investment, environment, and
development, among other areas. As proposed, it would
include not only a list of broad principles, but also a "code
of codes" comprised of existing multilateral instruments, as
well as a monitoring component. Some developed countries
present at the June 12 meeting questioned the need for such a
Charter, and fretted over how the initiative could detract
from more pressing work on the financial crisis and trade
taking place in other fora. Many developing countries were
concerned the Charter would lack legitimacy unless non-G-20
countries joined in the process early on. In the end, most
participants saw some value in drawing up an agreed set of
broad principles. A new working group co-chaired by Germany,
the United States and an emerging economy country will carry
Merkel's Charter initiative forward and report on progress to
the G-20 Sherpas. END SUMMARY.

GERMANS MAKE THEIR PITCH
--------------


2. (SBU) On June 12, 2009, top-ranking German officials,
including the Chancellor,s chief of staff, Thomas de
Maziere, hosted G-20 Sherpas in Berlin to discuss Angela
Merkel's proposed Charter for Sustainable Economic Activity
("Charter"). Chancellery officials describe the Charter as
non-binding "set of general principles," embodying "the
values we seek to pursue in the context of our economic
activity." The aim is the "ensure stable, socially balanced
and sustainable development of the global economy through the
application of shared principles and commitments." The
proposal also includes a "code of codes" that brings together
the "large but disparate body of existing rules," such as the
various instruments of the Organization for Economic
Cooperation and Development (OECD),International Labor
Organization (ILO),World Trade Organization (WTO),World
Bank and International Monetary Fund (IMF),all of which had
contributed to a 191-page inventory in preparation for the
June 12 meeting. Finally, the Charter should hold countries
to account by making use of "existing monitoring structures
in different international fora."


3. (SBU) Merkel's principal economic advisor Jens Weidmann
proposed that the Charter cover seven distinct areas: 1)
sustainable and balanced growth (i.e., free trade and open
investment); 2) financial markets to support employment and
growth (i.e., tighter financial sector regulation and
supervision); 3) sound macroeconomic policy (i.e., cautious
fiscal and monetary policy); 4) productive labor markets,
decent work and social protection; 5) propriety, integrity
and transparency (i.e., addressing tax havens, bank secrecy,

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corporate governance, etc.); 6) preserving our environment
and resources; and 7) global partnership for balanced
economic development. (NOTE: Area 5: propriety, integrity
and transparency will incorporate the Italian initiative
known as the "Global Standard," renamed the "Lecce Framework"
following the June 13-14, 2009 G-8 Finance Ministers meeting
in Lecce, Italy.)


4. (SBU) High-ranking officials from various German
government ministries made their pitch for Charter elements
falling under their responsibility. State Secretary Joerg
Asmussen of the Finance Ministry, said the Charter should
address the flaws in the market revealed by the financial
crisis, and described the Charter's essence as "regulation
and oversight of all markets, products and participants."
State Secretary Bernd Pfaffenbach of the Economics Ministry
highlighted the importance of free trade and open investment
to economic growth, adding that labor mobility, intellectual
property rights and combating climate change were other
priorities. State Secretary Guenther Horzetzky of the
Ministry of Labor put jobs at the top of his list, adding
that the ILO's Decent Work Agenda could play an important
role in the Charter. The Foreign Ministry's State Secretary
Peter Ammon thought the Charter could replace the Washington
consensus with a new framework for balanced growth, based on
strengthened international cooperation. Ingrid Hoven of the
Development Ministry said developing nations should
participate in the Charter process once the G-20 had reached
a consensus; she also articulated the Charter's value as a
way to bring coherence to different policy areas. Karsten
Sach of the Environment Ministry emphasized that economic
growth was not sustainable without factoring in the
environment; Sach wants an acknowledgement in the Charter
that environmental resources are finite and a commitment to a
"green recovery" harnessing new technologies. The Germans'
strategy is to get agreement on the Charter by G-20 countries
before inviting participation by a wider set of countries,
possibly including all members of the United Nations.

SUPPORTERS
--------------


5. (SBU) Remarks by the following participants were positive,
on balance:

AUSTRALIA: Australian participant Andrew Charlton said the
Charter could be an important complement to the G-20 process.
It should be even "more than a declaration of principles,"
he said. Since it represents the world's most important
economies, the G-20 is the proper forum to take on the
Charter project.

ARGENTINA: Argentinean representative Hector Timerman thought
the Charter was a "good idea," but should be even stronger
than a political declaration. He also thought its focus
should be on development, and particularly "closing the
income gaps among countries." Other priority areas for
Argentina include jobs, global imbalances, intellectual
property rights, technology transfer, climate change, fiscal
sustainability and trade liberalization. Timerman said the

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UN should take over the Charter process so that other
countries could get involved.

CHINA: Chinese Ambassador MA Canrong said the Charter was a
way to deal with the financial crisis through "common
approaches." He said the process should include non-G-20
countries to strengthen legitimacy, and should respect the
interests of developing countries. He hoped the Charter
would usher in a "new economic order that is just and
rational."

FRANCE: Among the strongest supporters of the Charter, France
sees the initiative as a way to "fill the gap between global
political and economic integration." French participant
Christian Masset noted that there had been a "change in the
Washington consensus," and that the social and environmental
factors were now considered just as important as economic
factors. Masset said the UN system should carry the Charter
forward following agreement by the G-20. General principles
should be the first priority, with specifics to come later.
Masset also voiced support for the Italians' "Global
Standard."

ITALY: With a related initiative underway in the G-8, the
Italians are practically co-sponsors of the Charter.
Giandomenico Magliano described the Charter as a response to
the flaws of globalization, and a step towards "putting our
houses in order." He hoped the exercise could help reconcile
the different instruments comprising the Charter. He also
hoped it could help bring together discussions on the
financial crisis under way in various fora, including the UN.
Linking it to the Prussian philosopher Immanuel Kant, he
described the Italians' "Global Standard" focusing on
propriety, integrity and transparency as a building block for
the Charter. Magliano thought legitimacy rested on broad
ownership, which would require patience.

RUSSIA: Russia is another strong supporter of the Charter.
Russian participant Alexander Pankin argued for a limited set
of general principles, rather than more prescriptive rules,
however. He thought the Charter could represent an "economic
constitution" or a "development constitution." One way to
include non-G-20 countries in the process could be by
inviting international organizations to participate. He also
said "weaker signatories" may need assistance from the others.

SPAIN: Spain is on the same page as Russia regarding the
scope of the Charter. Spanish representative Javier Valles
said the Charter should focus on principles rather than
codes. He also agreed that international organizations,
including the UN, should get involved. Echoing France, he
said the Charter should cover both economic and social issues.

SAUDI ARABIA: Saudi delegate Hamad Al-Bazai said he thought
the Charter was a good initiative. Saudi Arabia sees the
Charter as a way to revamp the Washington Consensus.

THAILAND (ASEAN): Recalling the Asian financial crisis of
the 1990s, Thai participant Ampon Kittiampon said the economy
recovered long before the broader social wounds healed. He

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was therefore pleased to see the Charter address social
factors in addition to economic ones. He hoped the Charter
could be a "code plus," focusing on four broad principles: 1)
sustainability; 2) stability; 3) shared responsibility; and
4) streamlining.

TURKEY: Turkey's representative welcomed the Charter's wide
focus on labor standards, the environment, financial sector
reform and economic growth. Selim Kuneralp stressed the
importance of including non-G-20 countries in the Charter
process to strengthen its legitimacy. Since the Charter
would be a non-binding, political agreement, however,
Kuneralp did not foresee a big obstacle for the
non-signatories to certain of the existing agreements
comprising the Charter.

EU COMMISSION: EU Commission representative Antonio Jose
Cabral was supportive of the Charter, calling it a "top-down
approach." He said the Charter offered opportunities for
change. One area the Commission would like to see emphasized
is taxation.

OECD: Seeking to allay concerns over the application of
instruments to which not all countries were signatories, OECD
representative Rolf Alter explained that non-members often
sign onto OECD commitments, while not all OECD members are
signatories. He hoped the Charter would be a "living
instrument" that could adopt new elements as needed.

SKEPTICS
--------------


6. (SBU) While none of the following was openly hostile to
the Charter proposal, each expressed concerns over certain
elements:

BRAZIL: A clear skeptic of the Charter proposal was Brazil.
While saying it was hard to disagree with the fundamental
objectives of the Charter, Brazilian representative Luis
Antonio Balduino strongly favored focusing on general
principles rather than policy prescriptions. He noted that
Brazil had not been involved in the Italian-led discussions
on the "Global Standard." Balduino suggested that the
Charter's drafters look to the preambles of existing
instruments for inspiration rather than the text of those
instruments.

CANADA: Canadian participant Peter Boehm outlined three
concerns over the Charter. First, he fretted it could divert
attention from the G-20 Working Groups following up on
Washington and London Summit commitments. Second, he worried
that the benefits for the public might prove minimal.
Lastly, Boehm doubted the London Summit Declaration really
committed the G-20 to carrying the Charter proposal forward.
He suggested that G-20 commitments and deadlines be
referenced in any Charter document. The success of the G-20
process thus far was that it worked on a discrete set of
issues. He urged that G-20 members proceed "with their eyes
open," and that failure was a possibility.


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CZECH REPUBLIC (EU PRESIDENCY): Czech participant Jana
Matesova praised the G-20 forum, saying that the world's
largest economies needed to talk to each other.
Communication failure among G-20 countries was bad for
everyone, including non-G-20 countries. Matesova hoped the
Charter effort would not mirror what was already going on it
other fora, however. She thought the Charter should address
the question of "global imbalances."

ETHIOPIA (NEPAD): Ethiopia's representative, Graham Stegmann,
cautioned that others would judge the Charter by the results
it achieved. The peer monitoring envisaged by the Charter's
supporters was not a bad concept, if it could be done
effectively and take into account the interests of those who
would be affected. NEPAD does not want a "straightjacket"
that might limit its flexibility in pursuing economic
development goals. Stegmann acknowledged a "tradeoff between
inclusivity and workability."

INDIA: Indian representative J.S. Mukul hoped the Charter
would not supplant ongoing efforts to tackle the financial
crisis in other fora. He expressed two concerns shared by
other non-OECD members of the G-20. First, India is not a
signatory to many of the instruments listed in the IO
inventory. Second, it wants to ensure the Charter does not
include instruments that would "straightjacket" developing
countries striving to eliminate poverty. Overall, India
would like the Charter's primary focus to be development.

JAPAN: Japanese participant Masato Takaoka was among those
most critical of the Charter. He hoped Sherpas would not get
ahead of G-20 leaders, and thought expectations should be
played down with the public. Takaoka questioned a
"one-size-fits-all" set of fundamental values. He thought
that the issue of "global imbalances" was the most important
issue at hand, but that the IMF was already addressing it.
Takaoka questioned whether there was agreement at London G-20
Summit to work on a Charter. He also raised doubts about the
legitimacy it would enjoy among non-G-20 members. On
implementation, the OECD might be best placed to take the
lead. Overall, Takaoka doubted the Charter represented any
added value.

KOREA: Skeptical of the Charter, South Korean delegate
Ho-Yung Ahn doubted that the London Summit communique had
committed the G-20 to working on the Charter. He sought
clarification on the Charter's relationship to ongoing
efforts in other fora, and wondered if there was a real need
for it. Ahn thought a focus on broad principles was "the way
to go."

NETHERLANDS: Dutch participant Richard Van Zwol cautioned
that the current crisis was far from over. The G-20 should
not neglect dealing with the immediate problems even as it
tries to prevent future crises. He hoped that the Charter
process would be inclusive, flexible and transparent.

SOUTH AFRICA: South African representative Mandisi BM Mpahlwa
had concerns about the legitimacy the Charter would enjoy if
elaborated by the G-20 in isolation. There needs to be a

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basis for wider participation in the process. He thought
G-20 countries could have the biggest impact by leading by
example. Mpahlwa hoped any Charter would focus on
"high-level principles" much as the Millennium Development
Goals did.

UNITED KINGDOM: UK representative Jon Cunliffe identified
"global imbalances" as the "elephant in the room," and said
the Financial Stability Board should be invited to future
Charter meetings. Imbalances had resulted from the
previously held belief that if every country did what was
good for itself, the entire system would benefit. In the
wake of the crisis, shortcomings of national regulators were
brought into light, though a movement towards international
regulation was unlikely. Cunliffe questioned whether the
machinery to ensure countries adhered to the Charter's
standards was in place.

NOTE: Indonesia was not represented at the meeting.

U.S. CHARTS WAY FORWARD
--------------


7. (SBU) UNITED STATES: Calling the Charter a "long-term"
project, U.S. Co-Sherpa David Nelson argued for a less
technical, more principles-based approach. The United States
wants to ensure the Charter embodies the highest standard
principles, and does not water down any existing commitments.
He echoed South Africa in calling for an inclusive process
to bolster legitimacy, after the G20 countries chart a path,
and stressed the need for accountability. He also pointed
out that many measures G-20 countries were undertaking to
deal with the crisis in the short term may not be emblematic
of long-term goals. Another key challenge will be defining
the term, "sustainability." Keeping expectations realistic,
the G-20 might consider forming a Charter working group,
co-chaired by the United States, Germany and an emerging
market country, which could report to G-20 Sherpas. If
sufficient progress is made, there could be a report on the
Charter at the G-20 Summit in Pittsburgh.

COMMENT
--------------


8. (SBU) From the German perspective, the June 12 G-20
Sherpas meeting on Merkel's Charter was largely a success.
The Germans may have fallen short of getting agreement to
pursue all three elements in their proposal -- principles,
code of codes, and monitoring -- but they did get the green
light to work on broad principles, which they regard as
merely the first step. Key in this regard was getting the
United States, as host of the Pittsburgh Summit, on board.
Whether or not the entire array of issues, from development
assistance to climate change, remains on the table is an open
question. Broadening the G-20 agenda beyond the financial
sector has implications for the future of the G-20 and global
economic governance, and is hotly debated even within the
German government. The fact that the Charter is moving
forward probably increases the chance, however marginally,
that Chancellor Merkel will attend the Pittsburgh Summit,

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which takes place days before the September 27 national
elections in Germany. Being seen on the international stage
playing a leading role on the issue of most importance in the
election -- the economy -- may play well with German voters.
Koenig