BELGIUM'S FINANCE MINISTER ON FINANCIAL RECOVERY,

C O N F I D E N T I A L SECTION 01 OF 03 BRUSSELS 001488 SIPDIS STATE FOR EB/OMA, EUR/ERA, EUR/WE, IO TREASURY FOR OASIA/OIC E.O. 12958: DECL: 11/01/2029 TAGS: EFIN ECON PGOV UNGA SENV BE SUBJECT: BELGIUM'S FINANCE MINISTER ON FINANCIAL RECOVERY, G-20 MEMBERSHIP, CLIMATE CHANGE, BELGIUM'S ROLE ON THE WORLD STAGE AND LOUIS MICHEL'S CANDIDACY AS UNGA PRESIDENT Classified By: AMBASSADOR HOWARD GUTMAN, REASONS 1.4 (b) and (d). ¶1. (C) SUMMARY: Belgian Finance Minister Didier Reynders said Belgium is establishing a new supervisory system for banks in Belgium which would differentiate between systemic (too big to fail) banks and other, smaller institutions,. He attributed the near collapse of Belgian banks a year ago to a turning-away from more traditional banking to taking on too many risks, including to finance Fortis' involvement in the break-up of ABN-AMRO. On the G-20, Reynders called for more participation by others in this, citing the size of Belgium's economy (18th in terms of GDP globally) and its heading of a large grouping of countries in the IMF, including seven EU member countries. On climate change, he expects the meeting in Copenhagen to be "tough" for Europe, with the differing levels of development of EU members making implementation difficult for the EU. Reynders agreed that Belgium could perhaps carve a greater role on the international stage but believed doing more in Afghanistan would be difficult. On Louis Michel's candidacy for UNGA President, he said Michel was the best candidate for the job and that he was supported by many in Europe. END SUMMARY. -------------- BELGIUM AND THE FINANCIAL CRISIS -------------- ¶2. (C). In his initial courtesy call with the Ambassador and A/DCM on October 23, Deputy Prime Minister and Finance Minister Didier Reynders reviewed the effect of last year's financial crisis on Belgium. The Belgian government was now the number one shareholder in BNP-Paribas/Fortis. The government is establishing a committee to organize systemic banks (ones too big to fail) and insurance companies (also hit hard by last year's crisis) with smaller banks and other companies related to the finance sector, such as SWIFT, to be regulated by the National Bank of Belgium, the central bank. In looking at the ways the financial crisis manifested itself in other countries, Reynders observed that the number of regulators seemed to make no difference on the severity of the crisis. He said Belgium is looking at the German model of banking supervision and would focus on enhancing the supervision of the systemic banks first and then begin working on the second-tier institutions. ¶3. (C) The Finance Ministry is seeing signs of recovery from Belgium's banks, despite the huge financial hit they all took in the crisis and major transformation each of them went through. Until recently, Reynders said, Belgian banks had been very traditional. However, the temptations to seek higher returns lead them to other ventures that proved nearly fatal. Fortis, the number one bank in the country for decades, attempted to use very risky financing to pay for its share of the take-over of ABN-AMRO. Dexia, traditionally focused on financing for localities, purchased a monoline FSA in the U.S., unaware of the risky exposure that eventually entailed. ¶4. (C) At one point during the crisis, the Belgian government had had to offer 100 billion euros in guarantees, equivalent to one-third of the country's GDP. Reynders feared the situation could have worsened significantly and led to the bankruptcy of the state. Dexia still enjoys 90 billion euros in guarantees but the situation is now stable and manageable. -------------- CLIMATE CHANGE -------------- ¶5. (C) Reynders said that the Belgian government is heavily focused on energy and climate change and is working on it at all levels of government. He sees the politics of alternative energy as a huge growth field. Looking ahead to Copenhagen, Reynders thinks that implementation of whatever is agreed to by the EU will be very hard. A major part of the problem is the relatively low level of economic development of many of the new members of the EU. Nevertheless, he believes there is a will in Europe to reach an agreement in Copenhagen. ¶6. (C) Reynders said he works very closely with Energy and Environment Minister Paul Magnette on trying to find ways to finance the environmental goals being developed in the climate change talks. However, the economic development levels of the new EU member states remain a problem and BRUSSELS 00001488 002 OF 003 Belgium itself has a similar problem, with a number of old industries with high energy consumption in several regions of the country. Many are located in the port of Antwerp. He is preoccupied with their energy demands but well aware of their key role in the Belgian economy. Assessing carbon emissions in these industries will be a big challenge. -------------- G-20 -------------- ¶7. (C) Reynders said that Belgium's exclusion from the G-20 has been a problem. He stressed that Belgium is not merely representing itself but also heads a contingency in the IMF, representing seven EU members and other countries such as Turkey and Kazakhstan. It is also a major creditor and is ready to put seven billion euros on the table for the IMF replenishment. He suggests that the G-20 could either become a G-24 or G-25 or that it establish some mechanism whereby countries around the table also represent other countries, in the same way that Belgium does in the IMF. ¶8. (C) Belgium also supports reorganizing the IMF board. He asserted that Spain enjoys its strong position because it is boosted by its representation of South American countries. The main problem in the IMF is the need to adjust voting shares; they must be rebalanced. However, it will inevitably take time to implement any agreements. ¶9. (C) Reynders concluded this part of the discussion by noting that Belgium hosts the capital of Europe, has strong links with many countries in central and eastern Europe, and that a "real G" grouping must represent other areas not currently around the table, including most of Africa, where Belgium has many close links. -------------- -------------- SEEKING A STRONGER ROLE FOR BELGIUM ON THE INTERNATIONAL STAGE -------------- -------------- ¶10. (C) Ambassador Gutman then noted that with the right strategy, Belgium could play a bigger role on the world stage. On Guantanamo, Reynders said that the Europeans had criticized the facility there for years and that Europe now has to help close it. Europe also needs to help keep Afghanistan together. ¶11. (C) The Ambassador agreed and said that nothing should prevent European countries from getting together and agreeing to take the remaining prisoners so that the camp could be closed within two months. Belgian leaders could also stress publicly that saving Afghanistan needed everyone's commitment. Belgium could take similar steps on climate change. ¶12. (C) Reynders said that European countries had had many discussions on both climate change and Guantanamo. Afghanistan, however, is a very difficult issue. The key problem is that continual rise in the number of deaths among the coalition troops. Even in the internal discussions in Belgium on sending F-16s to Afghanistan, some in the government had expressed great fears about the risks. The Ambassador, however, stressed that from Belgian leaders could deliver speeches supporting the mission there without increasing the physical risk. -------------- LOUIS MICHEL FOR UNGA PRESIDENT -------------- ¶13. (C) Regarding the candidacy of Louis Michel for President of the UN General Assembly, Reynders said his candidacy had been the result of long discussions within Belgium. Michel had been President of the francophone liberals and was 62 years old, so "Why not?," asked Reynders. Reynders sees Michel as the best candidate from Belgium and believed he was supported by many in Europe. He also has extensive contacts in Africa. Belgium had held the UNGA Presidency before, in 1946 with Paul-Henri Spaak. Michel would be a good candidate and good for Belgium. Reynders acknowledged that, since Michel had been leading a campaign of criticism against Reynders within the francophone liberal party, it would certainly not be inconvenient for Reynders if Michel were to leave the country. ¶14. (C) Foreign Minister Leterme and Michel had earlier discussed Michel's candidacy. They had also looked at Senate BRUSSELS 00001488 003 OF 003 President Armand Dedecker and he had been viewed as a better choice for gaining U.S. support for the candidacy. However, Michel had been the clear consensus choice in the subsequent Council of Ministers meeting to select Belgium's candidate. .