SCENESETTER FOR ASSISTANT SECRETARY FRIED'S VISIT

C O N F I D E N T I A L SECTION 01 OF 04 PRAGUE 000005

SENSITIVE
SIPDIS

EUR/CE, EUR/FO, EUR/ERA

E.O. 12958: DECL: 01/05/2014
TAGS: NATO PREL PGOV EZ EUN
SUBJECT: SCENESETTER FOR ASSISTANT SECRETARY FRIED'S VISIT
TO PRAGUE

Classified By: DCM Mary Thompson-Jones for reasons 1.4 (b) and (d).


1. (C) SUMMARY: Assistant Secretary Fried, Embassy Prague
looks forward to welcoming you to the Czech Republic. Your
visit will underscore the importance of our strong
transatlantic partnership, which received a boost from the
Czech Republic's entry into the Visa Waiver Program, but
which also has suffered with the protracted Czech domestic
debate over Missile Defense. The Czechs' engagement
internationally - from Kosovo to Afghanistan and from Gaza to
the Russia-Ukraine gas dispute - also demonstrates the GOCR
commitment to our two countries' shared security priorities.
In addition, your visit will help set the stage for an even
closer U.S.-Czech collaboration during the upcoming Czech EU
Presidency on our transatlantic priorities. END SUMMARY.

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U.S.-Czech Relations
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2. (SBU) Nineteen years after the 1989 "Velvet Revolution,"
the Czech Republic today is a prosperous market economy, a
stable democracy, and a committed American ally. The Czech
Republic has been a member of NATO since 1999 and the
European Union since 2004. Our bilateral relations are
excellent, with the Czech Republic's recent entry into the
Visa Waiver Program having removed the one long-standing
irritant in our relationship. PM Topolanek's firm commitment
to strong trans-Atlantic ties undergird his government's
support for missile defense and the U.S.-proposed radar site
in Brdy near Prague. The country also has been a steady
supporter of the war on terror, and has over 1000 troops on
foreign deployments; the Czechs launched a provincial
reconstruction team (PRT) in Afghanistan in March 2008 and
deployed a Special Forces unit to Afghanistan in mid-2008.
Building on its own recent history, the Czech Republic is our
strongest partner in Europe on Cuba, and an active supporter
of Cuba's democratic opposition. Likewise in Georgia,
Belarus, Burma, Iraq and other countries in transition, the
Czech government and NGOs work to support peaceful
transformations. Prague has been home to the U.S.-funded
Radio Free Europe/Radio Liberty since 1995, and has actively
supported broadcasts to countries in Eastern Europe, Central
Asia and the Middle East.


3. (C) Domestic Politics: PM Mirek Topolanek, the head of the
center-right Civic Democratic Party (ODS),leads a coalition
government with the Christian Democrats and the Greens. The
coalition won in the 2006 elections exactly half of the seats
in the lower chamber of the Parliament, and it has managed to
rule thanks to various "renegade deputies" from the
opposition Social Democrats (CSSD). However, the October
2008 regional and senate elections were a significant setback
for the Topolanek coalition, which has always been shaky at
best. Despite Topolanek's reelection as ODS chairman in
early December, it is unclear whether his government
continues to hold a majority in the lower chamber. Two
recent legislative defeats -- on foreign deployments and
health care -- demonstrated the government's precarious
position and the opposition's determination to press its
advantage after the October elections.


4. (C) In this environment, Topolanek is trying to retool his
cabinet and find some room to calm the charged political
atmosphere during the country's EU Presidency. So far, the
opposition has not been amenable to a political cease-fire
proposal, which DPM Alexandr Vondra had negotiated late last
year with the main opposition party, the Social Democrats
(CSSD). Indeed, the opposition CSSD, which is outstripping
ODS by 15-20 percent in recent public opinion polls, has
sensed an opportunity and is pressing for early elections
this year. Consequently, decisions on everything from
foreign deployments to missile defense have been tainted by
the country's poisonous domestic politics to the detriment of
the Czech Republic's international standing and national
interest.


5. (SBU) Topolanek has strained relations with President
Vaclav Klaus, who founded ODS and was re-elected to a second
five-year term in February 2008. During the recent ODS
Congress Klaus openly supported Topolanek's challenger for
the part's chairmanship. He also resigned from his position
as ODS Honorary Chairman and left the party he founded 18
years ago. Klaus's euroskepticism and opposition to the
Lisbon Treaty has put him at odds with many EU political
leaders. Nevertheless, the Czechs are planning to give Klaus
a role during their EU Presidency, possibly during the
EU-Russia Summit. Many political analysts speculate that
Klaus may help form a new right-wing, Euroskeptic party,

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which would compete in the June 2009 European Parliament
elections.


6. (SBU) Economics: The Czech Republic has transformed
itself, with the help of significant inflows of Foreign
Direct investment, into a vibrant market economy, with a
strong manufacturing base, low unemployment, and stable
financial system. Per capita GDP in 2007 was 16,838 USD (80
percent of the EU-27 average). The U.S. is the fifth largest
foreign investor. Significant U.S. investments include
Honeywell, Ingersoll Rand and IBM. Despite growing pressure
from the business community, the Czech Republic is unlikely
to adopt the Euro before 2013. Long-term challenges include
dealing with an aging population diversifying the economy
away from manufacturing toward a more high-tech,
services-based economy. The country also suffers from
persistent corruption and struggles to improve transparency
in government and business.


7. (SBU) While the Czech financial system remains relatively
healthy, the Czech real economy is feeling the effects of the
global financial crisis, largely due to a drop in demand for
Czech exports. The Czech economy is heavily dependent on
manufacturing exports, especially from the automotive sector
(the Czech Republic is the second largest per capita producer
of cars in the world). Over 80 percent of Czech exports are
to fellow EU members. After three years of over six percent
real GDP growth (2005-2007),the Czech economy slowed to four
percent in 2008 and is expected to fall to between zero and
two percent in 2009, although some economists are warning
that a recession is possible. The Ministry of Finance is
preparing a possible fiscal stimulus, but plans to adopt it
only when growth falls below 2 percent. The Czechs are
closely consulting with the UK on the EU response to the
crisis. While they support increased coordination among
national regulators, they are likely to oppose any attempts
to implement new pan-European financial regulations or
efforts to erode their free and open trading and investment
climate.

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Czech EU Presidency and the Russia/Energy issues
--------------


8. (C) The Czechs, who joined the EU in May 2004, assumed the
rotating six-month presidency from the French January 1.
This is the first time the Czech Republic has held the EU
presidency and only the second time for one of the 12 newest
EU member states. (Note: Slovenia was the first in the first
half of 2008. End Note.) The Czech EU Presidency has an
overarching theme "Europe Without Borders" and focuses on
three priority areas, which they refer to as the "Three Es":
EU Economic Competitiveness (including addressing the
challenges of the global financial crisis),Energy Security
and Sustainability, and Europe in the World (External
Relations). Within External Relations, the Czechs plan to
focus on the Western Balkans, transatlantic relations, and
the Eastern Partnership. We share the same broad goals with
the Czechs; the challenge will be finding a way to help the
Czechs forge an EU consensus close to our shared goals. The
beginning of the Czech Presidency, however, has so far been
dominated by Gaza, the Russia-Ukraine gas dispute and the
global financial crisis. To reaffirm the United States and
the EU's strong relations, the Czechs have begun to press for
an early visit to Prague by the next U.S. President during
their six months at the EU's helm.


9. (C) A key challenge for the Czech Presidency will
undoubtedly be the EU's policy toward Russia. Overall, the
Czechs are, and will continue to be, a valuable ally on
Russia within the EU. However, they are keenly aware that as
the incoming EU President, they must temper their
government's views on Russia to achieve an EU consensus.


10. (C) Energy security is a related issues, since the Czechs
are especially concerned about the reliability of Russian
supplies and Russian efforts to buy up Central European
energy infrastructure and assets. For the Czechs, the
current Russia-Ukraine gas dispute underscores the importance
of this topic. The Czech Republic is dependent on Russia for
70 percent of its gas, 65 percent of its oil, and 100 percent
of its nuclear fuel. The level of Russian crude oil
deliveries to the Czech Republic has declined -- ostensibly
for technical reasons -- since the United States and Czech
Republic signed the Ballistic Missile Defense Agreement in
early July. Czech energy security goals include further
diversification of suppliers and routes, including support
for the Nabucco and TGI pipelines, improved outreach to
Caspian producers and increased interconnectivity of the

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internal EU gas and electricity grids. To this end, the
Czechs are planning an EU electricity interconnectivity
conference in January and both a Southern Corridor Gas Summit
and a Ukraine transit infrastructure conference in March.
The Czechs have suggested that we can play a useful role by
timely support of Czech energy security-related initiatives
during their presidency.

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Allies in Missions Abroad
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11. As inhabitants of a small country that has a long history
of suffering at the hands of larger neighbors, the Czechs are
strong believers in the importance of collective security.
Membership in NATO is the cornerstone of Czech foreign and
security policy and is broadly supported by all parties,
except the Communists. Most political parties see the U.S.
as a key strategic partner, both as a guarantor of NATO's
future and as a strong partner working collaboratively with
the EU.


12. (SBU) Military Deployments: The Czech military has made
excellent strides toward reform and NATO compatibility in the
past decade. A team of fourteen Czech soldiers just
completed their training mission while assigned to FOB Taji
in Iraq. In Afghanistan, where the number of troops is
around 500, the Czechs are manning a provincial
reconstruction team (PRT) in Logar province (SE of Kabul),
and an Operational Mentoring and Liaison Team (OMLT) in
Kabul, both of which they established in March 2008. The PRT
significantly expanded their military and civilian presence
in the country. (Note: The Czech PRT has an annual budget of
around 6.2M USD for civilian reconstruction projects. End
Note.) In mid-2008, the Czechs also deployed 100 Special
Forces troops in support of Operation Enduring Freedom (OEF)
in the South. Along with the Czech's sizable commitment to
Afghanistan, they also have an infantry battalion of around
450 troops deployed on a permanently rotating basis to Kosovo
in support of KFOR.


12. (SBU) The Ministry of Defense's (MOD) draft 2009
deployment plan sought to increase the total number of
soldiers deployed abroad from a maximum ceiling of
approximately 1150 to just over 1380, with an increase of
over 250 additional troops for Afghanistan. However, the
deployment legislation has been revised after it failed to
pass in the lower chamber of the parliament December 19 due
to domestic political disputes between the government and the
opposition. At that time PM Topolanek used his authority to
extend current deployments for a maximum of sixty days
(through March 1). In the meantime, the government hopes to
reach a compromise with the opposition to secure enough votes
from the coalition parliamentarians. The Czech MOD developed
a revised foreign deployments bill, but this has not yet been
discussed with the opposition. Therefore, it is not clear
whether this latest proposal will pass, especially since at
the heart of the dispute are domestic politics, not troop
levels. Without a parliamentary resolution, the Czech
constitution would require a withdrawal of Czech troops from
their foreign missions. Therefore, at your luncheon with
Czech parliamentarians we would encourage you to thank the
Czechs for their contributions and underline how the
exemplary service of their soldiers and reconstruction
experts is helping the Afghan people build a stable and more
prosperous country, a goal of the international community.

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Visa Waiver
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13. (C) For many years, Czech frustration at being excluded
from the U.S. Visa Waiver Program (VWP) was our only
significant bilateral irritant. The Czech government worked
hard with DHS and the State Department to fulfill the
requirements for visa waiver reform included in the August
2007 law implementing the recommendations of the 9/11
Commission. These labors bore fruit on November 17, the
anniversary of the Velvet Revolution, when the first Czechs,
traveled to the U.S. without a visa.

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Missile Defense
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14. (SBU) PM Topolanek's strong commitment to the
trans-Atlantic relationship has been key to his government's
support for missile defense. The Czechs moved quickly to
conclude and sign both the Ballistic Missile Defense
Agreement (BMDA) and the Status of Forces Agreement (SOFA).

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The Czech Senate ratified both agreements on November 27,
2008, but it is unclear when the Lower Chamber will take up
the agreements. There is an effort among the parliamentary
opposition to send the two agreements to the Constitutional
Court for a review. Without the government's support,
however, the opposition would not have the required number of
votes in the Lower Chamber to pass a resolution requesting
the constitutional review. The Topolanek government remains
committed to ratifying the agreements, but it is increasingly
unlikely that the government will be able to achieve this
goal without support from the opposition. In a recent
interview, PM Topolanek stated that in order to generate a
"positive momentum" with opposition parliamentarians, a clear
statement of support for MD from the new U.S. administration
will be needed. Any doubts regarding the next
administration's support for the European MD site would
undermine Czech ratification prospects.


15. (C) The opposition in the parliament has used a number
of arguments to support its anti-MD stance, chief among them
being public disapproval of the proposal. Public opinion
polls have consistently shown that about two-thirds of the
Czechs oppose the facility. Many Czechs have an instinctive
aversion to the idea of stationing foreign troops on Czech
soil, given strong memories of the Soviet invasion in 1968
and the subsequent stationing of Soviet troops through the
early 1990's. It is important to note, however, that when
ranked against other issues, MD is ranked well below other
concerns, most notably pocket-book issues. Polls have also
shown that a majority of the population does want to be
protected against the ballistic missile threat.


16. (C) The parliamentary opposition has also continued to
charge that this is a bilateral initiative, rather than a
full-fledged NATO effort, despite the strong statement of
support for MD issued at the 2008 NATO Summit in Bucharest
and the December Foreign Ministerial. With the transition in
Washington, opponents argue that the Czech Republic cannot be
certain that the new administration will continue to support
MD. Opponents have also raised questions about the reality
of the threat from Iran and the greater Middle East, and
whether the radar will be a net plus or minus in terms of
security for the Czech Republic. Finally, there is an active
"no" campaign that has been quick to spread misinformation
and rumors in an effective attempt to maintain public opinion
against the facility.


17. (C) To answer the critics within the Czech parliament,
Embassy Prague has been conducting a very active outreach to
members of parliament, and especially the opposition. With
regard to the public opinion, the Embassy's approach has been
to re-frame the discussion to one focused on the broader
issues of the strategic security relationship. To the extent
that the Embassy and visiting USG officials can emphasize the
broader theme of a cooperative security relationship based on
joint responses to common threats and shared interests, we
are in a much stronger public position on missile defense,
Afghanistan and other security issues.

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A Strong and Valued Partnership
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18. (C) Despite its small size and at times unsettled
political scene, the Czech Republic has consistently proven
to be a reliable and active ally of the United States. The
Czechs are appreciative of the positive role the United
States has played at key moments of their history. The key
themes for your meetings and public statements should be:
setting the stage for close U.S.-EU cooperation under the
Czech EU Presidency, recognizing Czech contributions and
partnership in promoting global democracy, freedom and
security; highlighting the country's Visa Waiver Program
entry; expressing appreciation for Czech willingness to
enhance common defense through participation in foreign
missions and support for the MD shield.
Graber