NETHERLANDS: PREPARATION FOR EU AND G20 SUMMITS

UNCLAS SECTION 01 OF 02 THE HAGUE 000116

SIPDIS

STATE PASS FEDERAL RESERVE BOARD - INTERNATIONAL DIVISION, TREASURY
FOR IMI/OASIA.VATUKORALA, USDOC FOR
4212/USFCS/MAC/EURA/OWE/DCALVERT

E.O. 12958: N/A
TAGS: ECON EFIN PGOV PREL NL
SUBJECT: NETHERLANDS: PREPARATION FOR EU AND G20 SUMMITS

THE HAGUE 00000116 001.2 OF 002



1. Summary: Dutch MFA officials noted that the financial crisis
will feature prominently in the February meeting of the EU General
Affairs and External Relations Council (GAERC) and will be the
central focus of the March 16-17 GAERC. The EU will use both
meetings to prepare for the European Council summit on March 19-20,
which in turn will prepare EU positions for the G20 summit on April

2. The Dutch, as well as the Spanish, have been invited to the G20
summit; Dutch Prime Minister Balkenende will attend. The Dutch
expect the European Council to focus on banking supervision, credit
rating agencies, and the Commission's stimulus package. The
Netherlands' main message at the G20 summit will be a "plea for open
markets" and warnings against what the Dutch see as rising
protectionism in the U.S. and EU. End summary.

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Preparing for the European Council and G20 Summits
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2. Dutch Ministry of Foreign Affairs officials briefed officers from
the U.S. and other foreign embassies FebruarQ20 on Dutch positions
for the February 23-24 meeting in Brussels of the EU General Affairs
and External Relations Council (GAERC). Economic discussions will
feature prominently in the February GAERC and will be the central
focus of the March 16-17 GAERC. EU Member States will use both
GAERC meetings to prepare for the European Council's spring meeting
of EU leaders, March 19-20 in Brussels, at which the European
economic recovery plan is again expected to dominate. (Note: The
Czech Presidency has also called an informal meeting of EU leaders
in Brussels on March 1 to discuss the economic recovery plan. End
note.) According to the Dutch, the goal of the February GAERC is to
prepare the agenda for the March European Council summit, with the
bulk of preparatory work on summit issues to be done at the March
GAERC. The European Council summit, in turn, is expected to prepare
EU positions for the G20 summit in London on April 2.

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G20 Invitation
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3. The Dutch MFA confirmed that the British government has invited
the Netherlands to participate in the G20 summit. At the invitation
of President Sarkozy (during France's EU presidency in fall 2008),
the Dutch and Spanish attended the first G20 summit on November 15
in Washington as part of the EU delegation. This time in London,
according to the Dutch MFA, the Dutch and Spanish will attend as
sovereign states. However, unlike the G20 members who will bring
both their heads of state and finance ministers, the Dutch and
Spanish will have only one seat for heads of state, with Dutch PM
Balkenende attending for the Dutch.


4. Balkenende also attended the February 22 meeting in Berlin of
European G20 leaders from Germany, UK, France, and Italy - as well
as Spain, the Netherlands, the Czech Republic, and senior EU
officials - to prepare for the April event. Balkenende said
February 23 that he was pleased that participants agreed to condemn
national protectionism, which would be "disastrous" for an open
economy like the Netherlands. He added that the IMF has "an
essential role" in solving the current crisis, as well as in
coordinating cooperation between different countries. Finance
Minister Wouter Bos said he had mixed feelings about the results of
QMinister Wouter Bos said he had mixed feelings about the results of
the Berlin discussion, as he welcomes stricter financial supervision
but expects that it will take a long time to achieve. Bos noted
that it might be difficult for some EU Member States to comply with
non-protectionist measures -- referring especially to France -- and
added that "you will have to keep warning Member States about this
every week".

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Dutch Expectations for the EU and G20 Summits
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5. The Dutch expect the European Council summit in March to focus on
three major issues related to the European economic recovery plan:
(1) banking supervision, (2) credit rating agencies, and (3) the
European Commission's stimulus package. Regarding banking
supervision, the Dutch MFA noted that EU members agree on the need
for better coordination among national supervisory authorities -
both within the EU and internationally - but an open question is how
formal that coordination should be. EU members have a wide spectrum
of options, from informal coordination as simple as a "telephone
roster" of EU central bank governors to encourage communication, to
formal supervision of all national central banks by the European
Central Bank (ECB). Dutch Finance Minister Wouter Bos told
parliament February 20 that he does not support such supra-national
supervision by the ECB, as it does not fit the Dutch "twin peak
model" of banking supervision and undermines the acQuntability of

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national governments. (Note: The "twin peak model," based on that
of Australia, separates the Dutch Central Bank's prudential
supervision of banking compliance with financial solvency rules from
the supervision of business conduct, which the Netherlands Authority
for the Financial Markets performs. End note.)


6. Regarding credit rating agencies, the Dutch will stress at the
European Council summit that global rules must be applied here,
given the handful of agencies that dominate the international
market. The Dutch expect debate at the summit on whether the EU
should support such global supervision or rely on an EU-centric
system.


7. EU leaders also will decide at the European Council summit
whether to support the European Commission's proposed 5 billion euro
economic stimulus package, which focuses primarily on infrastructure
projects (e.g. wind parks) to promote clean energy in Europe. While
the Dutch are not opposed to the Commission's package, they will
emphasize that the Commission should reprioritize its spending plans
in order to find the 5 billion euro from existing funds, rather than
asking Member States to commit additional resources in this time of
crisis to an EU-wide initiative. The Dutch also expect the European
Council to review some Member States' stimulus packages to promote a
cohesive EU-wide response to the economic crisis -- and to prevent
individual states from adopting protectionist measures that could
harm other members. The Dutch will stress that the packages should
not be "one size fits all"; rather, they should be tailored to each
member's needs while contributing to overall EU stability. (Note:
EU officials recently have criticized Dutch stimulus measures as
insufficient, as they do not total at least 1.5 percent of GDP as
recommended by the Commission. The Dutch argue, however, that (1)
the Commission is not taking into account all of their efforts, (2)
they must be conservative when considering new measures because, in
a small, open economy like the Netherlands, about 80 percent of such
government spending is usually exported out of the country, and (3)
the Dutch must continue to focus their rescue efforts on shoring up
the financial sector, the lynch pin of their economy. End note.)


8. At the G20 summit, the Dutch will stress the need for global
measures to address the financial crisis, recognizing that
individual countries and even the EU cannot effectively implement
their own solutions. The Netherlands' main message will be a "plea
for open markets" and warnings against what the Dutch see as rising
protectionism in EU Member States, the United States, and many other
nations. The Dutch also will argue that the financial crisis should
give new impetus to WTO members to successfully conclude the Doha
round of trade negotiations. Finally, the Dutch will stress the
importance of loosening credit markets in richer less developed
countries (LDCs) such as Pakistan. The Dutch argue that these
wealthier LDCs have seen credit supplies dry up but are not
candidates for the same levels of assistance of which poorer LDCs
can take advantage. If richer LDCs like Pakistan are cut off from
international money flows, they could slide backward toward
increased radicalization. In the Dutch view, regional international
banks and credit institutions may be best positioned to assist this
Qbanks and credit institutions may be best positioned to assist this
stratum of LDCs.

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COMMENT
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9. Comment: An invitation to the G20 summit in London is a major
win for the Dutch, who fought hard to be included in the Washington
summit. Although not a G20 member, the Netherlands argued
successfully in November that the Dutch play a major role in the
international financial system; they have a disproportionate amount
at stake in the reform of that system; and their expertise should be
utilized. Now, with a second invitation, the Dutch likely have
assured their seat at the table for future G20 events related to the
global financial crisis. At both the EU and G20 summits, we can
expect the Dutch to continue calling for international cooperation
to build a new supervisory financial system, rather than a piecemeal
approach by individual governments. The Dutch also will stress
their mantra of open markets, free trade, and anti-protectionism -
they were disturbed by the "Buy American" provisions of the new
American Recovery and Reinvestment Act and other measures that they
fear could introduce a new wave of national protectionism and
escalating trade wars. End comment.


10. USEU has cleared this message.


GALLAGHER