SCENESETTER: GERMAN ECON MINISTER BRUEDERLE'S

UNCLAS SECTION 01 OF 02 BERLIN 000121 SENSITIVE SIPDIS STATE PASS TO DOC - SECRETARY LOCKE E.O. 12958: N/A TAGS: OVIP ECON ETRD EFIN GM SUBJECT: SCENESETTER: GERMAN ECON MINISTER BRUEDERLE'S FIRST VISIT TO WASHINGTON, FEBRUARY 1-2 REF: Berlin 85 BERLIN 00000121 001.2 OF 002 ¶1. (SBU) SUMMARY: Germany's Minister for Economics and Technology, Rainer Bruederle (Free Democratic Party, FDP),will be the first senior German economic official to visit Washington since Germany's new coalition government assumed office in October 2009. Bruederle is a strong proponent of the free market, including tax cuts geared to entrepreneurs and the middle class. His policy agenda focuses on strengthening SMEs and fostering competition. He is the most outspoken critic in the new government on state aid to GM/Opel. In his meetings with senior Washington policy makers on February 1-2, Bruederle is likely to focus on transatlantic trade and investment, the future of the Transatlantic Economic Council (TEC),support for the "Mittelstand" (SMEs), prevention of protectionism ("Buy American"),the Doha international trade round, and global economic imbalances. END SUMMARY. ¶2. (SBU) Bruederle served as the Economics Minister in the state of Rhineland Palatinate from 1987 to 1998 and has aspired to become Germany's Econ Minister since becoming a member of the German Bundestag in 1998. His instincts are "U.S. friendly," and he owns a home in Florida (see ref A for more bio details). In Washington, Bruederle looks forward to his meetings with Secretary Geithner (confirmed),Secretary Locke (confirmed),USTR Kirk (confirmed) and Larry Summers (not confirmed). In addition, he will meet with the Congressional Study Group on Germany and with John Lipsky of the IMF and Donald Kohn at the Federal Reserve. Macroeconomic Outlook -------------- ¶3. (SBU) German GDP decreased by 5% in 2009, the largest decrease since the end of World War II. Economic recovery began in the third Quarter of 2009 and growth is forecast at 1.5% for 2010. While unemployment is still relatively low (8.1%),thanks to employment measures such as the government-sponsored short time work program (i.e., government-subsidized furloughs),unemployment is expected to increase markedly in 2010 as benefits begin to wind down. With the strong support of Minister Bruederle, the German government agreed to tax relief in December 2009 worth 8.5 billion euros in order to fuel economic recovery. Bruederle defends the tax cuts, even in the face of record high national debt, as indispensable. He maintains that there is no conflict between cutting taxes and consolidating the budget, since tax relief will boost growth and employment. Bruederle also promises further tax reform which will result in additional cuts of 20 billion euros after 2011. (NOTE: On January 27, a senior official at the Chancellery told visiting Deputy Commerce Secretary Hightower that despite mounting public concern over exploding deficits, the coalition government will not be able to avoid the now unpopular tax cuts altogether because it was the FDP's major campaign promise and remains enshrined in the new government's Coalition Agreement. The tax cuts, however, are likely to be spread out over more than one year and possibly cut, we heard.) The Future of the Transatlantic Economic Council (TEC) -------------- -------------- ¶4. (SBU) The TEC was founded at the initiative of Chancellor Merkel in 2007 and the German government continues to strongly support the process. The Germans have pushed to include new issues, especially common standards on electro-mobility (e.g., recharging plugs for electric automobiles),in the TEC agenda. German officials, however, have expressed concern that U.S. interest in the TEC is waning and that the newly-formed US/EU Energy Council will shift attention away from the TEC. Bruederle's meetings provide an important opportunity to assure senior German government officials that the U.S. Administration remains supportive of the TEC and that the US/EU Energy Council is intended to complement rather than compete with the TEC. It would also be constructive for both sides to exchange ideas on specific, achievable objectives in the TEC. BERLIN 00000121 002.2 OF 002 Buy America: Worried about Protectionism -------------- ¶5. (U) In the first half of 2009, Buy America provisions in the U.S. stimulus package prompted strong official German reactions, public outcry and unfavorable press. German officials warn that these provisions may stoke protectionist tendencies worldwide, even though government and industry have not provided any specific examples of German companies being discriminated against because of Buy American regulations. In the past few months the protests against Buy America have subsided although the lack of clarity on Buy American regulations continues to irritate German business and the government. Both continue to call for final implementing regulations for Buy American rules under the ARRA; these had been expected in the fall, but have not yet materialized. Doha: Germans Support Rapid Conclusion -------------- ¶6. (U) Minister Bruederle and the German government fully concur with German industry in calling for a rapid conclusion of the Doha Round. They believe that the current Doha package is the best result that can be obtained under current circumstances. Although they do not disagree with American aspirations in the Doha Round, senior German government and industry officials have signaled that they consider U.S. demands for more market access in emerging economies to be unrealistic. The visit provides a useful opportunity to explain to Bruederle first hand the market concessions the U.S. needs from the emerging economies and to seek support from Germany in engaging such countries constructively. Support for Small and Medium-Sized Enterprises (SMEs) -------------- -------------- ¶7. (SBU) Bruederle likes being called "Mister Mittelstand" (Mr. SMEs),and his policy agenda puts a strong focus on creating a level playing field for SMEs as they compete with big multinationals. In his previous position as Economics Minster for the state of Rhineland Palatinate, he also put great emphasis on promoting SMEs. He will likely inquire about the current situation with U.S. SMEs, how they have been affected by the financial and economic crisis, and how the U.S. and Germany could work together on measures to support SMEs. (Note: German State Secretary Pfaffenbach and Commerce Deputy Secretary Hightower spoke at length about this theme in a Berlin meeting on January 27.) Global Economic Imbalances -------------- ¶8. (SBU) The German government is uncomfortable with G- 20 discussions on global imbalances that focus in part on Germany's surpluses, contending instead that China's currency manipulation is the greatest problem. MinEcon State Secretary Pfaffenbach told Commerce Deputy Secretary Hightower in a meeting on January 27 that Germany exports successfully due to product competitiveness and not government intervention through industrial policy or subsidies. Officials also point out that Germany's current account surplus results primarily from surpluses within the EU. Bruederle's meetings will provide a good opportunity to remind the Germans that the U.S. cannot sustain its role as the "consumer of last resort," and that surplus countries such as Germany will need to find policy instruments to increase domestic consumption. MURPHY #