SCENESETTER FOR A/S GORDON: STRATEGIC DIALOGUE IN

C O N F I D E N T I A L PRAGUE 000005

SIPDIS

E.O. 12958: DECL: 01/06/2020
TAGS: PGOV PREL ECON ENRG RS AF EZ
SUBJECT: SCENESETTER FOR A/S GORDON: STRATEGIC DIALOGUE IN
PRAGUE

Classified By: Acting Charge d'Affaires William Lucas, reasons 1.4 (b)
and (d).


1. (C) Assistant Secretary Gordon: Your visit to the Czech
Republic for the Strategic Dialogue comes at an ideal time to
build on Vice President Biden's October 23 visit, the
November 6 High Level Defense Group (HLDG),and Under
Secretary Tauscher's November 16 visit. While some within
the Czech Republic were not pleased with President Obama's
September decision to cancel plans for a missile defense (MD)
radar site in the Czech Republic, the Czech government
reacted constructively. Both sides are working to shape a
vision for the future of our partnership and to build new
avenues of cooperation. The Strategic Dialogue is an
opportunity for you to flesh out details of what we would
like to do together.


2. (C) The Czech government and other Czech Atlanticists are
eager for a meaningful part they can play while we work with
NATO to develop a new missile defense architecture, and as we
broaden other aspects of our bilateral security cooperation,
including in Afghanistan. Czech Atlanticists' concerns about
Russia's expanding influence in the region, particularly in
energy security, drive them to seek tangibly stronger ties
with the U.S. The protracted period during which the U.S.
has been without an ambassador in Prague has bolstered a
misperception among some Czechs that the new Administration
places less importance on the bilateral relationship. At the
same time, they worry that America's role is diminishing in
the minds of a younger generation of Czechs.


3. (C) Czech Atlanticists must navigate around others in
Czech politics and the public who take a more ambivalent view
of the U.S. This group, which includes many (but not all)
within the center-left Social Democrats (CSSD),looks more
toward Brussels, is more sympathetic to Moscow, and is
skeptical about Czech involvement in Afghanistan. Czechs who
take this approach welcome assurances that the U.S. will work
multilaterally, including through NATO.


4. (SBU) The Czechs have expressed interest in expanding
scientific and research and development cooperation. PM
Fischer has stated that the Czechs would like this not just
in the military sphere, but in a broader range of fields.
The Czechs are appreciative of the upcoming establishment in
Embassy Prague of the Office of Naval Research (ONR). The
Czechs would also like to conclude the Research, Development,
Testing and Evaluation (RDTE) Agreement; both sides are
working to finalize legal details.

A Capable Interim Government
--------------


5. (C) After Prime Minister Mirek Topolanek's government
fell in March, President Vaclav Klaus appointed an interim
caretaker government to lead until early elections. The
caretaker government, led by former Director of the Czech
Statistical Office Jan Fischer, assumed leadership in May and
has a limited mandate until early elections, which were
supposed to occur in the first half of October. A decision
by the Constitutional Court scuttled the October elections,
and a subsequent agreement by the dominant parties in
Parliament to hold early elections in November fell apart.
Now the parliamentary elections will most likely occur in May

2010. In the meantime, Fischer governs without his own
parliamentary base, relying heavily on the agreement of the
country's two leading parties, the center-left CSSD, led by
Jiri Paroubek, and center-right Civic Democrats (ODS),led by
ex-PM Topolanek.


6. (C) Despite its limited mandate, PM Fischer's government
has proven effective and adept, and enjoys strong public
support. Swift passage of the foreign military deployment
bill and an economic austerity package proved Fischer's
political acumen and bolstered his credibility with the
public. His administration has proven capable of making
tough decisions, although last minute amendments to the 2010
state budget by the CSSD, which will almost certainly
increase 2009's record deficit, showed that Fischer is still
politically beholden to the major parties.


7. (C) The Czech government has remained a steady supporter
of U.S. and NATO priorities. Indeed, many key current and
former Czech leaders would prefer to see more USG engagement
in Central Europe, and expressed this in a widely circulated
Open Letter to President Obama in July 2009. Defense
Minister Martin Bartak remains fully committed to
strengthening cooperation with the United States and
supporting the effort in Afghanistan. However, many in the
CSSD, including Paroubek, do not share Bartak's enthusiasm
for the Afghan mission.


Economy
--------------


8. (SBU) The small, open, export-oriented Czech economy is
now struggling with the effects of the global economic
downturn. Although there are signs that the worst of the
economic slowdown may be over, the economy is expected to
contract by roughly four to five percent for all of 2009.
While the IMF expects the Czech economy to grow by 1.3
percent in 2010, the Czech Ministry of Finance is forecasting
growth of only 0.8 percent, partly due to recently passed tax
increases designed to control the ballooning budget deficit.
The Czech budget deficit was only 1.2 percent of GDP in 2008
but is expected to exceed 5 percent for the next several
years, prompting significant cuts in discretionary spending,
and postponing any chance for rapid adoption of the Euro.
All ministries have taken significant budget cuts and the
defense budget has shrunk to less than 1.4 percent of GDP,
though the MoD is hopeful that its 2011 budget will be more
generous.

Czech Cooperation in Afghanistan
--------------


9. (SBU) The Czechs have approximately 500 military and
civilian officials in Afghanistan. The provincial
reconstruction team (PRT) in Logar Province, launched in
March 2008, is the flagship of Czech involvement. Based at
FOB Shank in Pole-Alam, the Czech PRT grew in strength in
early 2009 from about 210 to 275 and now includes four
infantry platoons. Despite the security challenges (Czechs
suffered three KIA in the first months of operation),the
Czech PRT got off to a fast start and generally received high
marks for its approach to reconstruction and partnerships
with local government and tribal leaders. At the heart of
the Czech PRT is its group of a dozen civilian experts who
possess specific skills relevant to Logar Province
(agriculture, aquifer management, public health, education,
etc.). Several U.S. specialists (USAID and State Department
3161 employees) have joined the Logar PRT in the current
rotation.


10. (C) The Czechs have just deployed a 100-man aviation
detachment with 3 Mi-17 helicopters to FOB Sharana in Paktika
Province. The helicopters began to arrive in Afghanistan
this month and will provide direct support to ISAF missions
in country. In addition to an Operational Mentoring and
Liaison Team (OMLT) providing helicopter training, the Czechs
have decided to deploy a ground force OMLT in September of

2010. While the requirements for the OMLT are still being
developed with NATO, the Czechs are moving forward with
activating and training the required forces. The Czechs have
requested USG assistance to equip and train the unit. The
Czech special forces detachment, which had been deployed in
its entirety for some time, departed Afghanistan in December
2009, but is scheduled to return in 2011.

Energy Security
--------------


11. (C) The Czechs are very concerned about Central and
Eastern Europe's energy dependence on Russia. The Czechs
themselves are dependent on Russia for 100 percent of their
nuclear fuel, 70 percent of their natural gas and two-thirds
of their oil. The Czechs experienced significant disruptions
to deliveries of Russian oil in 2008, ostensibly for
technical reasons, that began shortly after the signing of
the U.S.-Czech Ballistic Missile Defense Agreement. In
January 2009, Russia cut off all gas deliveries through
Ukraine to Europe, including to the Czech Republic, due to a
dispute with Ukraine.


12. (C) As a result, the Czechs are strong advocates within
the EU for greater interconnectivity of internal EU gas and
electricity networks and increased diversification of
suppliers and routes. They are strong supporters of the
Nabucco pipeline and hosted an EU-Southern Corridor Summit in
May.


13. (C) They are also planning to significantly increase the
production of domestic nuclear energy, and the semi-state
Czech electricity company CEZ has released a tender for up to
five new nuclear power stations for which Westinghouse is a
leading contender. Your visit is another important
opportunity to encourage the Czech government to support
Westinghouse's bid as a way to cement closer U.S.-Czech ties
and help the Czech Republic increase its energy security by
further diversifying its energy sources and suppliers. A
Westinghouse win could be worth as much as USD 27.5 billion
and create 9,000 new U.S. jobs.


Relations with Russia
--------------


14. (C) The Czechs have a multi-faceted relationship with
Russia which varies according to the issue, as well as the
fora involved (whether NATO, the EU, or on a bilateral
basis). As the July 16 open letter to President Obama from
Central European leaders illustrates, many in this region
retain deeply-rooted suspicions of Russian aims. Yet this is
not a view shared by all Czechs, some of whom simply view
Russia with a level of ambivalence and skepticism (with which
they treat all superpowers).


15. (C) When it comes to security issues, almost all Czech
politicians, except for the unrepentant Communists, continue
to view NATO and (to a lesser extent) EU membership as their
first line of defense and/or collective action. Many Czechs
also pay close attention to the country's (and Europe's)
reliance on Russian energy supplies. The conflict in Georgia
in summer 2008, the gas crisis this past winter, and
President Putin,s recent comments on START have all
sharpened Czech suspicions of Russia's intentions toward its
neighbors. Nonetheless, there are modest (but growing) trade
ties between Russia and the Czech Republic and all major
Czech political parties are interested in what they see as
the potential of Russian markets.

Eastern Partnership
--------------


16. (SBU) The Czechs championed the cause of advancing the
EU's relationship with its Eastern Partners (Armenia,
Azerbaijan, Belarus, Georgia, Moldova and Ukraine) and held
the EU's first ever Eastern Partnership Summit in May 2009.
The Czechs have been keen to foster reform in this region and
increase exposure to Western ideals. During the Czech EU
Presidency last year, the EU committed 600M Euros (through
2013) to advance this partnership, focusing on accelerating
the political association and economic integration of these
partners, while also offering the possibility of visa
liberalization. The EU, and the Czechs in particular, would
like to see the U.S. become more involved in promoting these
reform principles with Eastern Partners as well. We are
scheduled to discuss our possible engagement as a "friend" of
this partnership at an U.S.-EU meeting on January 25 in
Brussels.

Western Balkans
--------------


17. (SBU) The Czech Republic shares our goals of
strengthening stability and democracy in the Balkans and
supports the region's integration with NATO and the EU.
Indeed, the Balkans (with distinct goals for each of the
individual nations in the region) were one of the Czech EU
Presidency's top priorities. However, the Czechs were not
able to accomplish as much as they had hoped, especially with
respect to advancing EU enlargement issues, given the
challenges within the Western Balkan countries themselves and
opposition within the EU. The Czechs have very strong
relations with most of the Balkan countries, although
relations with Serbia suffered somewhat following Prague's
recognition of Kosovo's independence in May 2008. It is also
worth noting that Stefan Fule, the former Czech Ambassador to
NATO and Minister for European Affairs, was just appointed EU
Commissioner for European Enlargement. There are currently
just over 400 Czech troops serving in KFOR in Kosovo.

Middle East
--------------


18. (SBU) The Czechs generally share much of our perspective
on the Middle East, although they lack our depth of
engagement or experience in the region. In November, the
Czech Republic was one of 16 nations that voted with the U.S.
and Israel against U.N. adoption of the Goldstone Report.
The Czechs share our perspective on Iran, and Prague-based
Radio Free Europe's Farsi broadcasts are an important source
of uncensored news for the Iranian people. The Iranian
government bitterly resents the broadcasts. For more than
ten years the Iranians have refused to upgrade bilateral
relations from the Charge level.
Lucas