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Cablegate: Scenesetter for July 18-21 Visit to Paris Of

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O 060733Z AUG 07
FM AMEMBASSY PARIS
TO RUEHC/SECSTATE WASHDC IMMEDIATE 9317
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE

UNCLAS SECTION 01 OF 02 PARIS 003295

SIPDIS

SENSITIVE
SIPDIS

E.O. 12958: DECL: 07/09/2017
TAGS: ECON ETRD EUN PREL SENV UNO FR

SUBJECT: SCENESETTER FOR JULY 18-21 VISIT TO PARIS OF
REUBEN JEFFERY, UNDER SECRETARY OF STATE FOR ECONOMIC,
ENERGY AND AGRICULTURAL AFFAIRS

REF: PARIS 2643

1. (SBU) Summary: Your visit to Paris is an important early
opportunity to engage with the Sarkozy government's economic
team on a wide range of issues, as well as touch base with OECD
and IEA leadership. You will be arriving in a France whose mood
is up-beat for the first time in years. Sarkozy's energy and
determination to meet challenges head-on and break with the past
have lifted national morale. His resounding presidential
victory May 6 -- notwithstanding the French electorate's
decision in the June 17 legislative elections to bolster the
Socialist opposition -- has given Sarkozy a broad-based mandate
to undertake long overdue economic and social reforms. Sarkozy
hopes that broad-based reforms -- from taxes and labor markets
to university admissions -- will increase productivity, boost
competitiveness and reduce France's chronically high
unemployment rate (especially for youth). Although he may yet
encounter popular resistance, the president is off to a fast
start. We will watch closely to see how he reconciles his
pro-market reform agenda with a more statist approach to issues
that include industrial policy, EU competition policy, and
proposals for a eurozone "economic government" to temper the
ECB's focus on inflation-fighting. End Summary.

Sarkozy?s Economic Agenda
-------------------------
2. (SBU) President Sarkozy has wasted little time in moving
forward with a broad economic policy reform agenda. France?s
president has traditionally stayed above domestic issues and
although Prime Minister Fillon officially presented the
government?s plan to the Parliament in early July, it is clear
that it is Sarkozy who will manage many of the key dossiers in
the new French government.

3. (SBU) Labor market reform, tax changes that encourage
overtime work beyond the 35 hour work week, mortgage
deductibility to encourage home homeownership, further pension
reform, smaller government, the provision of minimum services
during strikes and possible changes to France?s collective
bargaining system are highlights of the policy initiatives that
are either underway, or in the offing. The outcome of this
process could well determine whether the United States has a
newly confident, dynamic, forward-looking economic partner in
France.

4. (SBU) The Sarkozy government is also shaking up GOF economic
policymaking structures. Following through on a campaign promise
the president has created a "super ministry" of sustainable
development by
combining the former ministry of ecology with energy, transport
and regional planning directorates hived off from other
ministries. The goal in part is to internalize environmental
and sustainable development concerns in policymaking, though
it's too early to tell whether the change is having
its intended effect. Nevertheless it does signal that Sarkozy
wants
his government to focus on the nexus of environment ?- notably
climate change -- and the global economy. Sarkozy signaled as
much during his election night victory speech when he called on
the United States "to
take the lead" in the fight against global warming.

5. (SBU) Sarkozy welcomed President Bush's statement on a
proposed new climate change framework in May, but he continues
to advocate binding constraints on greenhouse gas emissions as a
necessary ingredient of a post-2012 Kyoto follow-on agreement.
He has also called for the imposition of a "carbon tax" on
imports from countries that "do not respect environmental
standards" as a means of defending Europe's CO2 emissions
trading system (ETS). You can impress on your interlocutors
U.S. interest in intensifying collaboration with France in
developing climate-friendly energy technologies, in sharing
approaches to energy efficiency, and by underscoring the
dynamism of the private sector in attacking climate
change.

6. (SBU) President Sarkozy has appointed as Economic and Finance
Minister Christine Lagarde (former trade minister and previous
chairman of Baker
and McKenzie's Global Executive Committee), the first woman to
hold this influential position in France. She is regarded as an
advocate within the government for freer trade and is
well-versed in the details of the transatlantic economic debate.
But she is also an effective defender of French positions in
the EU, and may have limited maneuvering room on the most
sensitive issues given domestic political realities and the
president's interest in keeping a firm hand on the economic
policy tiller. Recently-named State Secretary for Enterprise and
External Trade Herve Novelli will take on the day-to-day

PARIS 00003295 002 OF 002


functions of trade minister, but we can assume that Lagarde
would be closely engaged in any Doha end-game. The collapse of
the G-4 process at Potsdam was seen as ?inevitable? by the
French and there is no apparent urgency in Paris to close a Doha
agreement.

7. (SBU) While keen on introducing market-friendly domestic
reforms, Sarkozy is not shy about articulating a strong role for
the state on French industrial and competition policy, and in
promoting national or European "champions." As finance minister
he helped to shape the French government's bailout of Alstom,
and subsequently defended the policy before a critical European
Commission. Sarkozy's advisors tell us the experience forged
the president's view of EC policy on state aid and competition
as being excessively dogmatic. Initial tests of industrial
policy ? the pending merger of Gaz de France and Suez and a
possible restructuring and increased state participation in
Airbus mother company EADS ? may offer clues to how Sarkozy will
manage such issues. We will watch closely to see whether the
new government's policy evolves in a way that is harmful to the
investment environment.

8. (SBU) Sarkozy has also made it plain (by attending the June 9
Eurogroup meeting of Finance Ministers) that he wants France ?-
and member states generally -- to play a more active role in
coordinating economic policy. To that end, Sarkozy has asked
Minister of Finance Christine Lagarde to work with partners to
create an "economic government" of Europe as a vehicle for
engaging in dialogue with the ECB. Enjoying broad political
support for his views at home, Sarkozy seems unperturbed by the
criticism he's attracted elsewhere in Europe for his implied
criticism of the ECB and euro exchange rate policy. Sarkozy's
appearance at the July 9 Eurogroup finance ministers meeting
also underlined his personal commitment to tax cuts that may
help make France's economy more dynamic over the longer term,
but that will push the target date for a balanced budget from
2010 to 2012.

9. (SBU) Although he received a tepid response in Brussels,
Sarkozy was more successful in arguing for the candidacy of
former Socialist Minister of Finance Dominique Strauss-Kahn to
become IMF Managing Director. The press ?- and an economic
advisor to PM Francois Fillon -? suggested the inspiration came
from Luxembourg PM Jean-Claude Junker, though the move clearly
squares with Sarkozy's broader efforts to reach across domestic
party lines and keep the socialist opposition off balance.

10. (SBU) On a host of other issues, ranging from efforts to
curb WMD and terrorism financing to innovation, the Sarkozy
government has indicated an interest and willingness to work
closely with the United States. Your visit will be critical in
helping to build relations with the Sarkozy team.

Background on OECD and IEA
--------------------------
11. (SBU) You will also have the opportunity to touch base with
the OECD and IEA. At the recent OECD Ministerial Council
Meeting (MCM) OECD Members agreed to strengthen the
Organization?s cooperation with Brazil, China, India, Indonesia
and South Africa with a view to possible membership for those
countries, and to open accession discussions with Chile,
Estonia, Israel, the Russian Federation, and Slovenia. USOECD
is working to arrange a meeting with the recently-appointed
Secretary General, Angel Gurria, a former Mexican foreign

SIPDIS
affairs and finance minister. You will meet with Permanent
Representatives from key OECD members, several of whom serve as
chairs of important committees, to discuss enlargement, enhanced
engagement, and the future of the Organization.

12. (SBU) The International Energy Agency (IEA), an independent
organization under the administrative umbrella of the OECD, is
in a period of transition. You will have the opportunity to
meet with the outgoing Executive Director, Claude Mandil, as
well as his successor, Nobuo Tanaka. Mandil has provided
exemplary leadership during his tenure, excelling as a spokesman
for the interests of the 26 member countries. Tanaka is a
relative neophyte to international energy issues; his selection
as the new Executive Director reflected the intensity of the
Japanese Government?s lobbying efforts. Your separate meetings
with Mandil and Tanaka will likely cover common ground: (1)
ensuring adequate resources for the IEA; (2) engaging key
non-member countries, China, India, and Russia, more broadly and
deeply; and (3) managing the G-8 work, particularly the
Heiligendamm Process.

STAPLETON

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