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Cablegate: European Commission Officials Skeptical On

VZCZCXRO2826
RR RUEHAG RUEHDF RUEHIK RUEHLZ RUEHROV
DE RUEHBS #1348/01 2460529
ZNR UUUUU ZZH
R 020529Z SEP 08
FM USEU BRUSSELS
TO RUEHC/SECSTATE WASHDC
INFO RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/USDOC WASHDC
RUEKJCS/SECDEF WASHDC
RUEKJCS/CJCS WASHINGTON DC
RUCNMEM/EU MEMBER STATES COLLECTIVE
RUEHVEN/USMISSION USOSCE VIENNA AU
RUEHSI/AMEMBASSY TBILISI
RUEHMO/AMEMBASSY MOSCOW
RUEHKV/AMEMBASSY KYIV

UNCLAS SECTION 01 OF 03 BRUSSELS 001348

SENSITIVE
SIPDIS

STATE PASS TO MCC, OPIC, USAID

E.O. 12958: N/A
TAGS: ECON EAID PREL GG RS
SUBJECT: EUROPEAN COMMISSION OFFICIALS SKEPTICAL ON
BUDGET SUPPORT FOR GEORGIA; SIGNAL THAT AID WILL BE
SMALLER THAN U.S. CONTRIBUTION

1. (SBU) In an August 28 meeting with members of a U.S.
economic delegation returning from an assessment trip to
Georgia, European Commission (EC) officials expressed
skepticism about some aspects of the Georgian request for
assistance, especially the GOGQs plea for budget support.
According to the Commission officials, the EC will offer
additional economic assistance to Georgia beyond the 6
million euros already promised by ECHO, the European
CommissionQs humanitarian aid agency. However, any aid
package is unlikely to be as robust as that provided to
either Kosovo or to the Palestinian territories, two
areas where EC foreign assistance plays a significant
role. End Summary.

2. (SBU) On August 28, Gunnar Wiegand, RELEX Director
for Eastern Europe, Southern Caucasus and Central Asia,
and Barbara Lucke, Head of Unit for EuropeaidQs Office of
Geographical Coordination and Supervision for Europe, met
with visiting USG officials Dan Rosenblum, State/EUR/ACE,
Roland DeMarcellus, State/EEB/IFD/ODF and Doug Menarchik,
USAID/E&E, who were transiting Brussels en route from
Tbilisi to Washington. After listening to an assessment
of the Georgian economic situation from the U.S. team,
Wiegand noted that the European CommissionQs response on
assistance to Georgia will partly depend on the findings
of an EC assessment team now in Georgia and scheduled to
return to Brussels shortly. Early reports from the EC
team, which largely track U.S. assessments, suggest that
physical damage is less widespread than originally feared
and that reconstruction costs will be considerably less
than in places like Kosovo and Lebanon. However, EC
assessors are concerned about the long term economic
impact of the Russian invasion, partly on account of
damaged infrastructure but also because of the chilling
impact that it will inevitably have on foreign
investment. Under any scenario, the Commission believes
Georgia faces significant economic challenges in the
months ahead.

Commission Skeptical of Budget Support to GOG; Probable
Barroso Offer to Host Donor Conference
--------------------------------------------- --------

3. (U) Despite the seeming similarity in our assessments
of the Georgian situation, when asked about providing
budget support to the Georgian government in view of the
potentially grave loss of foreign direct investment,
Weigand responded with a considerable amount of
skepticism. While noting that the EC often champions
budget support in other contexts, Wiegand expressed
concern that extending substantial budget support to the
GOG could lead to significant accountability problems.
Wiegand pointedly noted that the Georgian government
consists mainly of U.S. Qtrained Qlawyers rather than
bankers." According to Wiegand, the EC will Qkeep an
open mindQ about budget support but will almost certainly
want to include a high degree of conditionality in ways
that the QGeorgians may not always have in mind.
Wiegand and Luecke added that EC views on the use of
budget support will also be shaped by perspectives
provided by the IMF and the World Bank.

4. (SBU) Wiegand told the U.S. delegation that at the
September 1 European Council meeting, Commission
President Barroso is likely to offer to host a donor
conference for Georgia in Brussels later this fall,
noting that the Commission has hosted similar events
including the recent Kosovo donor conference in July.
Counterparts added that the EU had already hosted a donor
conference for Georgia four years ago, resulting in $800
million in pledges at that time. That said, they
acknowledged that senior Georgian officials are not
enthusiastic about the idea, not only because of concerns
that it will take too long to organize a conference but
also due to a stated desire to receive budget support
from the broader international community with a minimum
of strings attached.

5. (SBU) EC officials indicated an interest in moving

BRUSSELS 00001348 002 OF 003


forward with other measures to support Georgia. For
example, ongoing discussions on a free trade agreement
will probably continue, though there are concerns that
the Georgians Qwant a quick and shallow free trade
agreementQ while the EU prefers one that is Qdeep and
comprehensive,Q encompassing a range of reforms aimed at
helping Georgia move toward European regulatory
standards. (Comment: This is a goal that fits with the
CommissionQs energetic efforts to spread its standards to
as many countries and regions as possible. End Comment.)
Wiegand hinted broadly that the Commission would take a
tough line with the Georgians regarding the Georgian
governmentQs wariness of moving closer to the European
acquis communautaire. He asserted that moving closer to
the EU was a Qmatter of survivalQ for Georgia, and urged
the Georgians to have a more Qpragmatic attitudeQ about
harmonizing with the acquis. Visa facilitation is
another area of potential interest, Wiegand said.
Elaborating, he pointed out that currently, Russian and
Ukrainian and other QneighborhoodQ citizens (and, by
extension, South Ossetians and Abkhazians who hold
Russian passports) have easier travel access to the EU
than Georgians, and this is an issue Qthat needs to be
looked intoQ.

Russian Recognition of Breakaway Republic a Significant
Negative; Fear of QEthnic Cleansing
--------------------------------------------- ----------

6. (SBU) EC counterparts noted that politically, Russian
recognition of South Ossetia and Abkhazia Qchanged
matters for the worse." Ethnic cleansing is also a
growing concern. According to some reports, Qthere are
no Georgians leftQ in South Ossetia. By some accounts,
Russia anticipates providing an assistance package of up
to one billion dollars for South Ossetia, presumably
aimed in part at integrating the region more closely to
Russia.

7. (SBU) EC interlocutors noted that long-term EU/EC
economic support for Georgia also depends on discussions
among the 27 EU member states. Already, differences of
opinion are emerging, with some (including EU countries
with significant Russian minorities) arguing for a strong
EU reaction and others urging a more measured response in
order to minimize damage to EU-Russian relationships on a
range of other issues.

8. (SBU) Developing a common EU approach toward Russia
is vital, according to Wiegand, particularly because the
next EU-Russia Summit is scheduled to take place in Nice
in mid-November. It is important that the QburdenQ for
worsening relations with Russia be carried broadly, not
just by the EU or NATO. In looking ahead to Nice, there
is a sense that a hoped-for broad network of cooperative
efforts aimed at strengthening the relationship between
the EU and Russia and putting it on a more long-term
strategic footing will now have to be put Qon iceQ.

9. (SBU) Comment: The initial U.S. and EU on-ground
assessments appear broadly similar, with EU counterparts
affirming that whie short-term destruction may be less
widespred than initially feared, the long term economic
consequences of the war for Georgia are likely to be
severe. That said, the size and shape of the planned EC
economic support for Georgia that will eventually emerge
remains undefined. The internal obstacles within the EC
bureaucracy to both budget support and a robust aid
package for Georgia are significant. Ultimately, it is
the political discussion within the EUQincluding in both
the European Council and European Parliament--that will
determine the economic response. The next step in that
process will be the Extraordinary European Council
meeting on the situation on Georgia scheduled for this
Monday (September 1), an event that will hopefully give
the internal economic assistance discussions a stronger
impetus. European Parliament discussions on Georgia,
also scheduled for Monday, should help shape the European
response as well. End Comment.

BRUSSELS 00001348 003 OF 003

MURRAY

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