Cablegate: Scenesetter Cable: Codel Obey August 5-7

DE RUEHFR #3200/01 2081041
O 271041Z JUL 07





E.O. 12958: N/A

SENSITIVE BUT UNCLASSIFIED. Not for Internet distribution.

1. (SBU) You will be arriving in a France whose mood is
decidedly up-beat. President 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's larger goals are to adapt France
to globalization and to renew the country's confidence in
itself as an international actor.

2. (SBU) To achieve these goals, Sarkozy is seeking renewed
economic growth to reduce France's chronically high
unemployment rate (especially for youth) and to win
maneuvering room to address the economic and social
rigidities that have caused France to languish for a
generation. Sarkozy hopes that broad-based reforms -- from
taxes and labor markets to university admissions -- will
increase productivity, boost competitiveness and reduce
unemployment. Although he may yet encounter popular
resistance this autumn, 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.

3. (SBU) We have gotten off to a good start with the new
Sarkozy administration, and turned the page on our
differences over Iraq. From the President on down, France's
new leaders are pledging a relationship of mutual confidence
and continuing close coordination on most of the issues that
matter: Lebanon/Syria, Iran, Afghanistan, Kosovo, Russia,
Darfur, and counter-terrorism. For our part, Secretary Gates
(in inaugurating the Normandy Visitor Center you will also be
visiting) and Secretary Rice have sent loud and clear
messages about France's importance to the U.S., symbolized
most recently by the ship visit by the nuclear carrier
Enterprise. This does not mean that the U.S. and France will
always agree, or that tone equals substance. Indeed, Sarkozy
has continued to make the point that France will continue to
develop its own positions based on its own analyses of
situations and its understanding of French interests, a case
in point being his adamant opposition to Turkish EU
membership. However, even when our views differ, the Sarkozy
government has indicated an interest and willingness to work
closely and pragmatically with the United States.

4. (SBU) Since taking office, Sarkozy has already succeeded
in a remarkably short time in giving France, and indirectly
the EU, a larger voice on the international stage. He was
among the first to advocate a simplified EU treaty on
institutional streamlining to overcome France's 2005
rejection by referendum of the EU draft constitutional
treaty, and he played a key intermediary role in obtaining
the consensus of France's other EU partners. He publicly
proposed delaying a decision on Kosovo final status for a few
months to give the parties (and Russia) more time to find a
solution. He called for a conference on Darfur to coincide
with Secretary Rice's visit, and recently obtained the EU's
agreement to send a peacekeeping force to Chad. Seeking to
break with previous policy, and profiting from his long
experience and personal connections in Lebanon, Sarkozy's
Foreign Minister Bernard Kouchner fame hosted a
reconciliation dialogue among Lebanon's political factions,
to include Hizballah. Last but not least, using his wife
Cecilia as an emissary, Sarkozy appeared to play a key role
-- and stole headlines -- in the release of the Bulgarian
nurses and Palestinian doctor held by Libya in connection
with HIV/AIDS.

5. (SBU) 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. 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

6. (SBU) The Sarkozy government is also shaking up GOF

PARIS 00003200 002 OF 002

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.

7. (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). Our interest
has been to emphasize our desire to intensify 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.

8. (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.

8. (SBU) Sarkozy has also made it plain (by attending the
July 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.
Sarkozy was more successful in arguing for the candidacy of
former Socialist Minister of Finance Dominique Strauss-Kahn
to become IMF Managing Director.

Please visit Paris' Classified Website at: fm


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