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OO RUEHFL RUEHKW RUEHLA RUEHROV RUEHSR
DE RUEHFR #3178/01 1321615
ZNY CCCCC ZZH
O 121615Z MAY 06
FM AMEMBASSY PARIS
TO RUEHC/SECSTATE WASHDC IMMEDIATE 7305
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE PRIORITY

C O N F I D E N T I A L SECTION 01 OF 03 PARIS 003178 

SIPDIS 

SIPDIS 

E.O. 12958: DECL: 01/01/2016 
TAGS: PGOV FR EUN PINR
SUBJECT: CHIRAC/VILLEPIN/SARKOZY AND THE CLEARSTREAM SCANDAL 

REF: A. PARIS POINTS OF 5/2 - 5/11 
¶B. PARIS 3152 

Classified By: Acting DCM Josiah Rosenblatt for reasons 1.4 (B & D). 

¶1. (C) Summary. As ref A Paris Points document, the 
"Clearstream" scandal has become a classic French "affaire 
d'etat," a scandal which threatens the life of the government 
and the careers of many leading political, judicial, and even 
military figures. Prime Minister Dominique de Villepin 
continues to occupy the position of chief presumed villain, 
as the prime force, if not necessarily the original 
instigator, behind false allegations that Interior Minister 
Sarkozy had received kickbacks through the Luxembourg 
Clearstream bank. The most recent revelations are likely to 
result in increased pressure for Villepin's resignation, not 
least because President Chirac could decide he has no choice 
but to dispose of his Prime Minister and erstwhile political 
heir in order to protect himself. The calculations are 
complicated for Interior Minister Sarkozy, but his choices 
may be narrowing, as it becomes less tenable for him to 
succeed Villepin given new allegations that Chirac may have 
been complicit in a campaign to persecute him. The 
cumulative effect of the revelations of the past week may 
push him to leave a much weakened and divided government 
considerably earlier than anticipated. This, in turn, raises 
the specter of the president of the dominant party of the 
center-right running what in effect would be an opposition or 
counter-government while members of his own party still 
control the Presidency and run the government. The spectacle 
of an increasingly divided and scandal-ridden right will of 
course redound primarily to the advantage of the opposition 
Socialist party. End summary. 

Background of a growing political crisis 
---------------------------------------- 
¶2. (SBU) Rumors that kickbacks from France's 1991 sale of 
frigates to Taiwan were being deposited in the Luxembourg 
banking house Clearstream have muddied the waters since about 
¶2001. But they did not take on political significance until 
2004, when then-Foreign Minister Dominique de Villepin -- as 
he now readily admits -- asked one of France's top 
spymasters, then working in the Defense Ministry, to 
investigate a list of accounts purportedly held by a number 
of France's top political figures. Most prominent among 
these was current Interior Minister, center-right UMP party 
president and leading presidential contender Nicolas Sarkozy, 
who however is also regarded by President Chirac and his 
protege Villepin as their primary political adversary. 

¶3. (SBU) Although the spymaster quickly determined that the 
listings had been falsified, they were subsequently forwarded 
anonymously to a judge for further legal inquiries. But most 
importantly, no one bothered to tell Sarkozy that he had been 
investigated -- and cleared -- until 2005. The slow-fused 
time bomb began to tick when Sarkozy took over the Interior 
Ministry last summer and grabbed the opportunity to find out 
more about what had transpired behind his back. The bomb 
finally exploded this month, as questions mounted about who 
had done what, and known what, when, and as the leading 
center-left daily, Le Monde, and then other media, began to 
carry leaked information about the immaculate notebooks kept 
by the spymaster, which recorded not only dates of critical 
meetings but provided intriguing details about the substance 
of the meetings. (Note: Please see ref A Paris Points for a 
more detailed discussion of these developments.) 

Involving the Prime Minister, perhaps the President 
--------------------------------------------- ------ 
¶4. (SBU) Villepin was subjected to an initial eruption of 
public indignation that forced him to acknowledge his role in 
ordering the investigations. He, and indirectly Chirac, 
appeared to have survived this initial wave when he finally 
acknowledged that he had indeed ordered the investigations in 
his role as then-foreign minister, insisted that he had only 
sought "verification" of the falsified listings, was not 
focused on a political witch-hunt, and insisted that Chirac 
had had absolutely no role in or knowledge of the 
investigations. Shortly thereafter, Chirac took to the 
airwaves to express his full confidence in Villepin and his 
government. Villepin gave the impression of thinking the 
worst was over, and Sarkozy appeared content to remain in the 
government at least until justice had been allowed to run its 
course. 

¶5. (SBU) That uneasy calm ended on May 12 when Le Monde 
published further entries from the spymaster's notebooks. 
They cite Chirac's desire for direct contact between the 
spymaster and Villepin; indicate that Chirac was kept 
informed of the spymaster's reports through meetings with his 
chief military advisor; document Villepin's insistence on 
continuing the investigation of Sarkozy even after the 
spymaster had concluded that the Clearstream listings 

PARIS 00003178 002 OF 003 


implicating Sarkozy were false; chronicle defense minister 
Alliot-Marie's anger over the spymaster's ties with Villepin 
over her head but also her decision not to get involved (or 
inform Sarkozy); and identify a Villepin confidant as the 
likely source of the falsifications. While the revelations 
do not answer the question of whether Villepin, or eventually 
Chirac, instigated the falsifications or simply attempted to 
exploit them for maximum political advantage, another entry 
notes that Villepin believed that public knowledge of their 
roles would be extremely damaging. 

Political Stakes Growing 
------------------------ 
¶6. (C) Although Chirac has objected to a "dictatorship of 
rumors" and insisted that the facts of the Clearstream affair 
be determined through longer, legal evidentiary proceedings 
rather than snap judgments about unsubstantiated leaks to the 
media, the new revelations have far-reaching repercussions 
for the current government, the governing UMP party of which 
Sarkozy is president, and the 2007 presidential elections. 
In such a high-stakes environment, it is likely that 
political judgments will ultimately hold sway over legal 
niceties. But the calculations are especially difficult ones 
for Sarkozy: 

-- The latest revelations will increase the pressure on 
Villepin to resign, given his apparently increasingly direct 
and obsessive role in seeking to smear Sarkozy. 

-- To the extent that circumstantial evidence builds against 
Villepin, Chirac will come under increasing pressure to 
reverse his support of Villepin and request his resignation. 
That still seems unlikely at this stage, given the record of 
Chirac's past, tenacious support. If, however, it were the 
only way for Chirac to protect himself from further damage 
from the scandal, he could drop Villepin. 

-- In that regard, it is conventional wisdom that under 
almost no circumstances would Chirac dissolve the parliament 
and call early elections, a choice he made in 1997 -- under 
far more favorable circumstances -- to disastrous effect. 

-- The calculations are perhaps the most complicated for 
Sarkozy. He had planned to leave the government later in the 
year or in early 2007, following his selection as the party's 
presidential candidate. In the early stages of the current 
crisis, even when it was clear that Villepin was the probable 
instigator of the smear campaign against him, Sarkozy was 
prepared to let the judicial investigation run its course, 
effectively "postponing" a final judgment about whether to 
remain in the government. This would have allowed him to 
maintain the fiction of working together with other members 
of the government while keeping a distance through his 
forward-looking policy pronouncements as president of the 
UMP, the main party of the right. 

-- However, this fiction was largely predicated on Chirac's 
non-involvement in Clearstream and a minimum of plausible 
deniability for Villepin. If it turns out that both were 
plotting against him -- and that's where the latest 
revelations are leading public opinion -- Sarkozy can no 
longer even consider taking over as prime minister. Instead, 
he will likely be forced to leave the government to protect 
his own integrity and counter Socialist Party charges that he 
is a "false victim" at once associated with and different 
from Villepin and Chirac. 

-- If Sarkozy does leave the government, this would create a 
scenario in which he, and most of the governing party with 
him, would effectively be cast in a role of in-house 
opposition to the government. Governance would likely be 
limited to day-to-day management, and major initiatives would 
have to await the outcome of the April 2007 elections and the 
new mandate they would provide. 

-- It goes almost without saying that a Sarkozy withdrawal 
from the government would weaken the center-right and improve 
the chances of the Socialist Party (PS) to win the 2007 
elections. The PS is going on record by tabling a censure 
motion of the government, to be voted May 16, but it has an 
interest in Sarkozy's remaining in the government so as 
better to tar Sarkozy the Presidential Candidate with the 
Chirac/Villepin brush. 

Comment 
------- 
¶7. (C) The farce factor is particularly high in this scandal 
given the detailed, personalized nature of the daily leaks to 
the media. However, the political stakes are high and the 
likely consequences increasingly serious. Sarkozy has a good 
record in walking a fine line between defiance of and 
cooperation with Villepin and Chirac; confonding the 
expectations of many, he emerged from last Fall's unrest in 

PARIS 00003178 003 OF 003 


the suburbs and this Spring's demonstrations against the 
First Employment Contract stronger than before. While we 
have no doubt that he will also survive this crisis with his 
own integrity intact, the prospects for the center-right in 
the 2007 elections have undoubtedly been damaged. Sarkozy's 
challenge will be to break from Chirac and Villepin in a way 
that does not further damage them, in a situation where not 
only the opposition Socialist Party, but perhaps Chirac and 
Villepin, would prefer anyone to him. 



Please visit Paris' Classified Website at: 
http://www.state.sgov.gov/p/eur/paris/index.c fm 

Stapleton