VZCZCXRO9761
RR RUEHAG RUEHBC RUEHDE RUEHIHL RUEHKUK RUEHROV
DE RUEHFR #1710/01 1171646
ZNY SSSSS ZZH
R 271646Z APR 07
FM AMEMBASSY PARIS
TO RUEHC/SECSTATE WASHDC 6822
RUEATRS/DEPT OF TREASURY WASHDC
INFO RUCNMEM/EU MEMBER STATES COLLECTIVE
RUCNRAQ/IRAQ COLLECTIVE

S E C R E T SECTION 01 OF 02 PARIS 001710 
 
SIPDIS 
 
SIPDIS 
 
STATE FOR EB, EUR/WE, NEA 
TREASURY FOR TFI, IA 
 
E.O. 12958: DECL: 04/26/2017 
TAGS: EFIN PREL ETTC PARM IR IQ FR LI
SUBJECT: FRANCE: DEPUTY SECRETARY KIMMITT DISCUSSES G8 ISSUES, 
IRAQ, IRAN, LIBERIA 
 
Classified by Economic Counselor Stuart Dwyer for reasons 1.4 
(b) and (d) 
 
¶1.  (S) SUMMARY: Treasury Deputy Secretary Kimmitt met with 
Xavier Musca, DG for Economic Policy, April 27 to discuss G8 
issues, Iraq, Iran and Liberia.  Musca indicated concerns that 
European-led sanctions would lead to a vacuum to be filled in 
Iran by China and Russia.  He promised to look into greater 
European Investment Bank support to the Iraq Compact.  He 
indicated greater flexibility on Liberia in the African 
Development Bank would be difficult since the money would have 
to come from aid to former French colonies, and he considers 
Liberia to be more a legacy of the U.S. sphere of influence.  He 
is not in favor of the G8 supporting direct regulation of hedge 
funds, and thinks the G8 should reach agreement on IMF quotas 
reform.   END SUMMARY 
 
DISCUSSION AT THE MINISTRY OF ECONOMY 
------------------------------------- 
¶2. (SBU) Participants in the meeting included: 
 
MFA: 
Xavier Musca, Treasury Director General 
Jean-Christophe Donnelier, Under Secretary for 
  International Relations, DGTPE 
Thierry Franq, Assistant Secretary for Finance, DGPTE 
Nicolas Wawresky, Deputy Director (Euamo3), DGTPE 
Stephanie Talbot, Deputy Director of International Monetary 
  Systems and Summit Preparation (Multifin 4), DGTPE 
 
U.S.: 
The Deputy Secretary of the Treasury 
Stuart Dwyer, Economic Counselor 
TFCO Otto Van Maerssen (notetaker) 
 
¶3. (SBU) Treasury Deputy Secretary Robert Kimmitt met in Paris 
April 27 with Xavier Musca, Director General of Treasury and 
Economic Policy at the Ministry of Economy, to discuss G8 
issues, Iraq, Iran sanctions, and Liberia. 
 
IRAQ 
---- 
¶4.  (C) Kimmitt encouraged ministerial representation at the 
launch on May 3 of the International Compact for Iraq, and 
French support of European Investment Bank projects in Iraq. 
Musca noted the French elections mean that the period is not 
favorable for ministerial representation.  He said that security 
concerns continue to hinder EIB projects, but promised to look 
at EIB involvement more closely. 
 
IRAN 
---- 
¶5.  (S) Kimmitt noted USG concerns about the Central Bank of 
Iran's activities in terror finance and proliferation, and 
pressed for greater alignment of policies on export credits, 
focused on illicit activity. 
 
¶6.  (S) Musca said the decisions on Iran emanate from the 
Foreign Ministry, but noted that France had had no problem in 
implementing the UN Security Council resolutions.  France is not 
the country with most at stake in Iran economically, but is 
involved in car manufacturing and other legitimate business. 
France would comply with a general ban on business, if it came 
to that, but Musca wants to maintain a multilateral approach. 
He is concerned that Russia and China might move into Iran 
if/when the Europeans withdraw.  Expressing a personal view, 
Musca said he would not want to push Iran into the Russian 
sphere of influence, since that would just make sanctions 
useless.  Kimmitt agreed on the need for targeted multilateral 
sanctions. 
 
LIBERIA 
------- 
¶7.  (C) Kimmitt asked about the French position on Liberian 
arrears.  Musca did not recall the details, but said his 
starting point was that the U.S. should bear the burden - in 
Francophone Africa, France paid; in Southeast Asia, the Japanese 
paid; the U.S. should do more for Liberia.  That said, France 
does support an IMF solution since it can be financed without 
creating too many problems.  Musca promised to take a closer 
look at the African Development Bank issue, but commented that 
France has been criticized internally for not using its 
development aid money effectively, and that the political mood 
is that it needs to focus on Francophone countries to take the 
pressure off of immigration. 
 
G8 ISSUES: HEDGE FUNDS, IMF REFORM, FDI 
 
PARIS 00001710  002 OF 002 
 
 
--------------------------------------------- 
¶8.  (SBU) Kimmitt raised the question of France's view on what 
to do about hedge funds in the G8 context, given that Germany 
keeps throwing out new ideas.  Musca said he does not view the 
issue as one that poses stability risk, and does not think 
direct regulation is the answer.  He would prefer to have the G8 
encourage industry to develop codes of conduct, and handle 
investor protection in the normal regulatory framework.  Finance 
Assistant Secretary Franq suggested the matter be turned over to 
IOSCO.  Musca said he is open to other ideas, and inquired 
whether the USG was surprised by the French reaction.  Kimmitt 
indicated he would have to give it more thought, especially the 
IOSCO point, but was not surprised by Musca's analysis. 
 
¶9.  (SBU) Musca raised IMF reform and quotas, saying he wanted 
to "sort out a solution" with the USG.  He worries that the G7 
is putting itself into a bind, and the USG has lost its sense of 
urgency.  He thinks the U.S. position, looking at purchasing 
power parity (PPP), is to shift pressure from China to India, 
and is too focused on the long term benefit without asking what 
we will get from China in return.  He urged a G7 debate to 
resolve the problem before the fall.  Kimmitt agreed to resolve 
the issue internally and revisit it in Potsdam. 
 
¶10.  (SBU) Kimmitt raised the question of open investment, 
noting the White House plans to put out a policy statement on 
May 10 to try to knock back protectionist sentiment.  Musca said 
protectionism does exist, but there is no need to overstate it. 
But he agreed with the Deputy Secretary's observation that 
state-owned companies from Russia, China and the Gulf States 
will present policy problems.  Such acquisitions pose a 
sensitive problem for Europe due to Maastricht Treaty 
obligations, and Musca is not at all sure the French would have 
legal authority to oppose, for example, a GAZPROM takeover of 
EDF or Gaz de France. 
 
¶12. (U) The Deputy Secretary cleared this message. 
 
Please visit Paris' Classified Website at: 
http://www.state.sgov.gov/p/eur/paris/index.c fm 
 
STAPLETON#