VZCZCXRO1995
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DE RUEHFR #3032/01 1941235
ZNR UUUUU ZZH
O 131235Z JUL 07
FM AMEMBASSY PARIS
TO RUEHC/SECSTATE WASHDC IMMEDIATE 8940
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE

UNCLAS SECTION 01 OF 02 PARIS 003032 
 
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 
 
PARIS 00003032  002 OF 002 
 
 
External Trade Herve Novelli will take on the day-to-day 
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 
 
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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