VZCZCXRO0990
PP RUEHAG RUEHAST RUEHDA RUEHDBU RUEHDF RUEHFL RUEHIK RUEHKW RUEHLA
RUEHLN RUEHLZ RUEHPOD RUEHROV RUEHSR RUEHVK RUEHYG
DE RUEHRL #1621/01 2391513
ZNR UUUUU ZZH
P 271513Z AUG 07
FM AMEMBASSY BERLIN
TO RUEHC/SECSTATE WASHDC PRIORITY 9112
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE
RUCNFRG/FRG COLLECTIVE
RHEHNSC/NSC WASHDC

UNCLAS SECTION 01 OF 03 BERLIN 001621 
 
SIPDIS 
 
SENSITIVE 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON PGOV SENV ENRG EFIN PREL ELAB GM
SUBJECT: GERMAN CABINET RETREAT FOCUSES ON CLIMATE AND 
ENERGY, FOREIGN INVESTMENT, AND SUBPRIME CRISIS 
 
 
¶1. (SBU) Summary:  German Chancellor Angela Merkel emerged 
from the August 23-24 Federal Cabinet retreat with consensus 
among the parties in her Grand Coalition Government on a 
50-point program designed to sustain Germany's economic 
upturn.  No signs of coalition cracks appeared.  The program 
includes a 30-point plan on energy and climate change and 
focuses on balancing the federal government budget, 
protecting key German industries from "hostile" foreign 
investment, greater transparency in financial markets, and 
education and immigration strategies to address a shortage of 
skilled labor.  The climate change plan calls for improved 
cooperation with the United States on carbon capture and 
sequestration, renewables, and energy efficiency.  Concern 
about the sub prime crisis in the United States prompted 
calls for investigations of rating agencies and for greater 
regulation of hedge funds.  End Summary. 
 
¶2. (SBU) During an August 24 press conference, Chancellor 
Angela Merkel (CDU) and Deputy Chancellor/Labor Minister 
Franz Muentefering (SPD) unveiled the results of the August 
23-24 Cabinet retreat at Meseberg Castle in Brandenburg.  The 
50-point program, titled "Upturn - Participation - 
Prosperity," is designed to guide the Grand Coalition 
government up until the 2009 elections.  The Coalition, at 
least on the surface, showed no signs of discord, as 
participants focused on domestic issues.  Merkel and 
Muentefering began the press conference by highlighting the 
Grand Coalition's accomplishments in its first two years, 
focusing special attention on Germany's economic upturn and 
declining unemployment rate.  Merkel said the Grand Coalition 
would focus on extending and expanding the economic upturn. 
"We do not want to leave anyone behind," Merkel said. 
Muentefering stressed the need to secure growth and 
prosperity in order to maintain a "social balance."  The 
agreement was criticized by most opposition parties as 
lacking substance. 
 
GERMANY'S 30-POINT CLIMATE PROTECTION PROGRAM 
 
¶3. (U) Among the few concrete measures adopted by the Cabinet 
was a comprehensive 30-point climate protection program aimed 
at meeting Germany's ambitious goals to reduce CO2 emissions. 
 In order to achieve the EU-wide 20 percent reduction target 
by 2020, Germany needs to reduce its GHG emissions by 40 
percent of the 1990 base.  Although the full funding 
requirements are not yet known, the Environment Ministry's 
climate change budget was increased from the current EUR 700 
million to EUR 2.6 billion in 2008.  The German Government 
anticipates EUR 400 million will be raised by the sale of 
emissions trading certificates. 
 
¶4. (U) Whereas some of the measures such as vehicle emissions 
restrictions are still under discussion in the EU, others, 
such as vehicle-specific taxes, fall within the jurisdiction 
of the (German) federal states.  The Federal Government will 
introduce legislation for those measures which can be 
regulated nationally in the fall.  Environment experts and 
NGOs criticized the program as lacking ambition and 
effectiveness.  The Environment Ministry acknowledged that 
these measures are expected to reduce emissions by 35-to-36 
percent and expects federal states and local authorities to 
provide the final 5 percent savings to reach the 40 percent 
goal. 
 
¶5. (U) The package targets public and private buildings, 
transportation, and the energy sector.  It includes clean 
coal measures and improved cooperation with the U.S. on 
carbon capture and sequestration, renewables, and energy 
efficiency.  Planned measures include: 
 
- a 30 percent hike in energy savings requirements for new 
buildings constructed after 2008, with a further 30 percent 
savings requirement by 2012, 
- expansion of a market incentives program for refurbishing 
older buildings, 
- a renewables share of 15 percent for heating in new 
buildings, 
- legislation to promote commercial uptake of carbon 
capture/sequestration and zero-emissions coal power plants, 
- increasing the renewables share of power generation from 
the current 14 percent to 25-to-30 percent by 2020, 
- replacing 10 percent of gas consumption with biofuels from 
biogas by 2030, and 
- doubling the CHP share in power generation to 25 percent by 
2020 with the aid of a EUR 750 million incentive program. 
 
¶6. (U) Measures in the transportation sector include 
advocating a 130 gram emissions limit for automobiles 
 
BERLIN 00001621  002 OF 003 
 
 
adjusted to engine size, revamping the vehicle tax, a truck 
levy to reward low CO2 emissions and a target of 17 percent 
bio fuel in gasoline by 2020, and inclusion of aviation 
emissions in the EU's emissions trading system. 
 
PROTECTING KEY GERMAN INDUSTRIES 
 
¶7. (U) Merkel announced the formation of a working group 
comprised of representatives from the Finance and Economics 
ministries charged with developing measures to protect 
strategic German industries from investment funds controlled 
by foreign governments.  Merkel stressed that Germany had no 
intention to close its borders to potential investors but was 
looking for a mechanism similar to those used by the United 
States, Great Britain, and France to protect key industries 
from potential hostile foreign engagement.  Such measures, 
she said, would be in accordance with WTO principles and 
would also not violate the EU's internal market rules. 
 
¶8. (U) The cabinet agreed to review Germany's legislation on 
foreign investment to determine whether German law allows for 
the possibility of implementing certain protective measures, 
such as a turnover-threshold beyond which a target company 
would be subject to government control.  Another tool the 
cabinet agreed to consider was the creation of a special 
"fund" of (German) banks and industry to counter activities 
of foreign, state-owned funds on the German market.  Merkel 
said that she would seek a dialogue with French President 
Sarkozy about introducing such protective measures on the EU 
level, or as part of the EU's Lisbon Process for global 
competitiveness. 
 
RENEWED CALL FOR GREATER TRANSPARENCY OF FINANCIAL MARKETS 
 
¶9. (U) Merkel and Muentefering said the impact of the U.S. 
sub prime market turmoil on the financial system demonstrated 
the need for an investigation of rating agencies and 
justified a renewed call for greater "transparency" in 
financial markets.  Merkel said Germany would use the 
remainder of its G-8 Presidency and the September IMF meeting 
as platforms for discussing the matter.  Of particular 
concern to the German government are the financing mechanisms 
of international hedge funds.  "Recent (market) turbulence 
shows the significance that such regulation would have," 
Muentefering said. 
 
BALANCED BUDGET AS OVERARCHING GOAL 
 
¶10. (U) Chancellor Merkel reiterated the Coalition's goal - 
as set out by Finance Minister Peer Steinbrueck (SPD) - to 
achieve a balanced budget by 2011.  Merkel stressed that 
further budget consolidation would be necessary to give the 
government sufficient room "to steer the political course." 
She emphasized that none of the new spending measures agreed 
in Meseberg would result in extra costs or go beyond what the 
government had already earmarked in its budget.  Merkel also 
ruled out the possibility of any reduction in taxes before 
2010, but explicitly left the door open for a possible 
lowering of non-wage-labor costs, e.g., unemployment 
insurance premiums, in order to reduce labor costs. 
 
COPING WITH A SHORTAGE OF SKILLED LABOR 
 
¶11. (U) To cope with the growing shortage of skilled workers 
in Germany, the cabinet decided to improve qualification and 
retraining programs for German citizens and to grant foreign 
students and engineers easier access to the German labor 
market, as early as November 1.  The cabinet agreed that 
engineers of new (eastern) EU member states with certain 
special skills, such as electrical and mechanical 
engineering, will be permitted to work in Germany without 
providing - previously obligatory - proof to an employment 
office that no comparable German specialist is available to 
fill a certain position. 
 
¶12. (U) Moreover, foreign students who have graduated from a 
German university may work in their acquired profession 
without restrictions for up to three years in Germany.  The 
cabinet tasked the Ministries of Labor and Education to 
develop a comprehensive immigration program (a points-based 
immigration system for skilled workers like that in Canada is 
reportedly under consideration).  The new plan also includes 
a provision to lower the unrealistically high income 
requirement for immigrants.  Under current practice, skilled 
professionals are only given permission to come to Germany if 
they can prove they will earn an annual salary of EUR 85,000 
euros.  The Education Ministry advocates reducing the limit 
to EUR 40,000 - 60,000 euros, a figure that many business 
 
BERLIN 00001621  003 OF 003 
 
 
leaders insist is still too high. 
 
KOENIG