VZCZCXYZ0136
RR RUEHWEB

DE RUEHLO #0801/01 0781301
ZNR UUUUU ZZH
R 181301Z MAR 08
FM AMEMBASSY LONDON
TO RUEHC/SECSTATE WASHDC 7869
INFO RUEHBS/USEU BRUSSELS
RUEATRS/DEPT OF TREASURY WASHDC

UNCLAS LONDON 000801 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON EFIN IR IZ UK
SUBJECT: DEPSEC TREASURY DISCUSES IRAN SANCTIONS, U.S. 
ECONOMY WITH CONSERVATIVE PARTY LEADER CAMERON 
 
¶1.  (SBU) SUMMARY:  In a March 10 meeting with Conservative 
Party leader David Cameron, Deputy Secretary Kimmitt told 
him that the Iranian financial sector was feeling the 
effects of Western sanctions and the EU-3 remain unified on 
tightening the ability of Iranian banks to do business, 
although Italy is slowing down progress within the EU on 
autonomous sanctions.   The Deputy Secretary, accompanied 
by Ambassador Tuttle, told Cameron and Shadow Chancellor 
George Osborne that the fundamentals of the U.S. economy 
remained strong, discussed the state of the Iraqi economy, 
and stressed U.S. support for the Transatlantic Economic 
Council (TEC) and its objective of reducing regulatory and 
non-tariff barriers to U.S-EU trade. Cameron pledged to 
follow up with the Council.  END SUMMARY. 
 
Iranian Sanctions 
--------------------- 
 
¶2.  (SBU)  In response to Cameron's opening question - 
whether UNSC 1803 would affect Iranian behavior - the 
Deputy Secretary said that there was "no doubt" it 
would have an impact on the Iranian banking sector. 
The international financial sector now recognizes the 
need to be vigilant  -- the word is out that any 
financial institution that engages in Iranian-related 
transactions risks its reputation.   The Deputy 
Secretary told Cameron that the EU-3 (UK, France, and 
 
SIPDIS 
Germany) are "solid" on building barriers to illicit 
Iranian financial transactions, but as a result the 
Iranians are moving their banking and commercial 
transaction "to the south" -- Switzerland, Austria 
and Italy. 
 
¶3.  (SBU) The Deputy Secretary explained that Italy is 
playing an unconstructive role within the EU and slowing 
down EU efforts to establish autonomous sanctions.   It 
was important to talk with the Italians about their 
"outrider" status.  Cameron expressed concern that other 
European nations were not stopping export credits to 
Iran.  Kimmitt said that although UNSC 1803 did not 
mandate an end to export credits, it put governments on 
notice that they had a responsibility to review and 
monitor any Iranian-related credits and the tendency 
"across the board" was to cut down on export guarantees to 
Iran. 
Cameron said that he was concerned about whether 
European nations have the legal regimes in place to 
unilaterally impose sanctions and freeze assets, outside 
of an EU framework.  Cameron noted that he had specifically 
asked HM Treasury whether the UK could act unilaterally 
and was told the legal basis was in place for UK action. 
The Deputy Secretary said that was his understanding as 
well of the UK situation, though not more broadly across 
Europe, but that the issue for the UK Government was 
absence of a UK equivalent to the U.S. Classified 
Information Procedures Act.  That Act provides safeguards 
for the use of classified materiel in U.S. court 
proceedings.  In the absence of a UK equivalent, Kimmitt 
said, he understood it was often difficult for the UK 
Government to take criminal action against financial 
institutions in a manner that would withstand a court 
challenge.  Kimmitt added that he understood there 
were proposals put forward for similar legislation in 
the UK; Cameron indicated he would follow up. 
 
The State Of The U.S. Economy 
------------------------------------------ 
 
¶4.  (SBU)  In response to Cameron's query on the 
prospects for the U.S. economy, the Deputy Secretary 
explained that the long-term fundamentals remain sound, 
but there would be a slower rate of growth in the 
short-term.  The Deputy Secretary described the 
recently-enacted stimulus package and how its effects 
would likely be felt by the third quarter of this year. 
Cameron asked if there were plans for new regulation 
of the mortgage and banking sectors under consideration. 
Kimmitt replied that there were proposals under review, 
but that there would be no "bail out" for lending 
institutions because of the moral hazard it would 
represent.  Shadow Chancellor George Osborne said that 
he understood that the situation remained uncertain 
because investors still did not have a good sense of 
the value and credit-worthiness of the financial 
instruments they were holding.  The Deputy Secretary 
agreed that "price discovery" was still taking place 
and would likely continue for the remainder of the year. 
 
Iraq 
----- 
 
 
¶5.  (SBU) Turning to Iraq, the Deputy Secretary described 
to Cameron recent progress in the Iraqi economy and in 
achieving the goals of the Iraq Compact.  Iraq is a 
beneficiary of current oil price, the Deputy Secretary 
noted, and he told Cameron the Iraqi Government was 
considering creation of an Iraqi Sovereign Wealth Fund. 
Money is not the issue, the Deputy Secretary said, rather 
the need is to work on the Iraqi Government's institutional 
capacity to manage and execute budget decisions. 
 
The Transatlantic Economic Council (TEC) 
--------------------------------------------- ---------- 
 
¶6. (SBU)  The Deputy Secretary raised with Cameron the 
strong U.S. support for the Transatlantic Economic Council 
(TEC) 
and its focus on reducing regulatory, non-tariff trade 
barriers.  The Deputy Secretary described how the 
initiative would benefit both sides and would prepare 
the way for future discussions on the longer-term goal 
of a U.S.-EU Free Trade Agreement.    He noted that the 
TEC provides a mechanism to respond to UK business people 
who have concerns over U.S. or EU regulatory requirements. 
Cameron expressed support for the TEC and its regulatory 
initiative, noting that at the recent Davos Conference he 
had talked about the need to push forward with a U.S-EU 
trade agreement, especially given the lack of progress on 
the Doha Round.   Cameron said he would be in touch with 
the German head of the TEC about supporting the effort to 
reduce EU regulatory burdens. 
 
¶7. (U) Participants: USG: Ambassador Robert Tuttle; 
Robert Kimmitt, Deputy Secretary, Treasury; Eric Meyer, 
Director, Europe and Eurasia; Rob Saliterman, Spokesman, 
International Affairs, Treasury; Rick Mills, Notetaker. 
UK:David Cameron, Conservative Party Leader; George Osborne, 
Shadow Chancellor; David Lidington, Shadow Minister of 
Foreign Affairs, Edward Llewellyn, Chief of Staff. 
 
¶8. (U)  Deputy Secretary Kimmitt has cleared this message. 
 
 
Visit London's Classified Website: 
http://www.state.sgov.gov/p/eur/london/index. cfm 
TUTTLE 
 
 
Visit London's Classified Website: 
http://www.state.sgov.gov/p/eur/london/index. cfm 
TUTTLE