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DE RUEHLJ #0159/01 0981803
ZNR UUUUU ZZH (CCY AD7BE6D7 MSI7302-695)
R 071803Z APR 08
FM AMEMBASSY LJUBLJANA
TO RUEHC/SECSTATE WASHDC 6583
INFO RUCNMEM/EU MEMBER STATES
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASHDC

UNCLAS LJUBLJANA 000159 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
C O R R E C T E D COPY CAPTION 
DEPT FOR EUR/NCE, 
VIENNA FOR CQUINLIVAN, 
TREASURY FOR VIMAL ATUKORALA 
 
E.O. 12958: N/A 
TAGS: ECON EINV ETRD PREL PGOV EUN SI
SUBJECT: ECOFIN CONCLUSIONS - FIGHTING INFLATION, 
STRENGTHENING FISCAL STABILITY 
 
 
Summary 
------- 
 
¶1. (SBU) The Informal Meeting of the Ministers for Economic 
and Financial Affairs (ECOFIN) held at Brdo April 4-5 
produced no surprises as the Minsters for Finance and 
European Central Bank (ECB) governors from the 15 eurogroup 
members met to discuss "efficient and effective" strategies 
for controling inflation and creating cross border strategies 
for more fiscal stability.  The ECOFIN Council stated that 
the eurozone is doing well despite the "turbulence and 
volatility" in the global economy.  The Council made a strong 
call for "fiscal orthodoxy" in combatting rising inflation 
and signed a new Memorandum of Understanding deepening cross 
border cooperation on promoting financial stability in the 
eurozone.  Although journalists were very focused on 
inflation and wage increases, the main thrust of the press 
conference statements were on outlining new cooperative 
efforts to fight inflation in the eurozone.  ECB President 
Jean-Claude Trichet was adamant that the ECB is doing all it 
can but exhorted all members to implement national plans to 
stay within the guidelines of the Maastricht criteria. (Note. 
The inflation ceiling for the eurozone is 2 percent but in 
March, the inflation of the eurozone was 3.5 percent.  End 
Note.)  The Council also presented a common position on the 
adoption of the International Monetary Fund (IMF) executive 
board resolution on the reform of the quota and voting rights 
system in the IMF.  End Summary. 
 
Fighting Inflation 
------------------ 
 
¶2.  (U) During the first press conference April 4, European 
Commissioner for Economic and Financial Affairs Joaquin 
Almunia atrributed rising inflation in the eurozone mainly to 
external forces such as increased prices in oil and  food, 
and the crisis in the U.S.  He also identified some internal 
factors such as administrative prices and increases in 
indirect taxes that the eurogroup must address to lower 
inflation.  Almunia and Chair of the Eurogroup (the Finance 
Ministers of the eurogroup) Jean-Claude Juncker both stressed 
that the eurozone is in the midst of a slowdown but not in a 
recession.  Trichet, Juncker and Almunia each emphasized the 
need for member states to show budgetary restraint and 
counseled for wage moderation as an essential ingredient to 
riding out the financial storm.  Juncker opined that 
"inflation is the enemy of those that are weaker" and that 
the eurozone needed to fight inflation with wage increases 
that were in line with productivity.  Juncker said that the 
ECB is doing all it can within its purview, but that the 
members of the eurogroup needed to work together to implement 
national instruments to combat inflation.  The Council also 
made sure to make a clear distinction between the ECB and the 
U.S. Federal Reserve Bank.  Trichet strongly clarified that 
the ECB amd the Federal Reserve have their own 
responsibilities, should not be expected to behave in similar 
ways, and should not be judged by the other's policy 
decisions. 
 
ECB Says IMF Forecast on EU Growth Too Low 
------------------------------------------ 
 
¶3.  (U) Trichet took issue with the leaked IMF report that is 
expected to forecast eurozone growth at 1.5 percent, stating 
that he believed the projection was too low.  He added that 
the ECB would put out a report on April 28 that is expected 
to estimate a higher percentage.  (Note. Trichet did not cite 
a number but a Wall Street Journal article on April 1 stated 
that the ECB predicted a growth of 1.8 percent.  Originally, 
the ECB in February had expected growth to be 2.2 percent, 
but now is downgrading its expectations. End Note) 
 
Germany is Not a Model for All 
------------------------------ 
 
¶4.  (U) Another hot topic during ECOFIN was Germany's 
increase in salaries in the public sector by 8 percent over 
two years, since this seemed to go against the ECOFIN 
Council's recommendation to avoid insupportable wage 
increases.  Although Trichet, Juncker, and Almunia vehemently 
defended Germany's decision stating that the wage increase in 
Germany was appropriate since there has been no wage increase 
there in three years, they pointed out that Germany is not a 
model for other members of the eurogroup.  Juncker firmly 
asserted that any member that tried to use Germany as a model 
 
would be "way out of line." 
 
 
Cross-Border MOU for Financial Stability Signed 
--------------------------------------------- -- 
 
¶5.  (SBU) A significant achievement of the ECOFIN meeting was 
the unanimous support for the new cross-border MOU on 
financial cooperation.  The new MOU extends the previous MOU 
signed in 2005 by including more financial institutions into 
the memorandum and common principles on cross-border 
financial crisis management.  In response to a journalist's 
concern that the MOU was not legally binding, Slovene Finance 
Minister and ECOFIN Council President Andrej Bajuk explained 
that although it is not legally binding, it has strong 
political backing.  He further stated that "many things have 
been achieved in the 50 years of the EU without legally 
binding agreements."  He pointed to the creation of the 
eurozone as one example.  When a journalist queried whether 
any member state was pressing for one "super supervisory 
board" to oversee cross-border financial institutions, Bajuk 
said some member states made the suggestion, but that there 
was currently no political consensus. 
 
Prep for Spring IMF and WB Meeting 
---------------------------------- 
 
¶6.  (U) Juncker said that in preparation for the spring 
meeting of the IMF and World Bank (WB) in Washington D.C. 
April 12-13, the eurogroup would consider the report of the 
Financial Stability Forum (FSF) and urge the adoption of 
reforms proposed by the IMF executive board.  Bajuk reported 
that the ECOFIN Council had agreed on a common position on 
the IMF quota, stating that the quota represented an 
important shift that would give more weight to poor 
countries.  Juncker commented that the FSF would report on 
the recent turmoil in financial markets and recommend 
concrete measures to respond to the credit crisis.  (Note. 
The FSF said its report would set out specific policy 
recommendations on prudential oversight of capital, liquidity 
and risk management and on transparency, disclosure and 
valuation practices.  The FSF report is also expected to 
cover the role and uses of credit ratings, and the 
authorities' responsiveness to risks and their arrangements 
to deal with stress in the financial system.  End Note.) 
 
GOS Claims ECOFIN a Success, Surprised by Media Focus on 
Inflation 
--------------------------------------------- ----------- 
 
¶7.  (SBU) Katja Bozic, Director General of Financial Systems 
at the Slovene Ministry of Finance, told Emboff April 7 that 
Slovenia was "very satisfied" with the ECOFIN meeting.  Bozic 
believed that the ECOFIN Council reached all the proposed 
objectives.  She explained that, although the press reported 
heavily on rising inflation, inflation was not the key issue 
debated during ECOFIN.  The key issues, according to Bozic, 
were financial stability in light of the international 
financial crisis and the changes to the supervision of 
cross-border financial institutions.  Bozic stated that the 
real successes of ECOFIN was the MOU agreement on cooperation 
among central banks and ministries of finance regarding 
international cross border banking cooperation that every 
eurogroup member signed.  Bozic was surprised that 
journalists mostly skipped reporting about the key issues and 
complained that the media only focused on inflation. 
 
Comment 
------- 
 
¶8.  (SBU) The ECOFIN Council acknowledged the concerns of the 
journalists about inflation at the press conferences, but 
actively worked to calm the fears spurred by high inflation. 
The eurogroup leaders emphasized the resilience of the 
eurozone and highlighted concrete measures taken to protect 
the eurozone from more global external shocks.  Trichet 
reminded the press that over 15.7 million net jobs had been 
created in the eurozone in the past nine years and urged 
people not to exaggerate the financial crisis.  In light of 
the first ever EU-wide trade union protests held by the 
European Trade Union Confederation (ETUC) in Ljubljana on 
April 5, Juncker expressed sympathy for those that were most 
adversely effected by the rise in inflation, but pleaded for 
all stakeholders to work together to fight inflation in a 
sustainable manner and promote national fiscal prudence. 
(Note.  The protest brought together about 10,000 European 
 
trade union members to Ljubljana to collectively protest for 
higher wages across the EU.  End Note.)  Juncker said that 
the next ECOFIN meeting in June would continue to debate best 
practices to protect the eurozone from further volatility in 
the global economy.  End Comment. 
 
COLEMAN