VZCZCXRO6456
RR RUEHAG RUEHDF RUEHIK RUEHLZ RUEHPOD RUEHROV
DE RUEHBS #0733/01 1371424
ZNR UUUUU ZZH
R 161424Z MAY 08
FM USEU BRUSSELS
TO RUEHC/SECSTATE WASHDC
INFO RHEHAAA/WHITE HOUSE WASHDC
RHEHNSC/NSC WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RUEHRC/DEPT OF AGRICULTURE WASHDC
RUEHC/DEPT OF LABOR WASHDC
RUEAUSA/DEPT OF HHS WASHDC
RUCNMEM/EU MEMBER STATES COLLECTIVE
RUCNMEU/EU INTEREST COLLECTIVE

UNCLAS SECTION 01 OF 03 BRUSSELS 000733 
 
SENSITIVE 
SIPDIS 
 
STATE PASS TO OIRA/OMB 
HHS FOR FDA 
 
E.O. 12958:  N/A 
TAGS: EFIN ECON ETRD EIND EINV EUN
 
SUBJECT: Treasury Deputy Secretary Kimmitt meets with EU 
Commissioner Charlie McCreevy before the TEC. 
 
¶1.  (SBU) Summary: Treasury Deputy Secretary Kimmitt met 
with EU Commissioner Charlie McCreevy hours before the 
second meeting of the Transatlantic Economic Council 
(TEC) meeting on May 1th, 2008.  They discussed 
transition processes, the TEC, and insurance issues. 
They agreed to work on the CommissionQs Solvency 2 
proposals and the Deputy Secretary promised to provide 
the Commissioner with specific ideas on how to address 
U.S. concerns. 
 
¶2.  (SBU) Kimmitt and McCreevy had a warm and open 
meeting in McCreevyQs office.  The Deputy Secretary was 
joined by the Treasury Attach to the European Union, 
Barbara C. Matthews, and Treasury Acting DAS, Eric Meyer. 
The Commissioner was joined by his chief of staff, Martin 
Power, and his deputy chief of staff, Natalie de 
Balsadua. 
 
¶3.  (SBU) Commissioner McCreevy opened the meeting by 
asking a number of questions concerning the mechanics of 
government transition in the U.S. following an election 
and change of administration.  The Deputy Secretary 
described the U.S. transition process, then noted that 
the key interlocutors for the U.S. in the Financial 
Markets Regulatory Dialogue (FMRD) would remain in place. 
 
TRANSATLANTIC ECONOMIC COUNCIL Q STRATEGIC PLANNING 
 
¶4.  (SBU) Kimmitt turned the conversation to that dayQs 
TEC meeting, noting that he was pleased with the progress 
the TEC had made so far.  He said the TEC had the 
prospect of becoming a forum of enduring value to the 
bilateral US-EU relationship at the strategic level, much 
as the FMRD adds value at the technical level.  He noted 
the challenge was to link the work of the two groups 
without creating a zero sum dynamic.  He asked for the 
CommissionerQs views on the topic. 
 
¶5.  (SBU) McCreevy agreed, emphasizing that Qwe donQt 
want the FMRD to be knocked about by the TEC" and that he 
was Qvery anxious to not have our work in the FMRD 
derailed by the TEC.Q  He agreed the TEC needs and has 
momentum, but at present only the FMRD seemed to be 
delivering tangible results.  Martin Power added that 
these pressures could be alleviated as the TEC agenda was 
populated by other issues. 
 
¶6.  (SBU) Kimmitt agreed, underscoring his belief that 
the TEC was not and should not be a high-level FMRD.  To 
ensure continuity of the TEC, he believed two components 
were needed: 1) Active engagement by legislators, 
business leaders, and consumer groups, and 2) clear work 
plans identifying short-term, medium-term and long-term 
goals. McCreevy agreed. 
 
INSURANCE ISSUES 
 
¶7.  (SBU) Kimmitt then asked McCreevy for his views on 
the insurance issues on the TEC agenda. McCreevy began by 
expressing strong support for the TreasuryQs proposed 
Blueprint for Reform of the U.S. federal financial 
regulatory system, and Secretary PaulsonQs speech 
releasing the report. He singled out the BlueprintQs 
proposals regarding an optional federal charter as a 
particularly promising way to address looming insurance 
regulatory issues.  He noted that the Solvency 2 
directive should be finalized early in 2009, but that it 
would come into effect in 2011 or 2012.  He noted that an 
equivalency determination would be required, just as it 
was required in the accounting area.  However, unlike in 
accounting the Commissioner for Internal Markets will not 
make the insurance equivalency determination. 
 
¶8.  (SBU) McCreevy indicated that if the reinsurance 
collateral issue were not resolved by the time that 
Solvency 2 was implemented, then achieving an equivalency 
determination for the U.S. would be difficult.  He 
expressed the opinion that Solvency 2 represented a good 
regulatory capital and oversight standard. He added that 
 
BRUSSELS 00000733  002 OF 003 
 
 
it was possible that the U.S. could address the 
collateralization issue and still not achieve an 
equivalency determination due to underlying structural 
issues in the supervisory system.  He indicated that he 
continued to hear many complaints about the U.S. system 
in Europe, particularly in London.  He understood the 
difficulty that federal authorities in the U.S. would 
have in addressing this issue due to the state-based 
approach to regulation.  However, goodwill on the part of 
the state regulators was insufficient to address the 
problem and, in his opinion, the only solution would be 
an optional federal charter.  He believed that a three- 
year window of opportunity exists to address the 
formidable political challenges associated with making 
this change. 
 
¶9.  (SBU) Kimmitt noted that the Treasury Department has 
had a longstanding interest in making progress on 
updating the insurance oversight structure in the United 
States.  He indicated that progress was already being 
made.  A hearing had been held on Capitol Hill and 
legislation had been introduced to provide the Treasury 
Department with an insurance oversight office that would 
have authority to engage in international discussions 
concerning insurance.  So engagement exists in 
Washington, but not actual momentum yet.  He noted that 
awareness is growing in Washington that the insurance 
oversight structure is out of line with global market 
trends and that this adversely impacts the 
competitiveness of U.S. markets. 
 
¶10.  (SBU) Kimmitt then expressed concern with the 
CommissionQs Solvency 2 proposals.  In particular, he was 
concerned that adverse impact on U.S. companies doing 
business in Europe could reinforce a negative political 
backlash in the United States against federalization of 
insurance regulation.  He expressed the opinion that the 
U.S. and the EU needed to intensify their discussions to 
look for adjustments over the next 6 to 9 months so that 
the Commission could meet its objective without 
undercutting the TreasuryQs efforts to obtain an optional 
federal charter in the insurance area. 
 
¶11.  (SBU) McCreevy noted that Qwe are well down the road 
on Solvency 2.  We are trying to have it done by the end 
of this year in the European Parliament.Q  He indicated 
that it would be important to finish the work on this 
project before the Parliament started campaigning in 
spring 2009 and before the next Commission was in 
transition.  Martin Power observed that the U.S. 
insurance industry had established a transatlantic group 
to create a forum to feed into the TEC.  He expressed 
hope that this forum might be helpful to the broader 
effort.  McCreevy indicated that it would be helpful to 
have a list of significant outstanding issues, noting 
that he was not seeking convergence of regulatory 
standards with the U.S. but only mutual recognition. 
 
¶12.  (SBU) Kimmitt observed that one group had 
recommended a Qgrand bargainQ between reinsurance 
collateral (U.S. gives the EU a pass by eliminating the 
requirement) and Solvency 2 (EU gives the U.S. a pass 
with an equivalence determination).  He asked whether the 
Commissioner liked the idea.  McCreevy answered no. 
 
¶13.  (SBU) Kimmitt noted that state-based insurance 
regulation would not be considered equivalent to the 
Solvency 2 proposed structure.  He offered to prepare a 
letter from Treasury to the Commissioner identifying 
issues and possible solutions.  McCreevy said he would 
welcome the suggestions and agreed to work with Treasury 
to try to find a solution. 
 
¶14.  (SBU) Looking towards the afternoon TEC discussion 
of the issue, Kimmitt and McCreevy agreed to highlight 
their mutual efforts to work together to find 
constructive solutions.  Both agreed that each side 
should be sensitive to avoid making it difficult for the 
other side to make progress. 
 
BRUSSELS 00000733  003 OF 003 
 
 
 
¶15.  (U) Deputy Secretary Kimmitt has cleared this cable. 
 
Murray