VZCZCXRO2826
RR RUEHAG RUEHDF RUEHIK RUEHLZ RUEHROV
DE RUEHBS #1348/01 2460529
ZNR UUUUU ZZH
R 020529Z SEP 08
FM USEU BRUSSELS
TO RUEHC/SECSTATE WASHDC
INFO RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/USDOC WASHDC
RUEKJCS/SECDEF WASHDC
RUEKJCS/CJCS WASHINGTON DC
RUCNMEM/EU MEMBER STATES COLLECTIVE
RUEHVEN/USMISSION USOSCE VIENNA AU
RUEHSI/AMEMBASSY TBILISI
RUEHMO/AMEMBASSY MOSCOW
RUEHKV/AMEMBASSY KYIV

UNCLAS SECTION 01 OF 03 BRUSSELS 001348 
 
SENSITIVE 
SIPDIS 
 
STATE PASS TO MCC, OPIC, USAID 
 
E.O. 12958: N/A 
TAGS: ECON EAID PREL GG RS
SUBJECT:  EUROPEAN COMMISSION OFFICIALS SKEPTICAL ON 
BUDGET SUPPORT FOR GEORGIA; SIGNAL THAT AID WILL BE 
SMALLER THAN U.S. CONTRIBUTION 
 
¶1.  (SBU) In an August 28 meeting with members of a U.S. 
economic delegation returning from an assessment trip to 
Georgia, European Commission (EC) officials expressed 
skepticism about some aspects of the Georgian request for 
assistance, especially the GOGQs plea for budget support. 
According to the Commission officials, the EC will offer 
additional economic assistance to Georgia beyond the 6 
million euros already promised by ECHO, the European 
CommissionQs humanitarian aid agency.  However, any aid 
package is unlikely to be as robust as that provided to 
either Kosovo or to the Palestinian territories, two 
areas where EC foreign assistance plays a significant 
role.  End Summary. 
 
¶2.  (SBU) On August 28, Gunnar Wiegand, RELEX Director 
for Eastern Europe, Southern Caucasus and Central Asia, 
and Barbara Lucke, Head of Unit for EuropeaidQs Office of 
Geographical Coordination and Supervision for Europe, met 
with visiting USG officials Dan Rosenblum, State/EUR/ACE, 
Roland DeMarcellus, State/EEB/IFD/ODF and Doug Menarchik, 
USAID/E&E, who were transiting Brussels en route from 
Tbilisi to Washington.  After listening to an assessment 
of the Georgian economic situation from the U.S. team, 
Wiegand noted that the European CommissionQs response on 
assistance to Georgia will partly depend on the findings 
of an EC assessment team now in Georgia and scheduled to 
return to Brussels shortly.  Early reports from the EC 
team, which largely track U.S. assessments, suggest that 
physical damage is less widespread than originally feared 
and that reconstruction costs will be considerably less 
than in places like Kosovo and Lebanon.  However, EC 
assessors are concerned about the long term economic 
impact of the Russian invasion, partly on account of 
damaged infrastructure but also because of the chilling 
impact that it will inevitably have on foreign 
investment.  Under any scenario, the Commission believes 
Georgia faces significant economic challenges in the 
months ahead. 
 
Commission Skeptical of Budget Support to GOG; Probable 
Barroso Offer to Host Donor Conference 
--------------------------------------------- -------- 
 
¶3.  (U) Despite the seeming similarity in our assessments 
of the Georgian situation, when asked about providing 
budget support to the Georgian government in view of the 
potentially grave loss of foreign direct investment, 
Weigand responded with a considerable amount of 
skepticism. While noting that the EC often champions 
budget support in other contexts, Wiegand expressed 
concern that extending substantial budget support to the 
GOG could lead to significant accountability problems. 
Wiegand pointedly noted that the Georgian government 
consists mainly of U.S. Qtrained Qlawyers rather than 
bankers."  According to Wiegand, the EC will Qkeep an 
open mindQ about budget support but will almost certainly 
want to include a high degree of conditionality in ways 
that the QGeorgians may not always have in mind. 
Wiegand and Luecke added that EC views on the use of 
budget support will also be shaped by perspectives 
provided by the IMF and the World Bank. 
 
¶4.  (SBU) Wiegand told the U.S. delegation that at the 
September 1 European Council meeting, Commission 
President Barroso is likely to offer to host a donor 
conference for Georgia in Brussels later this fall, 
noting that the Commission has hosted similar events 
including the recent Kosovo donor conference in July. 
Counterparts added that the EU had already hosted a donor 
conference for Georgia four years ago, resulting in $800 
million in pledges at that time.  That said, they 
acknowledged that senior Georgian officials are not 
enthusiastic about the idea, not only because of concerns 
that it will take too long to organize a conference but 
also due to a stated desire to receive budget support 
from the broader international community with a minimum 
of strings attached. 
 
¶5.  (SBU) EC officials indicated an interest in moving 
 
BRUSSELS 00001348  002 OF 003 
 
 
forward with other measures to support Georgia.  For 
example, ongoing discussions on a free trade agreement 
will probably continue, though there are concerns that 
the Georgians Qwant a quick and shallow free trade 
agreementQ while the EU prefers one that is Qdeep and 
comprehensive,Q encompassing a range of reforms aimed at 
helping Georgia move toward European regulatory 
standards.  (Comment:  This is a goal that fits with the 
CommissionQs energetic efforts to spread its standards to 
as many countries and regions as possible. End Comment.) 
Wiegand hinted broadly that the Commission would take a 
tough line with the Georgians regarding the Georgian 
governmentQs wariness of moving closer to the European 
acquis communautaire.  He asserted that moving closer to 
the EU was a Qmatter of survivalQ for Georgia, and urged 
the Georgians to have a more Qpragmatic attitudeQ about 
harmonizing with the acquis.  Visa facilitation is 
another area of potential interest, Wiegand said. 
Elaborating, he pointed out that currently, Russian and 
Ukrainian and other QneighborhoodQ citizens (and, by 
extension, South Ossetians and Abkhazians who hold 
Russian passports) have easier travel access to the EU 
than Georgians, and this is an issue Qthat needs to be 
looked intoQ. 
 
Russian Recognition of Breakaway Republic a Significant 
Negative; Fear of QEthnic Cleansing 
--------------------------------------------- ---------- 
 
¶6.  (SBU) EC counterparts noted that politically, Russian 
recognition of South Ossetia and Abkhazia Qchanged 
matters for the worse."  Ethnic cleansing is also a 
growing concern.  According to some reports, Qthere are 
no Georgians leftQ in South Ossetia.  By some accounts, 
Russia anticipates providing an assistance package of up 
to one billion dollars for South Ossetia, presumably 
aimed in part at integrating the region more closely to 
Russia. 
 
¶7.  (SBU) EC interlocutors noted that long-term EU/EC 
economic support for Georgia also depends on discussions 
among the 27 EU member states.  Already, differences of 
opinion are emerging, with some (including EU countries 
with significant Russian minorities) arguing for a strong 
EU reaction and others urging a more measured response in 
order to minimize damage to EU-Russian relationships on a 
range of other issues. 
 
¶8.  (SBU) Developing a common EU approach toward Russia 
is vital, according to Wiegand, particularly because the 
next EU-Russia Summit is scheduled to take place in Nice 
in mid-November.  It is important that the QburdenQ for 
worsening relations with Russia be carried broadly, not 
just by the EU or NATO.  In looking ahead to Nice, there 
is a sense that a hoped-for broad network of cooperative 
efforts aimed at strengthening the relationship between 
the EU and Russia and putting it on a more long-term 
strategic footing will now have to be put Qon iceQ. 
 
¶9.  (SBU) Comment:   The initial U.S. and EU on-ground 
assessments appear broadly similar, with EU counterparts 
affirming that whie short-term destruction may be less 
widespred than initially feared, the long term economic 
consequences of the war for Georgia are likely to be 
severe.  That said, the size and shape of the planned EC 
economic support for Georgia that will eventually emerge 
remains undefined.  The internal obstacles within the EC 
bureaucracy to both budget support and a robust aid 
package for Georgia are significant.  Ultimately, it is 
the political discussion within the EUQincluding in both 
the European Council and European Parliament--that will 
determine the economic response.  The next step in that 
process will be the Extraordinary European Council 
meeting on the situation on Georgia scheduled for this 
Monday (September 1), an event that will hopefully give 
the internal economic assistance discussions a stronger 
impetus.  European Parliament discussions on Georgia, 
also scheduled for Monday, should help shape the European 
response as well.  End Comment. 
 
BRUSSELS 00001348  003 OF 003 
 
 
 
MURRAY