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RR RUEHAG RUEHDF RUEHIK RUEHLZ RUEHROV RUEHSR
DE RUEHBS #0330/01 0701524
ZNR UUUUU ZZH
R 111524Z MAR 09
FM USEU BRUSSELS
TO RUEHC/SECSTATE WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RHEHNSC/NSC WASHDC
INFO RUCNMEM/EU MEMBER STATES COLLECTIVE
RUEHAK/AMEMBASSY ANKARA
RUEHBK/AMEMBASSY BANGKOK
RUEHBJ/AMEMBASSY BEIJING
RUEHBR/AMEMBASSY BRASILIA
RUEHBU/AMEMBASSY BUENOS AIRES
RUEHBY/AMEMBASSY CANBERRA
RUEHJA/AMEMBASSY JAKARTA
RUEHME/AMEMBASSY MEXICO
RUEHMO/AMEMBASSY MOSCOW
RUEHNE/AMEMBASSY NEW DELHI
RUEHOT/AMEMBASSY OTTAWA
RUEHSA/AMEMBASSY PRETORIA
RUEHRH/AMEMBASSY RIYADH
RUEHUL/AMEMBASSY SEOUL
RUEHKO/AMEMBASSY TOKYO

UNCLAS SECTION 01 OF 08 BRUSSELS 000330 
 
SENSITIVE 
SIPDIS 
 
STATE FOR EEB/OMA/WHITTINGTON AND EUR/ERA 
TREASURY FOR IMB/MURDEN, MONROE, BEASLEY AND EUR/MEYER, KOHLER 
WHITE HOUSE FOR NEC/HENNESSEY-NILAND AND NSC/KVIEN 
 
E.O. 12958:  N/A 
TAGS: EFIN ECON KSUM EUN
SUBJECT: EU Approaches the G-20 Summit 
 
REF: 
A) State 17502 
B) USEU Brussels 290 
C) USEU Brussels 264 
D) USEU Brussels 226 
E) USEU Brussels 112 
F) 08 USEU Brussels 1744 
G) 08 USEU Brussels 1657 
 
This cable is Sensitive and limited to official U.S. government use 
only.  Not for internet or other public dissemination. 
 
Introduction and Summary 
------------------------ 
 
¶1.  (SBU) The European Union and its 27 member states have been hard 
hit by the global financial crisis and economic downturn, with the 
economy in recession and some of the world's largest financial 
institutions under stress.  The EU has responded actively to this, 
with strident calls for action from EU President Barroso, 
Commissioners McCreevy and Almunia and the EU Presidency in Czech 
Prime Minister Topolanek adding to the cacophony of statements from 
such member state leaders as Brown, Sarkozy, Merkel and the heads of 
the worst affected Central European member states - notably Hungary 
and Romania. 
 
¶2. (SBU) Despite the profusion of high level meetings and sometimes 
contradictory statements (epitomized by the Sarkozy-Topolanek 
exchange on aid to the auto sector), the Europeans are taking a 
number of steps to respond to the crisis: 
 
-- common EU principles on fiscal stimulus were announced in 
December; the Commission claims that the total stimulus now exceeds 
3 pct of GDP, double the originally expected 200bn or 1.5 pct of 
GDP; 
-- EU debt and deficit limits will be applied leniently, while 
member states plan to return to fiscal stability in the medium 
term; 
-- EU and member state funds are supporting some member states 
facing balance of payments difficulties, especially in Central 
Europe; 
-- the Commission and member states are (now) generally united 
against measures that would undermine the internal market, or erect 
protectionist barriers; -- the Commission is minimizing trade 
distorting effects of financial institution bailouts and state 
aids; 
-- proposals to strengthen financial sector supervision and 
regulation are being considered, including on: the De Larosiere 
recommendations on improving micro- and macro-level supervision; 
strengthening bank and insurance fund capital requirements; 
regulating credit rating agencies and credit default swaps; and 
increased deposit guarantees and investor protections (additional 
proposals on hedge funds and private equity are expected next 
month); and 
-- on the international front, the EU as a whole supports the G-20 
process and has called for doubling IMF resources and strengthening 
the IMF and Financial Stability Forum's role in financial 
governance. 
 
¶3. (SBU) Many of these financial reform initiatives, which EU heads 
of State and Government will review and may expand at their March 
19-20 European Council meeting, cause difficulty for the industry 
and for us, in particular as they inject EU "localization" 
requirements into a global financial industry.  Indeed, many EU 
leaders (notably McCreevy, Sarkozy and Merkel) openly blame lax 
regulation in the United States (and United Kingdom) for the crisis, 
and will come to the London Summit in an assertive and at times 
combative mood.  They understand, however, that the Summit needs to 
succeed to rebuild confidence among investors and consumers, and are 
 
BRUSSELS 00000330  002 OF 008 
 
 
likely to yield more easily on the details of the substance in 
exchange for the political messaging they want.  End Introduction 
and Summary. 
 
The Effects of the Crisis on the European Economy 
--------------------------------------------- ---- 
 
¶4. (SBU) The global financial and economic crisis has hit the EU and 
its 27 member states hard.  The latest European Commission forecasts 
(Ref E), released January 19, expect GDP to fall sharply (-1.8% in 
the EU and -1.9% in the 16-member euro area) in 2009, before growing 
0.5% in 2010.  Dramatically underscoring the scope of the problem, 
industrial orders in the EU27 as a whole fell by 6.4% in December 
2008, after declining by 5.1% in November; orders were 23.3 percent 
below their level in December 2007.  As a result, unemployment in 
the euro area has reached 8.2% in January, the highest level for two 
years, and is expected to rise to 8.7% in the EU in 2009 (9.2% in 
the euro area), with a further increase in 2010.  Deficits will also 
grow in 2009 from 2% of GDP to 4.5% in the EU and from 1.7% to 4% in 
the euro area.  Inflation is set to fall rapidly, from 3.7% in 2008 
in the EU (3.3% in the euro area) to 1.2% in 2009 (1.0% in the euro 
area) and just below 2% in 2010 in both regions.  Even with this bad 
news, EU Economic and Finance Commissioner Almunia last week warned 
that the forecast may be revised downward. 
 
¶5. (SBU) The ten Central European EU member states are currently 
suffering their worst economic recession since the Second World War, 
with Hungary, Latvia and now Romania requesting international 
assistance.  Western investors have been selling assets from the 
region, pushing the Polish zloty down by 28% against the euro in the 
past six months.  Hungary's forint has fallen by 20%, Romania's leu 
by 17% and the Czech koruna by 12% during the same period.  A 
Hungarian document calculates that Central Europe's refinancing 
needs for 2009 could total 300bn, or 30% of the region's gross 
domestic product (GDP).  This regional problem has significant 
EU-wide effects, as several Western European financial institutions 
are heavily exposed to the region.  According to UBS estimates, 
Austria's financial system is exposed to Central and Eastern Europe 
as a whole for 67% of Austria's GDP, followed by Belgium (27%) and 
Sweden (22%). 
 
The EU Domestic Economic Policy Response 
---------------------------------------- 
 
¶6. (SBU) As the first major response to the dramatic downturn, EU 
Heads of State and Government meeting in the European Council in 
December adopted the European Economic Recovery Plan (EERP) as a 
coordinated fiscal stimulus plan worth approximately 200bn or 1.5% 
of EU GDP.  The burden is shared between national budgets 
(approximately 170bn or 1.2% of GDP), and EU and European 
Investment Bank budgets (around 30bn, 0.3% of GDP). 
 
¶7.  (SBU) Member States are free to decide the mix of measures they 
intend to adopt to stimulate demand in their economies.  In doing 
so, however, they remain bound by the Stability and Growth Pact 
rules on excessive deficits (which set nominal ceilings for budget 
deficits and government debt of 3 and 60 pct. pct. of GDP 
respectively).  As such, their fiscal policy room for maneuver is 
limited to some extent by their current budgetary position.  The 
Commission intends to apply the Stability and Growth Pact rules 
flexibly in light of the crisis, but member states are expected to 
spell out how they intend to reverse excess deficits over the medium 
term. 
 
¶8. (SBU) Member States in early January reported the details of the 
national measures they will take in their Stability and Convergence 
programs for 2009.  In a study submitted to the February meeting of 
the Economic and Monetary Affairs Council, the Commission reported 
that planned stimulus measures actually exceed the EERP, with the 
 
BRUSSELS 00000330  003 OF 008 
 
 
total at about 3.3 percent for both the 16 Eurozone members and for 
the EU 27 as a whole.  This includes, at the EU level, 2.8 
percentage points of GDP added to the fiscal deficit (1.1 percentage 
points in consolidated annual budget measures and 1.7 percentage 
points from "automatic stabilizers" such as increased unemployment 
benefits); 0.3 percentage points for additional debt (generally 
raised fro equity injections into private sector institutions, 
mainly banks); and 0.2 percentage points in measures outside the 
budget, including by state-owned enterprises.  However, analysts 
have argued that many of the measures member states have put forward 
were already planned and thus should not be viewed as new stimulus. 
 
¶9. (SBU) At the EU level, the Community is unable to provide 
aggregate fiscal stimulus since it must by law run a balanced budget 
on an annual basis.  Further, EU revenues are limited as a portion 
of GDP, so that declines in economic activity will lead directly to 
a decrease in expenditures.  That said, the Community can alter 
expenditure patterns, and the Commission has proposed that the 
Community contribute to the EERP by accelerating payments of up to 
6.3bn under the structural and social funds and by mobilizing 5bn 
of unspent money from the 2008 budget over the period 2009-10 to 
improve energy interconnections and broadband infrastructure.  This 
last initiative, the brain-child of Commission President Barroso 
(Ref D), may not gain sufficient member state support to be approved 
by the March 19-20 European Council, as member states see it as 
largely political (in fact, that is its main selling point), too 
slow on disbursements, too incoherent in choice of projects, and too 
difficult to finance from the EU budget.  Also at the EU level, the 
European Investment Bank will also increase annual lending, 
particularly to SMEs, by some 15bn in 2009 and 2010. 
 
¶10. (SBU) In an attempt to build support for an EU wide response to 
the particular crisis in Central Europe, in January, Austrian banks 
pressed the European Union to organize financial aid for countries 
on its eastern fringes like Romania and Ukraine.  That call was 
followed by the Austrian government's attempt to seek support for an 
EU initiative to mobilize additional resources for the region's 
banking system, which would include funds from the European 
Investment Bank, the European Central Bank and the EU Cohesion Fund. 
 The EU rejected that plan.  A second proposal put forward by 
Hungary at the March 1 extraordinary leaders' summit called for the 
establishment of a fund worth 160-190bn to provide liquidity and 
debt rescheduling for Central European states.  Poland, Slovakia and 
the Czech Republic all resisted such a regional approach, as they 
want to distinguish themselves from their more imperiled neighbors. 
Leaders opted to help the region's troubled economies on a 
country-by-country basis. 
 
-- Industrial Supports 
 
¶11. (SBU) The EU rightly prides itself on having established a 
single market among its 27 members, and the Commission zealously 
guards this from state aid and other measures that might distort 
internal competition.  That said, the EU has not yet adopted state 
aid frameworks targeted at particular sectors of the economy other 
than the financial sector (below).  To soften the effects of the 
credit squeeze, and to help the real economy in general, on December 
17 the Commission adopted a temporary framework which allows Member 
States to grant, under certain conditions and until 2010, a lump sum 
of aid up to 500,000 per company for the next two years, state 
guarantees for loans at a reduced premium, subsidized loans, in 
particular for the production of green products, and risk capital 
aid up to 2.5 million per SME per year (instead of the current 1.5 
million) in cases where at least 30% (instead of the current 50%) of 
the investment cost comes from private investors. 
 
¶12. (SBU) Over the past few weeks, member states have submitted for 
Commission approval support schemes targeted at industries with 
particular national relevance, such as the automotive industry for 
 
BRUSSELS 00000330  004 OF 008 
 
 
Italy, Germany and France.  The latter sparked accusations of 
protectionism from newer Member States, the Czech Republic in 
particular, as it tried to link aid to the relocation of production 
within France's borders.  The Commission finally authorized this 
scheme on February 28, after the contentious conditions were 
removed.  On March 1, the 27 EU Leaders meeting in an informal 
European Council reaffirmed their commitment to the single market 
and warned against letting protectionism slip through the back 
door. 
 
-- Labor Market Measures 
 
¶13. (SBU) In 2007, the European Union launched the European 
Globalization Adjustment Fund, to help workers made redundant as a 
result of changing global trade patterns to find another job as 
quickly as possible.  The fund provides up to 500 million a year in 
support, and it will be used to reduce the broader social impact of 
the crisis and support vulnerable populations across the EU.  In 
parallel, the Commission is working with Member States to re-program 
the European Social Fund to help keep people in employment. 
 
¶14. (SBU) On February 25, the "Social Partners" (industry 
federations and labor unions) met with the Commission to start 
preparing proposals for an extraordinary summit on employment to be 
held in Prague in May.  The March 19-20 European Council will 
discuss these issues in more detail. 
 
The EU Domestic Monetary and Financial Regulatory Response 
--------------------------------------------- ---------- 
 
¶15. (SBU) The strains caused by the crisis have led some to question 
whether the Eurozone may break up.  Some Euro area Member States 
such as Ireland, Greece, Spain, and Portugal have seen the spreads 
on their debt over German Bund widen significantly over the past 
weeks.  This has triggered a debate on whether or not a default of 
one or more Euro area Member States is possible, especially since 
current EU rules do not allow for bailing-out a Euro area member. 
While a default is possible, it is unlikely and the advantages of 
EMU are such that it is unlikely to break apart.  As Commissioner 
Almunia said on March 3, "If a crisis emerges in one euro area 
country, there is a solution.  Before visiting the IMF, you can be 
sure there is a solution and you can be sure that it is not clever 
to talk in public about this solution". 
 
¶16. (SBU) The EU financial sector has been hard hit by the financial 
crisis: according to the Commission's latest report of national 
measures to support the banking sector, member states have taken 
action to support nearly 20  specific institutions since September 
of last year, including Northern Rock, Royal Bank of Scotland, ING, 
and Fortis, and almost all member states have sought Commission 
approval for general schemes to support the sector. 
 
¶17. (SBU) The European response to the financial crisis began in 
October 2008, focusing first on recapitalizing banks, issuing loan 
guarantees to sustain lending activities and raising deposit 
guarantees.  The Commission also proposed a number of legislative 
actions to increase deposit guarantees, to strengthen bank and 
insurance companies' capital requirements (the Capital Requirements 
Directive and Solvency II), and to register and regulate credit 
rating agencies (CRA).  It has also announced further legislative 
proposals to regulate hedge funds and private equity firms, 
executive compensation, and the disclosure requirements of mutual 
funds.  Further, last Fall the Commission created an independent 
group to make recommendations on how to strengthen cross-border 
financial supervision; the De Larosiere Group's report was released 
in late February; on March 4 the Commission adopted proposals 
largely tracking its recommendations.  Specifics follow. 
 
-- Guidelines on Support for Financial Institutions 
 
BRUSSELS 00000330  005 OF 008 
 
 
 
¶18. (SBU) From October 2008 to February 2009, the Commission adopted 
three guidelines to ensure that member state assistance to the 
banking sector does not distort competition.  On October 13, the 
first document included guidance to help Member States design rescue 
packages for distressed financial institutions and state guarantee 
schemes that were to be non discriminatory, limited in time and 
scope, and with adequate compensation for capital and guarantees by 
the receiving institutions and protection against abuse.  On 
December 8, the Commission published further guidance on temporary 
support for "fundamentally sound banks", to help them restart credit 
flows.  Capital injections must be based on base rates set by 
central banks to which a risk premium is added to reflect the risk 
profile of each bank and the type of capital.  The pricing mechanism 
must be such as to keep public involvement to a minimum.  Finally, 
on February 25, the Commission further refined its guidance with 
guidelines on how Member States should deal with impaired assets. 
The guidelines leave the design of asset relief schemes up to the 
Member States, which can use several approved methods (asset 
purchase, including "bad bank" scenarios or asset insurance 
schemes), and indicate the budgetary and regulatory implications of 
such measures.  The Commission will grant approval for these 
measures for a period of six months, conditional on the commitment 
to present details of the valuation of the impaired assets. 
 
-- Financial Regulation (Ref C) 
 
¶19. (SBU) Deposit Guarantees: Legislation to raise deposit 
guarantees to 50,000 in 2009 and to 100,000 by 2011 was formally 
adopted by the Council on February 27, following a vote by the EP on 
December 18. 
 
¶20. (SBU) Capital Requirement Directives (CRD):  Last October, the 
Commission put forward a proposal amending the CRD by (1) requiring 
banking institutions to hold a higher amount of capital to protect 
against the risk of default; (2) creating ad-hoc Colleges of 
Supervisors that will supervise banks with cross-border operations; 
and (3) requiring financial institutions that originate securitized 
products to retain 5% of the securities (refs F and G).  The 5% 
securitization retention threshold seems to be generally accepted, 
and there is agreement that Colleges of Supervisors, though not a 
satisfactory end-solution, are an appropriate interim step towards 
more integrated European supervision.  A vote is expected by April. 
 
20A. (SBU) Derivatives Trading: EU Internal Markets Commissioner 
McCreevy has made no secret about his desire to regulate derivatives 
trading.  The Commission published a Communication on this last 
fall, which indicated it believed that all derivatives should be 
traded through an EU-based, registered and supervised Central 
Clearing Party (CCP).  When major traders were unwilling to accede 
to doing this "voluntarily," McCreevy threatened to compel it 
through legislation, and then encouraged the Chairman of the 
European Parliament's Economic and Monetary Affairs Committee to add 
his proposal directly as an amendment to the CRD even though it had 
not gone through the formal Commission process.  On February 18, 
nine influential member firms of the International Swaps and 
Derivatives Association (ISDA) agreed to commit to use EU-based 
central clearing for Credit Default Swaps (CDS) on EU-reference 
entities by end-July 2009.  Given the industry's concession, it is 
not clear whether this provision will be included in the final 
version of the CRD. 
 
¶21. (SBU) Solvency II: Solvency II aims at consolidating insurance 
sector legislation.  Although work started before the crisis hit 
Europe, its provisions for group-wide supervision and support -- 
giving the supervisor of the State where the insurance group is 
established a leading role in supervisory activity and coordination, 
and allowing capital requirements to be met at a group level rather 
than by individual subsidiaries on their own -- are seen as 
 
BRUSSELS 00000330  006 OF 008 
 
 
important in the current climate.  It is not certain this 
legislation will be completed before the EP recesses in April, given 
strong Member State concerns about group support and group 
supervision, both desired by the Commission and the European 
Parliament.  A compromise may be possible on both issues, however, 
and a vote by the EP plenary is expected by the end of March. 
 
¶22. (SBU) Credit Rating Agencies (CRAs): Last November, the 
Commission proposed a new Regulation to harmonize EU rules on CRAs 
to ensure that ratings are not affected by conflicts of interest, 
that CRAs defend the quality of their ratings and rating 
methodology, and that they act transparently.  The proposal calls 
for all CRAs whose ratings are used in Europe to be registered in 
the EU and subject to European supervision under stringent corporate 
governance rules; it also forbids financial institutions in Europe 
from trading instruments that do not carry a rating from an-EU 
registered CRA.  The Parliament is modifying the Commission's 
proposal to give primary responsibility for CRA registration and 
supervision to the Committee of European Securities Regulators 
(CESR), rather than to national regulators, and to allow 
EU-registered CRAs - including EU subsidiaries of non-EU 
headquartered CRAs - to endorse ratings prepared by 
non-EU-registered CRAs for a transitional period of two to three 
years, during which EU and third country regulators can work out 
criteria to determine regulatory equivalence.  A Committee vote is 
expected by March 23, and completion of the first EP reading by the 
end of April.  In the Council, member states favor registration and 
supervision of CRAs, and appear to agree on the "endorsement" 
approach for instruments rated by non-EU-based CRAs, but have 
misgivings about the EP's enhanced role for CESR and the need for 
equivalence determinations for third country CRAs. 
 
¶23. (SBU) Hedge Funds and private equity: Commissioner McCreevy 
announced recently that a legislative proposal will be put forward 
this spring, although at a recent Conference organized by the 
Commission, no significant policy indications emerged. 
 
¶24. (SBU) Review of the Prospectus and Transparency Directives: In 
an effort to improve and simplify the Prospectus and Transparency 
directives, which concern disclosure to investors for investor 
protection purposes, the Commission has recently launched a 
consultation to gather stakeholder views on issues such as 
disclosure requirements and exemptions.  A legislative proposal 
could follow before the summer break. 
 
¶25. (SBU) Review of the Investor Compensation Schemes Directive: 
Following recent legal disputes over liability for losses sustained 
in the Madoff case, the Commission recently launched a call for 
evidence on the application of the Investor Compensation Schemes 
Directive in Member States with a view to propose greater 
harmonization.  This Directive's aim is to protect investors against 
losses if a firm is unable to repay money, or return assets, held on 
behalf of their clients. 
 
-- Financial Supervision (Ref B) 
 
¶26. (SBU) The main building block for the EU position on financial 
markets regulation going into the London G-20 is the publication on 
February 25 of the report of the High Level Group on cross-border 
financial supervision, chaired by former IMF chief Jacques De 
Larosiere.  The De Larosiere report lays out a proposal for a 
framework which includes a new regulatory agenda (reducing risk; 
improving systemic shock absorbers; reducing pro-cyclicality), 
stronger coordinated supervision (both macro-prudential and 
micro-prudential), and effective crisis management.  The key 
recommendations include a revision of Basel II to reduce 
pro-cyclicality, a reform of mark-to-market and of the IASB 
governance, and an overhaul of the European macro and micro 
financial supervision.  The Commission on March 4 adopted 
 
BRUSSELS 00000330  007 OF 008 
 
 
legislative proposals that closely track the De Larosiere 
recommendations; these will be discussed by Economic and Finance 
Ministers on March 10 and deliberated further by Heads of State and 
Government at the March 19-20 European Council. 
 
Approach to the G-20 
-------------------- 
 
¶27. (SBU)  The EU and its member states generally support the G-20 
process, although the Europeans often have difficulty dealing with 
events at which the EU as a whole but only some of the member states 
are participants.  The March European Council meeting will attempt 
to agree on an overall EU approach to the April 2 G-20 Summit, which 
will limit to a certain extent the freedom of initiative of any one 
EU member state - including the UK as host.  This explains to a 
large extent the internal EU maneuvering surrounding the 
preparations for the Summit, including the February 22 meeting in 
Berlin that Chancellor Merkel called of the EU Heads of State and 
Government who will attend the G-20 Summit.  (Note: The Commission, 
traditionally not represented in the G-20 Finance Ministers process, 
participates in the G-20 leaders process and will use this to work 
toward a common EU position.  It represents the EU in some of the 
G-20 working groups.) 
 
¶26. (SBU) Indeed, at the February 22 meeting, the EU G-20 leaders 
pledged the EU will speak with one voice in London, stressing in 
particular the need to: 
 
-- strengthen supervision and regulation of financial markets, hedge 
funds and rating agencies; 
-- revise Basel II to reduce pro-cyclicality; 
-- reform mark-to-market requirements in international accounting 
standards, and improve the governance of the IASB; 
-- clamp down on tax havens with increased capital requirements for 
off shore centers; 
-- obligate banks to implement counter-cyclical measures and 
limiting bonus payments; 
-- create a sustainability charter, to reduce economic imbalances 
and stabilize financial markets; 
-- give a mandate to the IMF and the FSF to implement the financial 
action plan; and 
-- double the financial resources for the IMF. 
 
¶27. (SBU) All these issues are being fleshed out in this week's 
Economic and Finance Council (see septels) and will be endorsed by 
the European Council at the end of next week. 
 
Broader Impact on US-EU relations 
--------------------------------- 
 
¶28. (SBU) The depth and breadth of transatlantic economic ties has 
traditionally been seen as the bedrock for the overall US-EU 
relationship, but the financial crisis has created cracks in that 
foundation.  Many prominent EU leaders have publicly blamed lax 
financial regulation in the United States for the economic collapse, 
and indeed for some of the tensions that have developed within the 
EU as a result.  And they were quick to criticize the United States 
for what they perceived as "protectionist tendencies" in the Buy 
America provisions of the stimulus package, although that has died 
down with our assurance that we would implement Buy America 
consistent with our WTO and other international obligations. 
 
¶29. (SBU) As such, we expect some vinegar from the EU 
representatives at the London Summit, including Commission President 
Barroso, who will be accompanied by Economic and Financial Affairs 
Commission Almunia and, we expect, Internal Market and Financial 
Regulation Commissioner McCreevy.  McCreevy in particular has made 
no bones about how the EU, as the world's largest economy, "has the 
right to regulate the financial industries as we see fit," or so he 
 
BRUSSELS 00000330  008 OF 008 
 
 
told last December's Transatlantic Economic Council meeting. 
 
¶30. (SBU) That said, the EU's position will be tempered by three 
things: the overall popularity of the Obama Administration in 
Europe, the need for the London Summit to be perceived as a success 
to help restore investor and consumer confidence, and the tendency 
of the experts in the Economic and Finance Committee, who are 
working on the Commission's proposal, to be more pragmatic when 
dealing with the substantive details. 
 
¶31. (SBU) The overall desire of the Europeans to be seen as the new 
Administration's primary partner in addressing global challenges 
will be a major factor in constraining EU criticism at the London 
Summit; they are all aware they will see the President directly 
afterward at the NATO 60th Anniversary Summit and at his meeting 
with the 27 EU Heads of State in Government in Prague.  They want to 
be helpful.  But the economic downturn has had substantial effects 
on all member state budgets, imposing unwished for constraints on 
member states' ability to increase spending on such things as 
defense capabilities or the EU and the member states to plus up 
foreign assistance, where they are together the world's largest 
donors.  Nonetheless, they will want to continue to work with us, 
and will try to find creative ways to do so. 
 
MURRAY