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O 201736Z MAR 09
FM AMEMBASSY PARIS
TO RUEHC/SECSTATE WASHDC IMMEDIATE 5825
INFO RUEATRS/DEPT OF TREASURY WASHINGTON DC
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UNCLAS PARIS 000414 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON EFIN EUN PREL FR
SUBJECT:  FRANCE ON CENTRAL AND EASTERN EUROPE 
 
REFS: STATE 23758 
 
¶1. (SBU) SUMMARY:  The senior Economics Ministry official 
responsible for Economic Policy and Europe agrees that the financial 
situation in Central and Eastern Europe is serious.  The EU and 
member states are taking actions to support central European member 
states.  The main approach must be multilateral, she stressed, to 
which end the GOF supports increasing resources to international 
financial institutions.  END SUMMARY. 
 
¶2. (SBU) Assistant Secretary for Macroeconomics and European Affairs 
Claire Waysand said the GOF sees the situation in the region as 
serious.  She agreed that care should be taken to avoid damage to 
other countries that might be caused by protectionist stimulus or 
bank recapitalization measures.  (As an aside, not specifically 
limited to eastern Europe, she added that no country has an interest 
in seeing its currency revalued and we need to work together closely 
on exchange rates.)  Acknowledging that few central European 
countries are in a position to undertake economic stimulus programs, 
Waysand said the GOF is conscious of the importance of western 
European stimulus measures as indirect support to those countries. 
In addition to the general macro effect, she noted that some 
specific measures, such as France's "used car rebate" for older cars 
traded in for new, more fuel-efficient models, specifically 
stimulated demand for goods produced in Central Europe.  On the 
other hand, she cautioned that treating "Central and Eastern Europe" 
as an undifferentiated mass heightened political sensitivities, 
particularly in the better-off countries, such as the Czech 
Republic.  It also risked sending counterproductive signals to 
markets and overlooked real diversity of situation and needs. 
 
Multilateral Approach Is Best 
----------------------------- 
¶3. (SBU) In general, the GOF supports a multilateral approach to 
support for emerging economies.  The EU's "solidarity fund," which 
has contributed 10 billion euros to restructuring in Hungary and 
Latvia in close coordination with the IMF, is driven by the special 
treaty relationships of the 27 members of the EU.  The GOF had 
proposed a doubling of the EU fund, a matter that was being debated 
in the March 20 European Council meeting in Brussels.  While the GOF 
wants other countries in the region to have access to support as 
well, the preferred mechanisms should be the IMF and World Bank, 
Waysand said.  In that vein, the GOF fully supported the IMF's 
request for a doubling of the New Arrangements to Borrow. 
 
Current Tools Work, not Euro Acceleration 
----------------------------------------- 
¶4. (SBU) As for the economic situation in these countries, Waysand 
said the economic downturn is having the "salutary" effect of 
reducing demand for imports and thereby helping to improve the trade 
deficits (down to 10% of GDP from 15% in some of the Baltic 
countries).  Government budget problems are proving more difficult 
to resolve, short of IMF supervision.  This might also become 
necessary in Bulgaria, with its currency pegged to the euro, a 
current account deficit and persistent budgeting shortcomings.  She 
said she did not think that easing more Central European countries 
into the Eurozone at this point would help.  The experience of other 
"catch-up" countries that had joined the euro demonstrated the 
difficulties of the adjustment (e.g., in Portugal) and the risks of 
overheating (Spain, Ireland)and she "hoped" that Slovakia would some 
how navigate these pitfalls once the current recession is over. 
 
PEKALA