VZCZCXYZ0000
OO RUEHWEB

DE RUEHUNV #0339/01 1971258
ZNR UUUUU ZZH
O 161258Z JUL 09 ZDK
FM USMISSION UNVIE VIENNA
TO RUEHC/SECSTATE WASHDC IMMEDIATE 9837
RHEHNSC/NSC WASHDC IMMEDIATE
INFO RUEHII/VIENNA IAEA POSTS COLLECTIVE PRIORITY
RUEHRL/AMEMBASSY BERLIN PRIORITY 0892
RUEHLO/AMEMBASSY LONDON PRIORITY 1249
RUEHFR/AMEMBASSY PARIS PRIORITY 1105
RHEBAAA/DOE WASHDC PRIORITY
RUEANFA/NRC WASHDC PRIORITY

UNCLAS UNVIE VIENNA 000339 
 
SENSITIVE 
SIPDIS 
 
FOR ISN, IO; DOE FOR NA-24, NA-25, NA-21; NSC FOR 
SCHEINMAN, CONNERY; NRC FOR DOANE, SCHWARTZMAN 
 
E.O. 12958: N/A 
TAGS: AORC PREL KNNP IAEA UN
SUBJECT: IAEA BUDGET TALKS IN NEED OF SALVATION 
 
REF: A. UNVIE 321 
     ¶B. UNVIE 328 
 
¶1. (SBU) Summary:  IAEA budget negotiations in Vienna are 
seized up; a consensus outcome is readily imagined but key 
local players lack the authority to effect it.  Germany and 
France have not budged from their zero growth positions, 
though French representatives told us they have recommended 
flexibility.  Given the deadlock, a fifth iteration of the 
2010-2011 budget proposal has been prepared but may not be 
released until later in July.  The Romanian lead negotiators 
and the IAEA Secretariat still hope that Washington will "do 
its magic" to resolve the budget discussion, but with 
vacation season upon us, crucial states will be slowed in 
their ability to bargain.  Mission wants to bring the budget 
debate to a positive conclusion, but will avoid letting the 
issue fester through August and possibly erode our political 
agenda this fall.  Vienna Missions have little room to 
maneuver; we are depending on Washington to go over some 
local (European) heads and break through the deadlock.  End 
Summary. 
 
Budget Proposal Purgatory 
------------------------- 
 
¶2. (SBU) The IAEA Secretariat is preparing a fifth iteration 
of the 2010-2011 budget proposal, known as the Vice Chair's 
Proposal - Version Three.  Though the proposal will be ready 
by June 20, it is unclear when the Romanian budget 
negotiators will release it.  The "V3" reportedly envisions 
something around a 7 percent increase (4 percent real growth) 
for 2010, which, the European "budget hawks" continue to say, 
is unacceptable.  Members of the IAEA Secretariat and the 
Romanians agree that it makes little sense to release yet 
another budget proposal that will be shot down on arrival by 
France and Germany.  It is possible the "V3" could languish 
in Secretariat computers until later in July or get whittled 
down further before release, unless we receive some sign of 
flexibility from the budget hawks. 
 
¶3. (SBU) Neither the Secretariat nor the Romanians are eager 
to face another rejection by the hawks.  According to 
Romanian First Secretary Dan Necaelescu, based on current 
positions, the only way to wrap up budget negotiations 
quickly - i.e., in July - is to simply give in to a minimal 
increase of 4 - 5 percent (1 - 2 percent real growth, or an 
additional 3 - 6 million Euros).  This would be enough to 
provide some Regular Budget support for Nuclear Security and 
token amounts for capital investments, but will do nothing to 
address the long-term resource concerns of the Agency.  Such 
a small increase would do little to support U.S. priorities 
in safeguards, safety and infrastructure (including 
information technology and the Safeguards Analytical 
Laboratory - SAL). 
 
¶4. (SBU) IAEA Budget Chief Carlo Reitano is also worried 
about scheduling.  If Member States do not approve the budget 
in a Special Board meeting by early August, Reitano will not 
have time to prepare the final documents for approval by the 
General Conference in September.  His anxiety is heightened 
by the occasional comment by Member States (including 
Germany) that there is plenty of time to approve the budget 
and that the IAEA could schedule a "Special General 
Conference" later in the year if a package is not ready in 
September.  In Reitano's iew - shared by UNVIE - the 
European delaying tatic is meant to force a final, panicked 
approvalof a zero growth budget in September. 
 
¶5. (SBU) eitano is also frustrated by the Europeans' 
constant specious phone calls and questions.  The latest 
argument now is that "there is no need to increase the budget 
in support of Director General ElBaradei, because he is a 
lame duck."  (Comment: Given that several of these same 
European states worked so hard to elect Japanese candidate 
Amano as the next DG, arguing against providing financial 
resources for his first year in office seems a remarkable 
instance of cutting off a nose to spite one's face.  End 
Comment.)  The Europeans also claim that the Agency has 
benefited from 2.8 percent average annual real increases over 
the past decade and should simply economize better.  (Reitano 
estimates the average real increase over the past decade is 
closer to 1 percent.)  Other than SAL, the Europeans and 
Canada in particular argue that the Safeguards Department is 
well resourced.  They do not object to regularizing Nuclear 
Security, which requires a real increase of around 1 percent 
in the overall regular budget, but so far have indicated no 
recognition that we will need to accept a quid-pro-quo that 
would make such a deal acceptable to the G-77. 
 
No Change in the European Position 
---------------------------------- 
 
¶6. (SBU) Board Vice Chair Cornel Feruta (Romania) has left 
Vienna for ten days.  Necalaescu continues working with the 
core "budget hawks," France, Germany and the UK.  He 
complained to us about the assertions of a French diplomat 
(which we heard directly from French DCM as well) that 
Washington did not raise the IAEA budget issue during a 
recent visit by French non-proliferation officials. 
Consequently Romania sees no change in the French negotiating 
position.  Necalaescu said France would likely accept an 
increase of 4 percent (1 percent above zero growth), but 
French instructions are to continue pushing strongly for ZRG. 
 (Note: In separate conversations with Charge, new French 
Ambassador Florence Mangin and her departing DCM each 
indicated they had recommended a more flexible posture to 
Paris.  End Note.)  According to Romania's assessment, the 
Germans remain absolutely committed to ZRG.  The UK is 
slightly more flexible, and could accept a 5 percent increase 
(2 percent above zero growth). 
 
Safeguards Lab a Looming Problem 
-------------------------------- 
 
¶7. (SBU) Reitano showed Msnoff a matrix of the Secretariat's 
predicted funding for upgrades to SAL.  The matrix was quite 
detailed and, Reitano said, approved by Safeguards Director 
Olli Heinonen.  The matrix projects the amounts of 6.3 
million Euros are required for SAL in 2010 - the design phase 
- and 22.5 in 2011 - the construction phase.  (These figures 
appear generally realistic, though the 2010 figure is 
somewhat at odds with a lower estimate passed confidentially 
to Mission by an Amcit IAEA consultant.)  Unfortunately, the 
2011 figure will create instant "sticker shock" among the 
budget hawks, who expect that any token budget deal would 
extend across the 2010-2011 biennium.  This sticker shock 
could negatively impact their willingness to be flexible on 
an increase for 2010, let along the full biennium. 
 
¶8. (SBU) Reitano also passed along frustrating news regarding 
Japanese extra budgetary contributions.  An expected 2 
million Euros for SAL for 2010 was designated by the Japanese 
for "equipment."  When Reitano explained that there were no 
immediate equipment needs remaining for 2010, the response he 
received was "Tokyo really wants equipment."  Japanese 
inscrutability on the exact amounts and designation of the 
"Amano dowry" makes it even more difficult for Reitano to 
calculate a 2010 budget (ref a).  Furthermore, the current 
internal disarray in the Japanese government makes it even 
less likely that Tokyo will be forthcoming about its 
contributions in a timely manner. 
 
Comment 
------- 
 
¶9. (SBU) There is a growing expectation in Vienna that the 
likely resolution of  the budget falls closer to the European 
nickel-and-dime approach than to the  "significant" increase 
advocated by the U.S..  Neither the IAEA Secretariat nor the 
Romanian negotiators nor a number of key Member States desire 
this outcome, but negotiations are at a standstill in Vienna. 
 We expect many G-77 and smaller industrialized countries 
would join consensus on a budget providing three or more 
percentage points in real growth; Germany is the hold-out 
that must be turned.  The inertia will only get worse when 
the Europeans shut down in August.  Meanwhile, the energetic 
Romanians continue to argue for a bigger picture approach to 
the budget that responds to the IAEA's needs and recognizes 
its unique role among international organizations.  They and 
the Secretariat also hope that Washington will "work its 
magic" on the Europeans.  Without some quick work at high 
levels, however, Mission will recommend bowing to the fiscal 
austerity position of the larger EU states.  We will need to 
put the bad blood behind us this summer so as to avoid 
serious divisions that could affect our political priorities 
in the upcoming General Conference beginning September 14. 
 
 
 
 
 
 
 
 
PYATT