US embassy cable - 04BRUSSELS1919

C O N F I D E N T I A L SECTION 01 OF 02 BRUSSELS 001919 
 
SIPDIS 
 
NSC FOR EDSON 
DEPT FOR EUR/ERA, E, EB AND NEA/PI 
 
E.O. 12958: DECL: 05/03/2009 
TAGS: PREL, EAID, EUN, USEU BRUSSELS 
SUBJECT: GME: GETTING THE BALANCE RIGHT BETWEEN THE G-8 AND 
US-EU SUMMITS 
 
Classified By: USEU Poloff Lee Litzenberger; Reasons 1.5 (b,d) 
 
 1.  (C)  Summary.  According to an EU official working on 
the issue, the EU is becoming increasingly skeptical of the 
U.S.'s GME proposals for the G8 summit.  Citing Commissioner 
Patten, the official said the G8 should stick to a political 
statement supporting regional reform; the U.S.-EU summit 
should focus on a plan of action.  On the U.S. proposal to 
establish a facility to finance small and medium enterprises, 
he said, "The EU is already doing this -- and on a much 
larger scale than the U.S. proposes."  Microfinancing, the 
official said, is a good idea but is labor intensive and 
unpopular with governments in the region, who claim it funds 
Islamic fundamentalism.  The EU is concerned that U.S. 
proposals for the G8 will divert EU member state resources 
from the EU's Barcelona Process, just as the EU is 
negotiating its 2007-13 budget.  EU officials are considering 
the U.S.'s ideas, but have been distracted by the need to 
prepare for the May 5-6 Euromed ministerial meeting in 
Dublin.  End Summary. 
 
EU uneasy over U.S. proposals for G8 summit 
--------------------------- 
2.  (C)  On April 30, European Commission Director for the 
Barcelona Process, Patrick Laurent, provided visiting U.S. 
Treasury Department officials his views of the U.S. proposals 
for GME at the G8 Sea Island summit.  He said the EU is 
considering the U.S. proposals, but is increasingly skeptical 
of them as they become more detailed and specific.  Laurent 
acknowledged there is a consensus for a broad strategy to 
support reform in the region, but beyond that, views tend to 
diverge.  He said there was no agreed definition of GME, and 
regional leaders don't like the term -- the Saudis, he said, 
resent being put in the same group as countries in the 
Maghreb.  The U.S. seems to be moving the G8 to agree to 
specific financing instruments -- a mistake, in Laurent's 
view, that was taking the summit in the wrong direction. 
 
G8 should issue statement; U.S./EU should do action plan 
------------------------- 
3.  (C)  Citing EC Commissioner Chris Patten, Laurent said 
the G8 summit should issue a political statement (which he 
said would send an important signal to the region); the 
U.S.-EU summit should follow-up with an action plan. 
Discussion of GME at the G8 summit began with an a la carte 
list of ideas.  Now, however, the latest U.S. proposals are 
getting into implementation and programs.  The G8, Laurent 
argued, is a macro-economic forum, not a place to discuss 
programs.  Going that route will raise expectations, but 
won't result in getting the pledges needed to meet them.  The 
U.S. ideas seemed to focus on creating financing 
"instruments".  EU implementation of these proposals would be 
difficult, Laurent said.  The U.S. proposals altogether 
amount to only $100-150 million; the EU is already providing 
ten times that amount to the region.  The EU doesn't need 
GME.  The EU already has initiatives in place in the region 
-- its Euromed program (based on country specific action 
plans) and, more recently, its new European Neighborhood 
strategy. 
 
Diversion of resources from EU programs? 
-------------- 
4.  (C)  Laurent also expressed concern that the U.S. 
proposals, if implemented, would reduce EU member state 
ability to fund the EU's Euromed initiative.  The EC was 
seeking a three-fold increase in Euromed funding (from 800m 
euros to 2.4 billion per year) for the 2007-2013 period. 
Laurent said he doubted the EC's ability to meet its target, 
but it is making a major push to increase funding to the 
region.  If France, Italy, Germany and the UK commit to 
financing a G8 initiative in the region, Laurent is concerned 
that the funds will come out of the Euromed budget.  EU 
members, he said, "should respect the primacy of existing EU 
instruments". 
 
U.S. Proposals for SME's and Microfinancing 
--------------- 
5.  (C) Laurent said the U.S. proposal to create a facility 
to finance small and medium enterprises (SMEs) was a case in 
point.  The EU was already doing this, and on a much larger 
scale than envisioned in the U.S. proposal. 
FEMIP, the European Investment Bank's Facility for 
Euro-Mediterranean Investment and Partnership, directed more 
than a third of the 2.1 billion euros it loaned to the region 
in 2003 to support private business development.  On the U.S. 
proposal to provide microfinancing, Laurent said this was a 
good idea in principle, but that it was very labor intensive 
and unpopular with governments in the region, who claim these 
programs can end up funding Islamic fundamentalists.  For 
these reasons, the EU was moving away from micro-financing. 
 
Let the U.S.-EU Summit Lay Out an Action Plan 
-------------- 
6.  (C)  Laurent said it makes sense for the G8 to set broad 
priorities and objectives, but he argued that the U.S.-EU 
summit was best suited to working out the details of an 
action plan that would identify "things the U.S. and EU can 
do side by side" in the region to promote reform.  He 
cautioned, however, that any initiative would need support 
and "ownership" in the region, and this would take time to 
build.  For example, Laurent said that the EU has tried to 
set up a regional development bank in the Euromed region in 
the past, but failed due in part to member state objections. 
He speculated that if the U.S. were to announce its intention 
to fund a bank in the Gulf area, where the EU does not 
provide assistance, it could spur the EU to make another 
effort at establishing a bank for Mediterranean Arab 
countries.  This was a hypothetical example of how the U.S. 
and the EU could work in tandem. 
 
Comment 
------- 
7.  (C)  Laurent's comments reflect his institutional bias 
for promoting the EU's substantial ongoing programs in the 
region, and his aversion to any initiative that might 
undercut the budget for these programs.  They are likely to 
carry weight within the Commission as the EU considers the 
U.S. proposals for the G8 summit, but EU policymakers have 
been distracted by the need to prepare for the May 5-6 
Euromed ministerial in Dublin and have not focused on 
responding to our ideas yet.  To the extent our proposals are 
interpreted here as competing for funds (at least from 
France, Italy, Germany and the UK) for the EU's Euromed 
program, it will be viewed with skepticism in Brussels.  On 
the positive side, it appears the EU is prepared to work with 
us to hammer out some kind of action plan for the U.S.-EU 
summit that will demonstrate our shared commitment to promote 
reform in the region.  The challenge for us in the coming 
weeks will be finding the right balance between the two 
summits. 
 
SCHNABEL