US embassy cable - 04DUBLIN1717

C O N F I D E N T I A L SECTION 01 OF 03 DUBLIN 001717 
 
SIPDIS 
 
E.O. 12958: DECL: 11/23/2014 
TAGS: OVIP, ECON, PREL, ETRD, EINV, PGOV, EU 
SUBJECT: SECRETARY SNOW,S MEETING WITH PRIME MINISTER AHERN 
 
Classified By: Ambassador James C. Kenny for reasons 1.4 (b) and (d) 
 
1.  (C) Summary: On November 15, U.S. Treasury Secretary John 
Snow met with Irish Prime Minister (Taoiseach) Bertie Ahern. 
PM Ahern: 
 
-- Urged U.S. reengagement in the Middle East Peace Process, 
which Europe viewed as the world,s most pressing issue; 
 
-- Expressed concern about the ability of the new Palestinian 
leadership to deal with Hamas; 
 
-- Noted that the Irish Government had &moved beyond Iraq8 
and recognized the necessity of U.S. actions in Falluja; and 
 
-- Cited Ireland,s sensitivity to dollar movements, given 
the importance of U.S. trade and investment to the Irish 
economy. 
 
2.  (C) Secretary Snow: 
 
-- Noted that President Bush would be active in Middle East 
peace efforts during his second term; 
 
-- Observed that Arafat,s passing presented opportunities 
for a new, more moderate Palestinian leadership to emerge; 
 
-- Cited President Bush,s intention to pursue broad-based 
tax reform and the reduction of the fiscal deficit, working 
closely with the Treasury Department; 
 
-- Explained that the U.S. trade deficit and pressures on the 
dollar had linkages to the yuan-dollar peg and to the 
sluggishness of euro-zone economic growth; and 
 
-- Said that the USG believed in a strong dollar and that the 
dollar,s value would continue to be set in open, competitive 
currency markets.  End summary. 
 
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The Middle East 
-------------------- 
 
3.  (C) Re-engagement in the Middle East Peace Process would 
be the most effective U.S. measure to strengthen the 
trans-Atlantic relationship, Irish Prime Minister (Taoiseach) 
Bertie Ahern told visiting Treasury Secretary John W. Snow on 
November 15.  According to Ahern, Europe viewed the 
Israeli-Palestinian conflict as the world,s most pressing 
issue and would support President Bush,s efforts to 
re-energize U.S. leadership of the Quartet.  Ahern said that 
he shared the European public,s empathy for the 
Palestinians, which was shaped by media images of Israeli 
attacks against Palestinian neighborhoods and also by the 
EU,s growing Muslim population.  Secretary Snow responded 
that President Bush would be active in Middle East peace 
efforts in his second Administration.  The Secretary 
expressed regret that Europeans tended to regard the United 
States as one-sided in its support for Israel, despite U.S. 
efforts to act as an even-handed broker in the peace process. 
 He recalled that he had visited previously with Israeli and 
Palestinian leaders at President Bush,s request, only to 
find a &poisonous atmosphere8 that was not conducive to 
progress. 
 
4.  (C) Ahern and Secretary Snow concurred that Arafat,s 
passing presented an opportunity for a new, more moderate 
Palestinian leadership to emerge.  Secretary Snow observed 
that the first Bush Administration had been unable to work 
with Arafat, who had denied other Palestinian interlocutors, 
such as Mahmoud Abbas, the authority to move the peace 
process forward.  Ahern replied that President Bush made the 
same points to him and Prime Minister Tony Blair in 
discussions earlier this year.  Ahern expected that a group 
of leaders, whom he described as highly intelligent and 
business-savvy, would take up Arafat,s mantle collectively. 
The test of the new Palestinian leadership would be its 
approach to Hamas, which had planted strong roots in the 
Palestinian community while continuing to use violence. 
Ahern noted that the Middle East could find lessons in 
Northern Ireland, where inclusive dialogue over time had led 
paramilitary groups to see the value of political engagement 
over violence. 
 
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Iraq 
----- 
 
5.  (C)  &Iraq is Iraq, and Ireland has moved on,8 Ahern 
told Secretary Snow.  Ahern said that he and most European 
leaders recognized the necessity of U.S. actions in Falluja, 
and he expressed regret for U.S. military deaths and 
casualties in that offensive.  He observed that the majority 
of EU Member States were pro-American, as demonstrated by 
accession states, contributions of personnel and assets to 
the Coalition.  He also noted that Iraqi interim Prime 
Minister Allawi had been impressive during his November 5 
discussions with EU Member State leaders in Brussels.  Ahern 
believed that the media had made too much of President 
Chirac,s absence from the gathering, and he noted that 
Foreign Minister Barnier had been very positive about 
prospects for EU-Iraq cooperation in his contribution to the 
discussions. 
 
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Tax Reform 
-------------- 
6.  (C) President Bush intended to pursue broad-based tax 
reform and the reduction of the fiscal deficit in his second 
term, working closely with the Treasury Department, said 
Secretary Snow.  The Secretary noted that President Bush,s 
 
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strong electoral mandate gave him political capital to reach 
across party lines to achieve these goals.  Halving the 
fiscal deficit would depend on a strong U.S. economy that 
could generate growth in government receipts, and, in fact, 
receipts were now growing at 7-8 percent per year.  Secretary 
Snow noted that the 1990s, government surplus derived from a 
jump in receipts from 18 percent to 21 percent of GDP, while 
a drop in receipts to 15 percent of GDP following the 2000-1 
recession largely accounted for the current deficit.  To 
shrink the deficit, he added, it would also be necessary to 
control government spending, though not at the expense of 
outlays for defense and homeland security.  The Secretary 
said that the Bush Administration would have to demonstrate 
its seriousness on spending controls to bond traders, who 
were jittery about the deficit with Republican control of the 
White House and Congress. 
 
7.  (C) Ahern acknowledged the challenges with tax reform in 
the United States, saying that tax cuts in a small country 
like Ireland had been difficult enough.  He commented that 
reductions in Ireland,s corporate tax rates from 40 percent 
to roughly 10 percent in the late 1980s generated so much 
economic activity and employment that government receipts 
increased.  When economic growth and receipts faltered in 
2001-2 with the global economic slowdown, Ireland was forced 
to ratchet back sharply on government expenditures.  Ahern 
said that the fiscal situation had recently returned to 
normal, with a year-on-year 9 percent rise in government 
spending in 2004.  He noted that Ireland,s uniform, 
transparent tax system created confidence among foreign 
multinationals, as opposed to systems in some countries that 
allowed for separate tax deals with individual foreign firms. 
 Financial regulation that was independent of government 
influence was another confidence-building measure, Ahern 
added. 
 
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The Dollar 
------------- 
 
8.  (C) The U.S. trade deficit and accompanying pressure on 
the dollar had linkages to the yuan-dollar peg and to the 
sluggishness of euro-zone economic growth, said Secretary 
Snow.  He cited continued dissatisfaction with the 
yuan-dollar peg among U.S. manufacturers, and he recounted 
Chinese commitments to pursue more exchange rate flexibility, 
though with no clear timetable.  A more flexible rate for the 
yuan, he observed, would help to reduce pressure on the 
dollar and euro and also ease inflationary stresses in China. 
 A pick-up in the German and French economies, said Secretary 
Snow, would spur growth and buying power within the EU, which 
would also benefit U.S. exporters and help to reduce the U.S. 
trade deficit.  Ahern remarked that Chancellor Schroeder had 
pursued reforms to Germany,s pension and welfare systems, 
although the results of these initiatives remained unclear 
for an economy still burdened by the costs of the One-for-One 
reunification policy.  He added that France was also trying 
to address its economic problems, which were proving more 
intractable than expected. 
 
9.  (C) Ahern asked about the dollar,s prospects, and 
Secretary Snow replied that the USG believed in a strong 
 
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dollar and that the dollar,s value would continue to be set 
in open, competitive currency markets.  Ahern noted that 
Ireland was sensitive to developments with the dollar and the 
U.S. economy generally, given the importance that investment 
and exports by U.S.-owned firms held for the local economy. 
He remarked that 14 major U.S. pharmaceutical firms and 18 
top U.S. ICT firms had subsidiaries in Ireland; most major 
U.S. financial companies had also established offices in 
Dublin,s International Financial Services Center.  The 
employment opportunities that U.S.-owned firms had created 
were part of the reason that Ireland had reversed decades of 
net emigration from the country.  Secretary Snow responded 
that members of the American Chamber of Commerce whom he had 
met earlier on November 15 were bullish on Ireland because of 
the country,s openness, legal framework, common-sense 
approach to business, and strong educational system. 
 
10.  (U) This cable has been cleared by Treasury DAS Nancy 
Lee. 
KENNY