US embassy cable - 05VIENNA1073

C O N F I D E N T I A L SECTION 01 OF 02 VIENNA 001073 
 
SIPDIS 
 
DEPT FOR EUR/AGS, EUR/ERA AND EB/IFD/OMA 
FRANKFURT FOR TREASURY ADVISOR 
 
E.O. 12958: DECL: 04/04/2015 
TAGS: ECON, EFIN, PREL, AU, EUN 
SUBJECT: AUSTRIAN VIEWS ON THE STABILITY PACT, LISBON 
AGENDA AND SERVICES DIRECTIVE 
 
 
Classified By: Economic-Political Counselor Gregory E. Phillips for 
reasons 1.5 (b) and (d). 
 
Summary 
------- 
1.  (C) The GoA understands the political necessity behind 
the recent Stability and Growth Pact (SGP) reform and 
believes the SGP can still be an effective mechanism to 
ensure sound fiscal policies.  Nevertheless, the GoA fears 
the recent reforms will lead to more "exceptional" spending 
by Member States.  The GoA believes Member States should take 
greater ownership of the Lisbon Agenda, because the success 
or failure of the agenda depends on Member States' policies. 
A senior MoF official, Thomas Wieser, predicted the SGP 
reform would not lead to higher interest rates.  He opined 
that the ECB is pursuing a relatively loose monetary policy, 
despite its rhetoric.  Wieser added that low capacity 
utilization signified little risk of demand-pull inflation, 
and thus no reason for the ECB to raise rates.  Wieser 
claimed the Council voted down the Services Directive "after 
5 minutes of hell from Chirac."  End Summary. 
 
 
Stability Pact: "Still an Effective Tool, But..." 
--------------------------------------------- ---- 
2.  (C) During a recent meeting with Econ Unit Chief, Thomas 
Wieser, Director General of the MoF's Economic Policy and 
Financial Markets Division, insisted the Stability and Growth 
Pact (SGP) remained an effective mechanism to ensure sound 
fiscal policies.  Wieser noted that there was an implicit, 
yet clear, understanding that 3.5% of GDP was now the 
reference point.  Nevertheless, Wieser lamented that 
short-term political considerations -- primarily German -- 
had been the driving force behind the SGP reform.  Wieser 
said that Germany could have and should have done more, 
especially in 1997-2001, to address economic problems 
stemming from German reunification.  According to Wieser, the 
French and Italians were "all too happy to jump on board" and 
support revisions to the SGP. 
 
3.  (C) The GoA, in Wieser's opinion, viewed the SGP as a 
political commitment to "get your house in order in good 
times to weather cyclical downturns."  Wieser pointed to the 
positive economic benefits the SGP had brought to individual 
countries, such as significantly lower debt burdens in 
Ireland and Belgium.  With the new SGP, Wieser feared many 
member states would claim exceptions to allow for looser 
fiscal policies.  Wieser said Poland may now "write off" the 
cost of its pension reform, approximately 1-2% of GDP. 
Wieser claimed the Austrian Ministry of Transportation had 
already contacted him to ask if the Euro 5-16 billion cost to 
complete the controversial Brenner Tunnel could now be "off 
the books." 
 
4.  (C) Wieser claimed he had expected the ECB and Member 
State national banks to criticize the SGP reform publicly. 
However, Wieser predicted the SGP reform would not lead to 
increased interest rates.  Wieser characterized the ECB's 
monetary policy as relatively loose, despite its rhetoric. 
In Wieser's analysis, capacity utilization is low, so there 
is no rsik of demand-pull inflation.  Wieser maintained there 
is thus no reason for the ECB to raise interest rates at the 
moment. 
 
 
Lisbon Agenda: "Member States Must Take Ownership" 
--------------------------------------------- ----- 
5.  (C) Wieser said there was a clear linkage between the 
aims of the SGP -- sound fiscal policies -- and the 
consequent achievement of many of the Lisbon Agenda goals, 
such as increased investment in R&D and infrastructure. 
Wieser noted that "if the Lisbon Agenda fails, the Member 
States fail."  It is the Member States, not the Commission, 
that must take the tough policy decisions to foster increased 
growth and competitiveness.  The Lisbon Agenda provides the 
umbrella under which the member states can initiate reforms 
in an atmosphere of positive peer pressure and mutual support. 
 
 
Services Directive: "French Unyielding" 
--------------------------------------- 
6.  (C) Wieser admitted that the Services Directive was a 
peripheral issue for Austria, although Chancellor Schuessel 
publicly voiced his support for the Services Directive on 
March 4 and March 22.  Wieser opined that the original draft 
already contained enough loopholes to prevent "social 
dumping."  Wieser claimed the vehement opposition to the 
Services Directive had surprised the Commission, as 
initially, it had elicited scant comment.  In contrast, 
Wieser claimed French President Chirac had given the other 
leaders "5 minutes of hell" during the Council meeting, 
lambasting the neo-liberal character of the Directive. 
Brown