US embassy cable - 05ATHENS1440

UNCLAS SECTION 01 OF 02 ATHENS 001440 
 
SIPDIS 
 
FOR H -- PLEASE PASS TO CODEL SHELBY FROM AMBASSADOR 
CHARLIES RIES 
 
E.O. 12958: N/A 
TAGS: ECON, GR, OREP, PGOV, PREL, CODEL 
SUBJECT: SCENESETTER FOR CODEL SHELBY'S MAY 29-JUNE 1 VISIT 
TO ATHENS 
 
REF: STATE 92588 
 
1.  (SBU)  Embassy Athens warmly welcomes your May 29- June 1 
visit. We have arranged a meeting with Foreign Minister 
Molyviatis to discuss general political and economic topics, 
as well as a meeting and lunch with Central Bank Governor 
Garganas to discuss banking policy.  Finally, you will have 
the chance to discuss terrorist financing and financial 
concerns with Deputy Minister of Economy and Finance Doukas. 
I look forward to meeting with you and the Embassy will do 
all it can to make your visit a productive one. 
 
2.  (SBU) Your visit to Greece comes in the immediate 
aftermath of Prime Minister Karamanlis,s May 20 meeting with 
the President in Washington.  The two leaders affirmed their 
strategic partnership, and discussed a variety of issues, 
including democratization in the broader Middle East region, 
Iraq and Afghanistan, the Balkans and relations among Greece, 
Turkey and Cyprus.  Greece wants to be helpful, particularly 
in the Balkans and Middle East. Greece is also helping to 
fund the NATO training mission in Iraq, and has a contingent 
of soldiers in Afghanistan. 
 
3.  (SBU) The GoG has been very helpful on the issue of 
terror financing, cooperating fully with us on all levels. 
The Ministry of Economy and Finance has the lead on the 
issue, but the Bank of Greece also plays a large role in 
notifying commercial banks and credit institutions of U.S. 
terrorist designations.  However, it is worth noting that 
Greece,s ability to detect terrorist money, or money 
laundering in general, is limited.  In particular, some 
smaller banks outside of Athens are still not computerized, 
making the tracking of money flows difficult. 
 
4.  (U) Economically, Greece has been suffering for years 
from chronic trade and current account deficits, compounded 
by declining competitiveness.  Karamanlis is under European 
Commission pressure to reduce the government deficit at the 
same time that GDP growth is projected to fall, due largely 
to the end of construction projects related to last year's 
Olympic Games.  He also must privatize a variety of 
state-owned sectors, including transportation and energy, 
while minimizing structural dislocation that could cause 
social unrest (or at least be politically damaging) in a 
country accustomed to lifetime employment and generous 
retirement packages. 
 
5.  (SBU) None of these reforms will be easy, given that 
inflationary pressure from rising health care and pension 
costs are expected to exceed those of any other EU member, a 
strong euro continues to weaken already lackluster Greek 
exports, and the growth in tax revenue continues to fall 
behind the rate of inflation in a country infamous for its 
tax evasion problems.  GDP growth in 2004 was 4.2 percent, 
buoyed by both construction and consumption during the 
Olympic period.  Unemployment averaged 10.5 percent in 2004, 
although it hit a first quarter peak of 11.3 percent. 
Consumer price inflation rose by 3 percent, down from 3.4 
percent in 2003, but still well above the 2.1 percent 
European average.  2005-06 forecasts estimate GDP growth from 
2.7 to 3.2 percent, and a government deficit ranging from 3.2 
to 4 percent of GDP. 
 
6.  (SBU) The Bank of Greece, Greece,s central bank, is seen 
as a fair broker and often publishes forecasts at odds with 
the more optimistic projections from the GoG.  In particular 
Governor Garganas has been active in warning the government 
it must control its aggregate public debt, over 112 percent 
of GDP, and exercise better fiscal discipline.  He has been a 
voice of caution on pension funds in the country, many of 
which are either currently unfunded (such as those for the 
banking industry) or are facing unfunded liability in the 
near future.  Garganas has also urged the GoG to increase the 
pace of privatization in the country. 
 
7.  (U) Karamanlis, in power since March 2004, has faced many 
challenges since his election.  Southeast Europe is a tough 
neighborhood, with the countries of the ex-Yugoslavia 
struggling to move beyond the wars that wracked the Balkans 
in the 90's.  As the only country in the region that is a 
member of both NATO and the EU, Greece has a special role to 
play in bringing security and prosperity to the Balkans. 
Greece is also working to revive negotiations on the future 
of Cyprus, which has been an open question since the 
referendum on the UN Secretary General,s plan last April 
failed to gain Greek-Cypriot approval.  The Greek Government 
has pursued a policy of rapprochement with Turkey, and is a 
staunch supporter of Turkey,s accession to the European 
Union.  Unresolved air/sea space demarcations in the Aegean 
exacerbate tensions between the two countries, however. 
 
8.  (SBU) The good news is that our relations with the Greek 
government are good and getting better, despite policy 
differences (Iraq, Kyoto, the ICC).  Our primary objective 
now is to find ways to encourage Greece to become a more 
active partner on our regional and global agendas.  This is 
particularly true given Greece,s current two-year (2005-07) 
seat on the UN Security Council and willingness to take an 
active part in resolving long-standing problems in the 
Balkans, including the status of Kosovo and bringing war 
criminals to justice.  An issue that may arise during your 
visit, however, is the ongoing name dispute between Greece 
and Macedonia.  When the U.S. recognized the Republic of 
Macedonia by its constitutional name last November, there was 
an outcry here in Greece.  While the U.S. took the decision 
to help prevent ethnic unrest in Macedonia, the Greeks saw 
our decision as undermining the UN process to resolve the 
name issue.  Our action has actually reenergized the UN 
process.  We support the UN talks and will use whatever name 
the two sides agree on. 
 
9.  (U)  Again, I welcome your visit to Greece, and look 
forward to productive and informative meetings. 
RIES