US embassy cable - 05PARIS4067

C O N F I D E N T I A L SECTION 01 OF 02 PARIS 004067 
 
SIPDIS 
 
FOR TREASURY SECRETARY SNOW FROM CHARGE ALEX WOLFF 
 
E.O. 12958: DECL: 06/10/2010 
TAGS: ECON, PGOV, EIND, ETRD, EFIN, FR 
SUBJECT: SCENESETTER FOR TREASURY SECRETARY SNOW'S JUNE 15 
VISIT TO FRANCE 
 
 
Classified By: Charge d'affaires a.i. Alex Wolff for reason 1.4 (d). 
 
Mr. Secretary: 
 
1. (C) We warmly welcome your visit and look forward to your 
assistance in moving forward the deep and complex 
relationship we enjoy with France.  As a member of the G8 and 
the UN Security Council with extensive ties to former 
colonies around the world, France plays a prominent role in 
the international community.  Your prior G8 meetings in 
London will have addressed our common global interests in 
financing for development and debt relief issues, but your 
visit to France will provide an opportunity to advance our 
bilateral agenda. 
 
TANGIBLE BENEFITS 
----------------- 
 
2. (C) Your visit comes at a time when France is 
contemplating the future direction of its economic policy, 
following the well-publicized defeat of the referendum on the 
EU Constitution in France, which led President Chirac to 
institute a Cabinet shake-up.  Although political analysts 
have come up with a myriad of reasons for the defeat, 
including widespread dissatisfaction with Chirac himself, the 
GOF has chosen to interpret the defeat as largely a call to 
do something about unemployment.  Paradoxically, the GOF 
hopes to champion the so-called European or French model of 
development (strong social protections and continued state 
intervention in the economy, including by state-owned 
enterprises), despite the demonstrated results of such 
policies: unemployment at around 10 percent and a GDP growth 
rate around 2 percent and dropping. 
 
3. (C) Finance Minister Thierry Breton retains his portfolio 
and has already announced plans to continue with the cautious 
privatization of France Telecom (where he was former CEO) and 
Gaz de France (GDF). 
 
POLITICAL HURDLES 
----------------- 
 
4. (C) France historically has had a curious role in European 
integration: a self-styled leader in promoting integration, 
it is often the last to act to implement European directives. 
 Its most recent "success" was its ability to thwart strict 
interpretation of the EU Stability and Growth Pact, to suit 
its own short-term economic interests.  The government's 
desire to placate a restive electorate may prove a further 
test to the Pact, as France seeks to boost employment and 
adopt other measures to shore up a flagging economy.  The GOF 
may try to divest some holdings in state-owned enterprises, 
as it recently did with France Telecom shares, and plans to 
do again with France Telecom and GDF, to come up with some 
cash for employment programs.  Proposed partial privatization 
of the state electricity supplier, EDF, will be a more real 
test of the government's privatization commitment. 
 
5. (C) The GOF's predilection for defending the "French 
model" of economic development puts it into a box - it cannot 
abandon that position without putting at risk the electoral 
chances of Chirac himself, should he decide to run again in 
2007, or his party if he decides not to run again.  In some 
respects, the greatest obstacle to change in France today is 
Chirac himself.  He has become a conservative in the truest 
sense, which means preserving even socialist legacies, 
against the perceived onslaught of "Anglo-Saxon liberalism." 
In a televised address to the nation on May 31, Chirac called 
for a "national mobilization" against the economic failings 
and lack of confidence that undermine France's national 
strength.  In his remarks, Chirac took care to insist that, 
though "all" approaches to solving social and economic 
problems are on the table, restructuring France's social 
model was not.  The GOF fears street protests and labor 
unrest should it move towards reform of labor laws. 
 
TRADE 
----- 
 
6. (C) Your meeting with Pascal Lamy, the incoming WTO 
Director General, should help to focus his attention on the 
developmental aspects of success on the trade front.  That 
message will be even more opportune after the G8 meetings, 
when the UK plans to highlight attention on actions to assist 
the least developed countries.  Lamy, as former EU Trade 
Commissioner and incoming WTO Director General, understands 
well that the EU Common Agricultural Policy (CAP) has 
detrimental effects, even as now modified, on developing 
countries.  The Boeing/Airbus dispute will be an early, 
visible and important test of Lamy's mettle at the WTO. 
 
TERRORIST FINANCING 
------------------- 
7. (C) France renewed its focus on counter-terrorism issues 
following 9/11, and we have enjoyed excellent relations at 
all levels in the context of combating terrorist financing. 
France expanded the role of its Financial Investigative Unit, 
Tracfin, which continues to investigate classic money 
laundering activities, but which broadened its scope to 
include sectors -- associations and phone cards, for example 
-- it may have overlooked in the past.  At the policy level, 
French efforts mirror ours: prosecute the crimes that finance 
terrorism and increase interagency cooperation. 
FINANCIAL INTEGRATION 
--------------------- 
8. (SBU) With its headquarters in Paris, the Committee of 
European Securities Regulators (CESR) plays a pivotal role in 
trans-Atlantic cooperation and European financial markets 
integration.  On trans-Atlantic cooperation, the Securities 
and Exchange Commission, the Commodities Futures Trading 
Commission, and the Office of Thrift Supervision already have 
begun joint cooperative activities with CESR, and that should 
be encouraged.  Within Europe, CESR's practice of outreach 
and consultations with market participants is a commendable 
practice that promises to be more responsive to market 
realities and needs.  The Embassy has enjoyed an excellent 
cooperative relationship with CESR officials and has worked 
with them on several public outreach events. 
 
FINANCIAL SECTOR 
---------------- 
 
9. (U) France has remained one of the main destinations of 
foreign direct investment.  Based on preliminary information 
from the Bank of France, the US remains one of the largest 
sources of FDI in France, with 15 percent of the stock on a 
historical book value basis.  The market value for US FDI may 
be more than five times the USD 47.9 billion book value 
reported in 2003 by the Department of Commerce, correcting 
for statistical bias.  About 2,000 affiliates of US firms are 
based in France.  Around 540,000 jobs result from US-origin 
investments.  Foreign-controlled firms account for 22 percent 
of the workforce, 27 percent of capital expenditures, 30 
percent of exports, and 30 percent of production. 
 
10. (U) France has one of the highest individual savings 
rates among industrialized countries, at 15.4% of disposable 
income.  The former government under Prime Minister Raffarin 
had been exploring ways to increase the rate of investments 
in other financial instruments (stocks and bonds), where the 
rate is 6.3% of disposable income. France, like most other 
countries, has seen considerable consolidation in its banking 
sector, with six banks now dominating the market.  In 
addition, it has a sizeable share of the US banking sector. 
French banks in the US have assets of around USD 179 billion, 
or about 13 percent of the foreign banks doing business in 
the USA. 
 
11. (C) Financial sector profits generally were up in 2004, 
although the financial community continues to have concerns 
about the pace of European integration of financial markets 
and the regulatory burden of so many regulators.  Your 
roundtable discussion with the CEOs of the leading French 
financial institutions should provide insights into their 
views of the French economy, the GOF handling of economic 
policy, and steps the USG might take to further our vision 
for economic prosperity.  You might want to inquire about the 
French banking and finance community's lukewarm support of 
transatlantic cooperation on a single marketplace, as well as 
accounting standards. 
 
 
WOLFF