US embassy cable - 05PARIS5301

C O N F I D E N T I A L SECTION 01 OF 03 PARIS 005301 
 
SIPDIS 
 
STATE FOR EUR AND EB 
NSC FOR TRACY MCKIBBEN 
 
E.O. 12958: DECL: 08/03/2015 
TAGS: ECON, EFIN, PREL, FR 
SUBJECT: ALLAN HUBBARD'S CALL ON FINANCE MINISTER BRETON 
 
REF: PARIS 5232 
 
Classified By: Ambassador Craig R. Stapleton for reasons 1.4 (b) and (d 
). 
 
1.  (C) SUMMARY.  Finance Minister Breton underlined to 
National Economic Council Director Allan Hubbard and 
Ambassador Stapleton his commitment to press for economic 
reforms, in large part by "educating" the French public. 
Breton believes that France should enjoy growth of 3.0% per 
year and that "incentives" (taxes and laws) need to be 
changed to allow that to happen.  He applauded President 
Bush's positions on nuclear energy, and welcomed the idea of 
further U.S.-French cooperation in this area.  On China, he 
noted that he continues to watch closely the value of the 
yuan and noted that the Chinese currency is not only a U.S. 
problem.  He suggested that France could serve as a good "go 
between" between the U.S. and China if ever the USG thought 
that could be a useful role for France to play.  Breton 
signaled again his desire to travel to Washington in the 
autumn of 2005.  End Summary. 
 
2.  (U) On 1 August, Alan Hubbard, Director of the National 
Economic Council, and Ambassador Stapleton called on Minister 
of Finance and Economy, Thierry Breton.  Economic Advisor, 
Elie Gerard, accompanied Breton, while Embassy Econ Counselor 
accompanied Mr. Hubbard and Ambassador Stapleton. 
 
3.  (C) Minister Breton welcomed Mr. Hubbard to France and 
noted he was pleased to have an opportunity to review key 
economic issues with him.  As in reftel, he underlined his 
deep fondness of the United States.  He asked Mr. Hubbard for 
a thumbnail sketch of the U.S. economic picture.  Mr. Hubbard 
explained that U.S. unemployment was currently at 5.0% while 
inflation remained under control.  He added that the U.S. was 
likely to see GDP growth of 3.5% this year combined with 
productivity growth that has averaged 3.9% per year since 
January 2001.  Nevertheless, he explained, the budget deficit 
and high oil prices bear close watching.  On the deficit, he 
highlighted for Breton that U.S. revenues were exceeding 
forecasts and that the deficit is likely this year to be down 
to $330 billion from $400 billion last year.  He explained 
that entitlement programs remained a large part of U.S. 
expenditures but that President Bush remains committed to 
reforming social security and putting it on a more sound 
financial foot 
ing.  He said that the Administration was looking at ways of 
increasing U.S. savings rates and explained that he hoped 
that European countries and Japan could increase their GDP 
growth, for their own benefit and for that of the U.S. 
 
Oil and Nuclear Energy 
---------------------- 
4.  (C)  Breton commented that the U.S. indeed enjoyed good 
growth and an excellent record on inflation.  France too, he 
said, enjoyed low inflation.  "Your deficits are a problem 
for us though," he warned.  He said he shared Mr. Hubbard's 
concern about oil but thought it was "dangerous to focus 
exclusively on refining capacity and increased exploration." 
Breton opined that the U.S. was behind where it should be in 
responding to the energy challenge, particularly in the area 
of nuclear power generation.  He said he applauded President 
Bush's strong push for nuclear energy. 
 
5.  (C) Mr. Hubbard underlined for Breton President Bush's 
strong commitment to supporting nuclear power generation and 
highlighted the provisions in the recently passed Energy Bill 
that help create a climate in which power generators could 
benefit from a more favorable investment and regulatory 
climate if they undertook to plan and build new nuclear 
facilities.  He applauded France's successful nuclear program 
and said that the USG needed to work closely with France in 
this area.  Breton agreed.  Mr. Hubbard asked Breton about 
the UREX Plus reprocessing program and where GOF evaluation 
and testing processes were.  Breton -- although he was 
clearly not sure -- guessed that a pilot plant might be ready 
by 2010.  Breton noted that even Germany was reconsidering 
its policy regarding nuclear power.  Countries like the U.S. 
and France, he opined, really had no other option than 
pursuing a significant role for nuclear power.  He reiterated 
his concern about the high price of oil and the potential for 
instability in 
 key oil producing regions; "it's one of my biggest concerns 
today," he said. 
 
Stimulating Growth 
------------------ 
6.  (C) Turning to France's economic growth, Breton said he 
was extremely unhappy at the current low rate of growth 
(currently estimated at below 2% for 2005), which he 
"inherited," and said that there was no good reason that 
France should not enjoy a 3% growth rate.  There are two 
things that need to be done to increase growth, he said:  the 
French need to work more, and the debt must come down.  He 
said that he was having to be "extremely tough" and was 
"fighting all the time with everybody (other ministries)" to 
rein in government debt.  He specifically singled out the 
Defense Ministry as a ministry that was particularly ripe for 
cuts.  He explained that 25 years ago France had no public 
debt.  Now, in contrast, the national "debt is 60% of GDP, 
compared to 30% for the U.S.  This is unacceptable." 
 
7.  (C) Breton lamented that he had few tools to work with. 
Since the abolition of the franc, currency devaluation was no 
longer an option.  One of his few good options is 
privatization.  "I privatize everything I can," he explained. 
 The necessary laws have been passed to sell off parts of EDF 
(Electricite de France) and further highway privatizations 
were imminent. 
 
8.  (C) As in his earlier meeting with Ambassador Stapleton, 
Breton described one of his best tools as "education." 
"French people are looking for the truth.  I've told them 
they have to work more and that we're living beyond our 
means.  Many politicians told me that people would never 
accept my saying that.  People understand.  When I made my 
comments about the ISF (Impot sur la Fortune - wealth tax), 
65% of the population agreed with me." 
 
9.  (C) Mr. Hubbard asked whether Breton had plans to reform 
labor laws.  Breton explained that several important steps 
had already been taken.  The GOF has already passed 
legislation to extend the "probationary" period for newly 
employed to two years for smaller companies with up to 20 
employees.  During that two-year period, the employee can be 
dismissed without going through the complex legal and 
financial arrangements that the employer would otherwise have 
to undertake.  Breton noted, however, contrary to the common 
perception in the U.S., it is no more difficult to fire 
employees in France than in the U.S.  In fact, recalling his 
time as head of Thomson when he needed to close several 
factories in the U.S., Breton explained that when unions are 
involved, firing people in the U.S. was even more difficult 
and time consuming than in France. 
 
10.  (C) Breton said that the 35-hour workweek gave France "a 
bad image."  In recent months, Breton explained, the 35-hour 
workweek has been all but repealed.  Employees are now 
allowed to work overtime if they want and employers can feel 
free to ask employees to work the extra hours.  Nevertheless, 
he conceded, the public relations damage of the 35-hour week 
continues. 
 
11.  (C) Returning to his "education" theme, Breton lamented 
that the socialists had given people "the wrong ideas" for 
years.  This is why explaining to the French people the need 
to work more has become so important.  "Even people on the 
left understand this when you explain it to them," Breton 
said.  Breton also said that he was interested in stimulating 
entrepreneurship in France.  He explained that small and 
medium-sized companies needed particular help.  The measures 
recently passed on the "probationary" period showed one way 
in which the GOF was now helping smaller companies.  Breton 
explained that he was looking into ways to change the 
incentives (tax and regulatory environment) to help small 
companies get bigger when it is in their interest to do so. 
The way the current laws are written, he explained, many 
companies don't want to hire more than 20 people because 
different more complex rules apply to companies that have 
more than 20 employees. 
 
China 
----- 
12.  (C)  Mr. Hubbard asked Breton how the GOF viewed its 
relationship with China.  Breton explained that he had worked 
a great deal in China and that the GOF had a good 
relationship with the Chinese government.  He opined that the 
USG had been wrong in publicly calling for the Chinese to 
re-value their currency: "I understand why you did it, but it 
delayed their action by two months; working behind the scenes 
is always better with them," he said.  Breton added that the 
Chinese step on the yuan was clearly a first step.  He said 
that France might serve as a good "go-between" with China. 
The yuan, he said, is a "problem for us all, not just you." 
He also explained that he discusses China regularly within 
the Eurogroup of EU Finance Ministers, "the most useful 
meetings I go to," he added. 
 
Doha 
---- 
13.  (C) Changing subjects, Mr. Hubbard said that the EU and 
the U.S. really needed to focus on the Doha round this 
autumn.  It is very important that the U.S. and the EU spur 
the negotiations, particularly in the agriculture area. 
Breton agreed, but noted that the real level for discussion 
on progress at Doha was at the EU level. 
 
Foreign Investment 
------------------ 
14.  (C) In closing, Breton noted that France welcomes 
foreign investment and that he was doing whatever he could to 
improve the climate for foreign investment.  He said that the 
recent media frenzy over the rumored Danone-PepsiCo takeover 
was unfortunately exploited by several French politicians. 
He underlined the public position he took:  France has rules 
to govern takeovers and the Government's job is to ensure the 
law is obeyed and only the law.  This was another area in 
which people needed to be educated and better informed, he 
added. 
15.  (C) Breton reiterated his fondness for and long 
relationship with the United States and thanked Mr. Hubbard 
for taking the time to visit.  He noted that he would be 
visiting Washington in the autumn and hoped that he would 
have a chance to see Mr. Hubbard at that time. 
 
STAPLETON 
 
STAPLETON