Cablegate: German Cabinet Retreat Focuses On Climate And

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PP RUEHAG RUEHAST RUEHDA RUEHDBU RUEHDF RUEHFL RUEHIK RUEHKW RUEHLA
RUEHLN RUEHLZ RUEHPOD RUEHROV RUEHSR RUEHVK RUEHYG
DE RUEHRL #1621/01 2391513
ZNR UUUUU ZZH
P 271513Z AUG 07
FM AMEMBASSY BERLIN
TO RUEHC/SECSTATE WASHDC PRIORITY 9112
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE
RUCNFRG/FRG COLLECTIVE
RHEHNSC/NSC WASHDC

UNCLAS SECTION 01 OF 03 BERLIN 001621

SIPDIS

SENSITIVE

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E.O. 12958: N/A
TAGS: ECON PGOV SENV ENRG EFIN PREL ELAB GM
SUBJECT: GERMAN CABINET RETREAT FOCUSES ON CLIMATE AND
ENERGY, FOREIGN INVESTMENT, AND SUBPRIME CRISIS

1. (SBU) Summary: German Chancellor Angela Merkel emerged
from the August 23-24 Federal Cabinet retreat with consensus
among the parties in her Grand Coalition Government on a
50-point program designed to sustain Germany's economic
upturn. No signs of coalition cracks appeared. The program
includes a 30-point plan on energy and climate change and
focuses on balancing the federal government budget,
protecting key German industries from "hostile" foreign
investment, greater transparency in financial markets, and
education and immigration strategies to address a shortage of
skilled labor. The climate change plan calls for improved
cooperation with the United States on carbon capture and
sequestration, renewables, and energy efficiency. Concern
about the sub prime crisis in the United States prompted
calls for investigations of rating agencies and for greater
regulation of hedge funds. End Summary.

2. (SBU) During an August 24 press conference, Chancellor
Angela Merkel (CDU) and Deputy Chancellor/Labor Minister
Franz Muentefering (SPD) unveiled the results of the August
23-24 Cabinet retreat at Meseberg Castle in Brandenburg. The
50-point program, titled "Upturn - Participation -
Prosperity," is designed to guide the Grand Coalition
government up until the 2009 elections. The Coalition, at
least on the surface, showed no signs of discord, as
participants focused on domestic issues. Merkel and
Muentefering began the press conference by highlighting the
Grand Coalition's accomplishments in its first two years,
focusing special attention on Germany's economic upturn and
declining unemployment rate. Merkel said the Grand Coalition
would focus on extending and expanding the economic upturn.
"We do not want to leave anyone behind," Merkel said.
Muentefering stressed the need to secure growth and
prosperity in order to maintain a "social balance." The
agreement was criticized by most opposition parties as
lacking substance.

GERMANY'S 30-POINT CLIMATE PROTECTION PROGRAM

3. (U) Among the few concrete measures adopted by the Cabinet
was a comprehensive 30-point climate protection program aimed
at meeting Germany's ambitious goals to reduce CO2 emissions.
In order to achieve the EU-wide 20 percent reduction target
by 2020, Germany needs to reduce its GHG emissions by 40
percent of the 1990 base. Although the full funding
requirements are not yet known, the Environment Ministry's
climate change budget was increased from the current EUR 700
million to EUR 2.6 billion in 2008. The German Government
anticipates EUR 400 million will be raised by the sale of
emissions trading certificates.

4. (U) Whereas some of the measures such as vehicle emissions
restrictions are still under discussion in the EU, others,
such as vehicle-specific taxes, fall within the jurisdiction
of the (German) federal states. The Federal Government will
introduce legislation for those measures which can be
regulated nationally in the fall. Environment experts and
NGOs criticized the program as lacking ambition and
effectiveness. The Environment Ministry acknowledged that
these measures are expected to reduce emissions by 35-to-36
percent and expects federal states and local authorities to
provide the final 5 percent savings to reach the 40 percent
goal.

5. (U) The package targets public and private buildings,
transportation, and the energy sector. It includes clean
coal measures and improved cooperation with the U.S. on
carbon capture and sequestration, renewables, and energy
efficiency. Planned measures include:

- a 30 percent hike in energy savings requirements for new
buildings constructed after 2008, with a further 30 percent
savings requirement by 2012,
- expansion of a market incentives program for refurbishing
older buildings,
- a renewables share of 15 percent for heating in new
buildings,
- legislation to promote commercial uptake of carbon
capture/sequestration and zero-emissions coal power plants,
- increasing the renewables share of power generation from
the current 14 percent to 25-to-30 percent by 2020,
- replacing 10 percent of gas consumption with biofuels from
biogas by 2030, and
- doubling the CHP share in power generation to 25 percent by
2020 with the aid of a EUR 750 million incentive program.

6. (U) Measures in the transportation sector include
advocating a 130 gram emissions limit for automobiles

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adjusted to engine size, revamping the vehicle tax, a truck
levy to reward low CO2 emissions and a target of 17 percent
bio fuel in gasoline by 2020, and inclusion of aviation
emissions in the EU's emissions trading system.

PROTECTING KEY GERMAN INDUSTRIES

7. (U) Merkel announced the formation of a working group
comprised of representatives from the Finance and Economics
ministries charged with developing measures to protect
strategic German industries from investment funds controlled
by foreign governments. Merkel stressed that Germany had no
intention to close its borders to potential investors but was
looking for a mechanism similar to those used by the United
States, Great Britain, and France to protect key industries
from potential hostile foreign engagement. Such measures,
she said, would be in accordance with WTO principles and
would also not violate the EU's internal market rules.

8. (U) The cabinet agreed to review Germany's legislation on
foreign investment to determine whether German law allows for
the possibility of implementing certain protective measures,
such as a turnover-threshold beyond which a target company
would be subject to government control. Another tool the
cabinet agreed to consider was the creation of a special
"fund" of (German) banks and industry to counter activities
of foreign, state-owned funds on the German market. Merkel
said that she would seek a dialogue with French President
Sarkozy about introducing such protective measures on the EU
level, or as part of the EU's Lisbon Process for global
competitiveness.

RENEWED CALL FOR GREATER TRANSPARENCY OF FINANCIAL MARKETS

9. (U) Merkel and Muentefering said the impact of the U.S.
sub prime market turmoil on the financial system demonstrated
the need for an investigation of rating agencies and
justified a renewed call for greater "transparency" in
financial markets. Merkel said Germany would use the
remainder of its G-8 Presidency and the September IMF meeting
as platforms for discussing the matter. Of particular
concern to the German government are the financing mechanisms
of international hedge funds. "Recent (market) turbulence
shows the significance that such regulation would have,"
Muentefering said.

BALANCED BUDGET AS OVERARCHING GOAL

10. (U) Chancellor Merkel reiterated the Coalition's goal -
as set out by Finance Minister Peer Steinbrueck (SPD) - to
achieve a balanced budget by 2011. Merkel stressed that
further budget consolidation would be necessary to give the
government sufficient room "to steer the political course."
She emphasized that none of the new spending measures agreed
in Meseberg would result in extra costs or go beyond what the
government had already earmarked in its budget. Merkel also
ruled out the possibility of any reduction in taxes before
2010, but explicitly left the door open for a possible
lowering of non-wage-labor costs, e.g., unemployment
insurance premiums, in order to reduce labor costs.

COPING WITH A SHORTAGE OF SKILLED LABOR

11. (U) To cope with the growing shortage of skilled workers
in Germany, the cabinet decided to improve qualification and
retraining programs for German citizens and to grant foreign
students and engineers easier access to the German labor
market, as early as November 1. The cabinet agreed that
engineers of new (eastern) EU member states with certain
special skills, such as electrical and mechanical
engineering, will be permitted to work in Germany without
providing - previously obligatory - proof to an employment
office that no comparable German specialist is available to
fill a certain position.

12. (U) Moreover, foreign students who have graduated from a
German university may work in their acquired profession
without restrictions for up to three years in Germany. The
cabinet tasked the Ministries of Labor and Education to
develop a comprehensive immigration program (a points-based
immigration system for skilled workers like that in Canada is
reportedly under consideration). The new plan also includes
a provision to lower the unrealistically high income
requirement for immigrants. Under current practice, skilled
professionals are only given permission to come to Germany if
they can prove they will earn an annual salary of EUR 85,000
euros. The Education Ministry advocates reducing the limit
to EUR 40,000 - 60,000 euros, a figure that many business

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leaders insist is still too high.

KOENIG

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