VZCZCXRO0172
PP RUEHIK
DE RUEHRL #0121/01 0281003
ZNR UUUUU ZZH
P 281003Z JAN 10
FM AMEMBASSY BERLIN
TO RUEHC/SECSTATE WASHDC PRIORITY 6398
INFO RUEATRS/DEPT OF TREASURY WASHDC
RHEHNSC/NSC WASHINGTON DC
RUCNMEM/EU MEMBER STATES
RUCNFRG/FRG COLLECTIVE
UNCLAS SECTION 01 OF 02 BERLIN 000121
SENSITIVE
SIPDIS
STATE PASS TO DOC - SECRETARY LOCKE
E.O. 12958: N/A
TAGS: OVIP ECON ETRD EFIN GM
SUBJECT: SCENESETTER: GERMAN ECON MINISTER BRUEDERLE'S
FIRST VISIT TO WASHINGTON, FEBRUARY 1-2
REF: Berlin 85
BERLIN 00000121 001.2 OF 002
1. (SBU) SUMMARY: Germany's Minister for Economics and
Technology, Rainer Bruederle (Free Democratic Party,
FDP), will be the first senior German economic official
to visit Washington since Germany's new coalition
government assumed office in October 2009. Bruederle is a
strong proponent of the free market, including tax cuts
geared to entrepreneurs and the middle class. His policy
agenda focuses on strengthening SMEs and fostering
competition. He is the most outspoken critic in the new
government on state aid to GM/Opel. In his meetings with
senior Washington policy makers on February 1-2,
Bruederle is likely to focus on transatlantic trade and
investment, the future of the Transatlantic Economic
Council (TEC), support for the "Mittelstand" (SMEs),
prevention of protectionism ("Buy American"), the Doha
international trade round, and global economic
imbalances. END SUMMARY.
2. (SBU) Bruederle served as the Economics Minister in
the state of Rhineland Palatinate from 1987 to 1998 and
has aspired to become Germany's Econ Minister since
becoming a member of the German Bundestag in 1998. His
instincts are "U.S. friendly," and he owns a home in
Florida (see ref A for more bio details). In Washington,
Bruederle looks forward to his meetings with Secretary
Geithner (confirmed), Secretary Locke (confirmed), USTR
Kirk (confirmed) and Larry Summers (not confirmed). In
addition, he will meet with the Congressional Study Group
on Germany and with John Lipsky of the IMF and Donald
Kohn at the Federal Reserve.
Macroeconomic Outlook
---------------------
3. (SBU) German GDP decreased by 5% in 2009, the largest
decrease since the end of World War II. Economic recovery
began in the third Quarter of 2009 and growth is forecast
at 1.5% for 2010. While unemployment is still relatively
low (8.1%), thanks to employment measures such as the
government-sponsored short time work program (i.e.,
government-subsidized furloughs), unemployment is
expected to increase markedly in 2010 as benefits begin
to wind down. With the strong support of Minister
Bruederle, the German government agreed to tax relief in
December 2009 worth 8.5 billion euros in order to fuel
economic recovery. Bruederle defends the tax cuts, even
in the face of record high national debt, as
indispensable. He maintains that there is no conflict
between cutting taxes and consolidating the budget, since
tax relief will boost growth and employment. Bruederle
also promises further tax reform which will result in
additional cuts of 20 billion euros after 2011. (NOTE: On
January 27, a senior official at the Chancellery told
visiting Deputy Commerce Secretary Hightower that despite
mounting public concern over exploding deficits, the
coalition government will not be able to avoid the now
unpopular tax cuts altogether because it was the FDP's
major campaign promise and remains enshrined in the new
government's Coalition Agreement. The tax cuts, however,
are likely to be spread out over more than one year and
possibly cut, we heard.)
The Future of the Transatlantic Economic Council (TEC)
--------------------------------------------- ---------
4. (SBU) The TEC was founded at the initiative of
Chancellor Merkel in 2007 and the German government
continues to strongly support the process. The Germans
have pushed to include new issues, especially common
standards on electro-mobility (e.g., recharging plugs for
electric automobiles), in the TEC agenda. German
officials, however, have expressed concern that U.S.
interest in the TEC is waning and that the newly-formed
US/EU Energy Council will shift attention away from the
TEC. Bruederle's meetings provide an important
opportunity to assure senior German government officials
that the U.S. Administration remains supportive of the
TEC and that the US/EU Energy Council is intended to
complement rather than compete with the TEC. It would
also be constructive for both sides to exchange ideas on
specific, achievable objectives in the TEC.
BERLIN 00000121 002.2 OF 002
Buy America: Worried about Protectionism
----------------------------------------
5. (U) In the first half of 2009, Buy America provisions
in the U.S. stimulus package prompted strong official
German reactions, public outcry and unfavorable press.
German officials warn that these provisions may stoke
protectionist tendencies worldwide, even though
government and industry have not provided any specific
examples of German companies being discriminated against
because of Buy American regulations. In the past few
months the protests against Buy America have subsided
although the lack of clarity on Buy American regulations
continues to irritate German business and the government.
Both continue to call for final implementing regulations
for Buy American rules under the ARRA; these had been
expected in the fall, but have not yet materialized.
Doha: Germans Support Rapid Conclusion
--------------------------------------
6. (U) Minister Bruederle and the German government fully
concur with German industry in calling for a rapid
conclusion of the Doha Round. They believe that the
current Doha package is the best result that can be
obtained under current circumstances. Although they do
not disagree with American aspirations in the Doha Round,
senior German government and industry officials have
signaled that they consider U.S. demands for more market
access in emerging economies to be unrealistic. The visit
provides a useful opportunity to explain to Bruederle
first hand the market concessions the U.S. needs from the
emerging economies and to seek support from Germany in
engaging such countries constructively.
Support for Small and Medium-Sized Enterprises (SMEs)
--------------------------------------------- --------
7. (SBU) Bruederle likes being called "Mister
Mittelstand" (Mr. SMEs), and his policy agenda puts a
strong focus on creating a level playing field for SMEs
as they compete with big multinationals. In his previous
position as Economics Minster for the state of Rhineland
Palatinate, he also put great emphasis on promoting SMEs.
He will likely inquire about the current situation with
U.S. SMEs, how they have been affected by the financial
and economic crisis, and how the U.S. and Germany could
work together on measures to support SMEs. (Note: German
State Secretary Pfaffenbach and Commerce Deputy Secretary
Hightower spoke at length about this theme in a Berlin
meeting on January 27.)
Global Economic Imbalances
--------------------------
8. (SBU) The German government is uncomfortable with G-
20 discussions on global imbalances that focus in part on
Germany's surpluses, contending instead that China's
currency manipulation is the greatest problem. MinEcon
State Secretary Pfaffenbach told Commerce Deputy
Secretary Hightower in a meeting on January 27 that
Germany exports successfully due to product
competitiveness and not government intervention through
industrial policy or subsidies. Officials also point out
that Germany's current account surplus results primarily
from surpluses within the EU. Bruederle's meetings will
provide a good opportunity to remind the Germans that the
U.S. cannot sustain its role as the "consumer of last
resort," and that surplus countries such as Germany will
need to find policy instruments to increase domestic
consumption.
MURPHY
#