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CONFIDENTIAL CONFIDENTIAL//NOFORN SECRET SECRET//NOFORN UNCLASSIFIED UNCLASSIFIED//FOR OFFICIAL USE ONLY

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### Viewing cable 09BERLIN345, SCENESETTER FOR THE PRESIDENT'S BILATERAL MEETING

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Reference ID | Date | Classification | Origin
--- | --- | --- | ---
09BERLIN345 | 2009-03-24 12:12 | SECRET//NOFORN | Embassy Berlin

`

    VZCZCXRO8237
    OO RUEHBC RUEHDE RUEHDIR RUEHKUK
    DE RUEHRL #0345/01 0831251
    ZNY SSSSS ZZH
    O 241251Z MAR 09
    FM AMEMBASSY BERLIN
    TO RUEHC/SECSTATE WASHDC IMMEDIATE 3656
    INFO RUCNIRA/IRAN COLLECTIVE PRIORITY
    RUEHZG/NATO EU COLLECTIVE PRIORITY
    RUEHBJ/AMEMBASSY BEIJING PRIORITY 1001
    RUEHMO/AMEMBASSY MOSCOW PRIORITY 2024
    RUEHDIR/IRAN RPO DUBAI PRIORITY
    RUEKJCS/SECDEF WASHINGTON DC PRIORITY
    RUEHUNV/USMISSION UNVIE VIENNA PRIORITY 0399
    RHEHNSC/NSC WASHINGTON DC PRIORITY
    RUEHBS/USEU BRUSSELS PRIORITY
    RUEKJCS/JOINT STAFF WASHINGTON DC PRIORITY

` `

    S E C R E T SECTION 01 OF 02 BERLIN 000345

    NOFORN
    SIPDIS
    FOR THE PRESIDENT FROM CHARGE D'AFFAIRES JOHN M. KOENIG

    E.O. 12958: DECL: 03/23/2034
    TAGS: GM MARR NATO PGOV PHUM PREL
    SUBJECT: SCENESETTER FOR THE PRESIDENT'S BILATERAL MEETING
    WITH CHANCELLOR MERKEL ON THE MARGINS OF THE NATO SUMMIT

    BERLIN 00000345  001.2 OF 002

    Classified By: Charge d'Affaires John M. Koenig for reasons 1.4 (b) and
     (d)

    ¶1.  (S/NF) Chancellor Merkel will be focused on a productive,
    substantive meeting when you visit Baden-Baden April 3.
    Germany holds the greatest untapped potential in Europe for
    our transatlantic agenda; unlocking it will take sustained
    effort by the Administration, and the payoff will not be
    immediate.  What is most on Merkel,s mind is her political
    future, six months before national elections, with her poll
    numbers wobbling and her coalition increasingly
    dysfunctional.  Germany,s capacity to act is constrained by
    (1) the short-term demands of domestic politics (about which
    we can do little), (2) the slow pace of change in public
    support for a German leadership role (a focus of our
    engagement), and (3) the constant demands of the economic
    crisis.  Your meeting provides an opportunity to map out key
    priorities with Germany for the remainder of Merkel,s
    current term and beyond.

    ---------------------------------
    Merkel,s Own Crisis -- Leadership
    ---------------------------------

    ¶2.  (S/NF) Merkel is methodical, rational, and pragmatic --
    qualities that propelled her to stratospheric levels of
    public support early in her tenure, when she presided over a
    recovering economy and a successful presidency of the
    European Union.  The past year has been less kind, and the
    almost exactly equal split in the German electorate between
    left and right is re-emerging as elections approach.  Merkel
    now faces a &Gordian knot8 of rising unemployment, economic
    crisis, and domestic political dissatisfaction at a time when
    she can least afford a wrong move.  The effectiveness of
    Merkel,s &Grand Coalition8 government is declining as her
    Christian Democrats (CDU) and their Social Democratic (SPD)
    partners begin in earnest their campaigns for the September
    2009 election.  The Chancellor,s edge over the rival SPD,
    led by Foreign Minister Frank-Walter Steinmeier, is
    diminishing.  When cornered, Merkel can be tenacious but is
    risk averse and rarely creative.  This suggests she will
    remain a very circumspect Ally until the election.

    ¶3.  (C/NF) The collapse of German exports and industrial
    activity has shocked Chancellor Merkel and her advisors.
    They had thought Germany would escape the worst of the world
    recession thanks to its competitive position in emerging
    markets.  In the New Year, Merkel and Finance Minister Peer
    Steinbrueck (SPD) rushed a relatively robust stimulus program
    through the Bundestag that is timed to counter a surge in
    unemployment just before the September elections.  Like most
    Germans, they doubt further deficit spending will generate
    lasting growth, and fear too large a stimulus may cause
    stagflation at home and dangerous new global imbalances.
    Merkel and Steinbrueck remain bitter at the brush-off they
    allegedly received during the last administration when they
    advocated tighter financial oversight.  Tougher regulations,
    they insist, are essential to restore confidence in the
    banking system and get credit flowing again, thus creating
    the pre-conditions for a sustainable recovery.

    ¶4.  (C/NF) Hoping to escape responsibility for the economic
    crisis, Merkel has issued public critiques of U.S. recovery
    policy that exaggerate the differences between Washington and
    continental Europe.  In fact, Germany faces many of the same
    difficult choices as the U.S.  The Chancellor is expected to
    put forward a further stimulus package later this year.  Her
    government has bailed out big banks while holding firm on
    state aid to ailing firms like Opel.  The conventional wisdom
    in Germany is that Opel could be rescued with minimum state
    aid if only it could be separated from GM, but in fact there
    is no viable business plan for the firm to stand on its own.
    The Chancellor is surrounded by bad options:  an
    interventionist approach would further alienate economic
    conservatives in her CDU (who are already defecting in droves
    to the free-market FDP); if she does nothing, Steinmeier and
    the SPD will harvest the goodwill of centrist voters for
    trying to save Opel.  Merkel has not been above shifting
    responsibility to the USG and General Motors, which she and

    BERLIN 00000345  002.2 OF 002

    the German media unfairly blame for bleeding Opel dry.  In
    the end, Merkel,s government will likely be forced to prop
    up at least parts of the automaker.

    --------------------------------------------
    Increasing Political Caution during Campaign
    --------------------------------------------

    ¶5.  (S/NF) Merkel and Steinmeier are pragmatists; on foreign
    policy, in particular, there is more that unites them than
    divides them.  But the centrifugal forces of the election
    campaign and the growing mistrust between the CDU and SPD
    make it increasingly difficult for them to agree on any big
    ideas about Germany,s role in the world or its relations
    with the United States.  Buffeted by events, Merkel is
    struggling to define a convincing vision for &her8 Germany;
    &competence8 is the sole component at this point.  She is
    blessed that Steinmeier, her principal competitor, faces even
    greater difficulties.  His party has lost its bearings in the
    Grand Coalition and is plagued by internal divisions.
    Steinmeier himself is a technocrat and a latecomer to
    electoral politics -- his shortcomings on stage are
    significant.  Steinmeier has tried to make up ground on
    Merkel by publicly identifying himself with the new U.S.
    Administration.  However, his ability to deliver on policy
    initiatives without the Chancellor,s political support is
    limited.

    ¶6.  (C/NF) Afghanistan is an example.  Merkel has been
    cautious throughout her chancellorship and has doggedly
    resisted real or perceived pressure for Germany to take on a
    larger military role.  She and Steinmeier both have supported
    the Comprehensive Approach, but the Chancellor,s CDU, in the
    face of public skepticism, is reluctant even to consider
    increasing police or civilian support.  Steinmeier and the
    SPD have been more forward-leaning, but they cannot deliver
    on their own.  You should emphasize that at the moment the
    U.S. is not seeking significant additional military forces
    from Germany, but that every member of the international
    community will need to do much more (e.g., training security
    forces and providing civilian assistance) if we are to be
    successful.

    ---------------------------------------
    Policy Opportunities on Russia and Iran
    ---------------------------------------

    ¶7.  (C/NF) Germany should play a central role with the U.S.
    in defining a coordinated western Russia policy that resets
    the relationship without retreating from our values.  The
    winter gas crisis made Germans rethink Russia,s reliability
    as a supplier, but the lack of alternatives and the
    desirability of gas as a clean energy source have left the
    government resigned to dependency on Russia in the
    near-to-medium term.  On energy as well as Georgia, neither
    Merkel nor Steinmeier has identified areas where German
    policy steps could help create a more persuasive set of
    incentives for Russia to integrate further into rules-based
    relationships and institutions.  Meanwhile, Germany is
    concerned about threats to economic and social stability in
    Central and Eastern Europe, but prefers EU and IMF approaches
    to limit its share of the bill.

    ¶8.  (C/NF) Both Merkel and Steinmeier welcomed your Nowruz
    address to the Iranian people and government.  They support
    the U.S. investment in the diplomatic track and agree that
    Germany and the EU need to invest in the economic pressure
    track.  Germany,s close ties to Israel include an imperative
    to defend Israel,s right to exist and to play an active role
    in international non-proliferation efforts toward Iran.
    Merkel will be looking to the meeting to gain a better
    understanding of how you see the USG Iran policy unfolding
    and what role we need Germany to play.

    ¶9.  (U) Mr. President, Mission Germany is honored to support
    you on your first overseas trip as President, and we look
    forward to welcoming you in Baden-Baden.
    Koenig

`