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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