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C O N F I D E N T I A L SECTION 01 OF 03 PARIS 005335

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E.O. 12958: DECL: 08/04/2015
TAGS: PREL ECON EFIN ELAB PGOV FR
SUBJECT: ALLAN HUBBARD'S CALL ON INTERIOR MINISTER SARKOZY

REF: PARIS 5232

Classified By: Ambassador Craig R. Stapleton for reasons 1.4 (b) and (d
).

¶1.  (C) SUMMARY.  Ambassador Stapleton and National Economic
Council Director Allan Hubbard met with Interior Minister
Nicolas Sarkozy on August 1.  Sarkozy expressed his
admiration for President Bush and said he looked forward to
the opportunity to tackle France's economic and social
problems with the same directness for which the President is
justly famous.  Sarkozy confirmed that he would be running
for President of France in 2007.  He said his own struggle to
rise to high office, as the son of immigrants challenging
entrenched elites, in part explained his deep admiration for
America's values.  He said he would stress opportunity and
making a "deep break with the past" -- by proposing
significant change to France's social model -- in his 2007
campaign.  On economic issues, Sarkozy reprised many of his
now familiar policy themes: France's economic model holds
back growth; people need to work more and be rewarded for
doing so; and people need to be told the truth about the
economic situation.  He was upbeat
about France's future if the country seized the opportunity
that reforms could bring.  He also tossed out a few of the
"policy zingers" for which he is well known, notably "The
European Central Bank confuses a strong currency with a
strong economy," and "France needs to do what Reagan did in
the U.S., Thatcher in Britain, and Gonzales in Spain."  End
Summary.

¶2.  (U) Ambassador Stapleton and Allan Hubbard, Director of
the National Economic Council, met with France's Minister of
Interior, Nicolas Sarkozy on 1 August.  Sarkozy is also the
president of the Union for a Popular Movement (UMP) party, a
coalition of center-right parties founded by President Chirac
in 2002.  The meeting took place in Sarkozy's office at the
Ministry of the Interior and was also attended by Sarkozy
Chief of Staff Claude Gueant and Interior Ministry Staffer
Cederic Goubet.  Embassy Econ Counselor, Poloff and Economic
Analyst (as interpreter) accompanied Mr. Hubbard and
Ambassador Stapleton.

ADMIRATION FOR PRESIDENT BUSH
-----------------------------
¶3.  (C) Sarkozy expressed his admiration for President Bush.
Sarkozy said that, like the President, he too was committed
to keeping his word and to dealing honestly with the real
problems of the country, "unlike the rest of those
politicians."  Throughout the hour-long meeting, Sarkozy
returned again and again to the importance of leveling with
people.  He illustrated his point by saying the "French
people have to be told the truth -- and they want to hear
it."  He added that most politicians, and specifically
President Chirac, just keep stringing the people along with
their "constant tergiversating."  Economic Council Director
Hubbard's presentation of the President's direct and
principled tackling of America's major domestic challenges
(taxes, social security, education), drew the high compliment
from Sarkozy that he too would like to tackle the same
problems, in the same way, for France.

DISAGREEING WITH VERSUS UNDERCUTTING THE U.S.
---------------------------------------------
¶4.  (C) Sarkozy lamented the troubled state of U.S.-France
relations during recent years.  He drew a sharp distinction
between disagreeing with friends and undercutting them.  He
said, "we should always be able to disagree."  Calling it
something he "would never do", he cited President Chirac's,
and then-Foreign Minister de Villepin's, use of France's
Security Council veto against the U.S. in February 2002 as an
unjustifiable and excessive reaction to a difference of
views.  He added that he would have advised the U.S. not to
undertake the invasion and occupation of Iraq -- but that
that didn't prevent him from "feeling it personally when
American soldiers die in combat."  He proudly pointed out
how, at the height of anti-American feeling and anti-U.S.
demonstrations (contemporaneous to Sarkozy's first stint as
Minister of the Interior (2002 - 2004)), he took it as a
personal responsibility to see to it that "no U.S. Embassy or
Consulate was so much as touched" by demonstrators.

IDENTIFYING WITH AMERICA'S VALUES
---------------------------------
¶5.  (C) "They call me 'Sarkozy the American,'" he said, "they
consider it an insult, but I take it as a compliment."
Sarkozy stressed how much he "recognized himself" in
America's values.  He recalled how as a boy, he told his
father that he wanted to grow up to be president.  He said
his Hungarian-born father retorted, "In that case, go to
America -- because with a name like Sarkozy, you'll never
make it here."  Proving that wrong, Sarkozy said, was a
touchstone for his efforts both to succeed and to transform
France into a place where "outsiders" like him could also
enjoy opportunity untrammeled by prejudice.  Comment:  Very
much unlike nearly all other French political figures,
Sarkozy is viscerally pro-American.  For most of his peers
the U.S. is a sometimes reviled or admired, but decidedly
foreign, other.  Sarkozy identifies with America; he sees his
own rise in the world as reflecting an American-like saga.
End Comment.

FIGHTING FRANCE'S ELITE
-----------------------
¶6.  (C) Sarkozy pointed to his own political career as an
example of both his success and the difficulty of achieving
it.  "I'm not a member of the elite...I'm someone who wants
to speak for the France that gets up every morning and
works," he said, as he recalled his own rise from "knowing
nobody and beginning as a simple party supporter, and
climbing every step in the ladder" to his current bid for the
presidency.  With some vehemence, Sarkozy insisted on his
having had to "challenge those stronger than me" every step
of way.

CONFIRMING HE WILL RUN
----------------------
¶7.  (C) Sarkozy confirmed his intention to run for president
to Ambassador Stapleton and NEC Director Hubbard, saying, "I
am going to be a candidate in 2007".  Outlining his campaign
strategy, Sarkozy said, "we are going to propose change to
the French people."  "I'm convinced that it can work...people
want to believe they can succeed."  Sarkozy then touched on
many of his specific proposals for providing more opportunity
for the able and more support for the disadvantaged -- tax
cuts, labor law reform, affirmative action, immigration
reform, and monetary policy that "recognizes that the
currency is an instrument for supporting a strong economy."

RECALLING REAGAN, THATCHER AND GONZALES
---------------------------------------
¶8.  (C) On economic affairs, Sarkozy repeated his
often-stated assertion that the French economic model is
"bad."  France needs to do what Spain, the UK and other
successful countries have done over the past twenty years;
take the best of what they have done and adopt those policies
in France.  In response to Mr. Hubbard's question on what
Sarkozy's economic vision for France was, Sarkozy said that
the French people have to understand that they need to work
more and that the Government must make it more profitable for
people who do so.  He said that France needed to a go through
a period similar to the U.S. under Reagan, the UK under
Thatcher, and Spain under Gonzalez.  "France is not an old
country," he said, "but right now it's acting like one."

INCENTIVES FOR TAKING INITIATIVE
--------------------------------
¶9.  (C) Sarkozy explained his theory that unemployment
benefits should be higher than they currently are for people
immediately after they are laid off.  However they should
quickly phase out to provide an incentive for people to look
for work.  Unemployed people should be required to look for
work; now they are not required to.  Echoing comments made by
Finance Minister Breton, Sarkozy said, "people are ready for
the politics of truth."  He added that his directly expressed
assessments of France's economic problems and his insistent
advocacy of work, innovation and entrepreneurship in fact
contribute to his popularity.  "Some people told me never to
say such things, people will hate you; clearly they don't
hate me," he observed.

OVER-VALUED EURO AND NO ALAN GREENSPAN
--------------------------------------
10  (C) On the deficit, Sarkozy said that for 25 years France
has been living beyond its means.  Now it is paying the price
for that.  He said that the U.S. had two advantages that
France did not have: "Greenspan and the dollar."  He said
that France was suffering from no longer having control of
its own currency and observed that European Central Bank
(ECB) president Trichet was pursuing exactly the wrong
policies; "he confuses a strong currency with a strong
economy."  Europe needed a pro-growth ECB, not one focused on
fighting inflation only.  The U.S., he observed, "has often
had its strongest economy when the dollar was at its
weakest."  Turning to Chairman Greenspan, Sarkozy said, "he
is a genius. A genius.  He has pursued exactly the right
policies."

FRANCE'S ECONOMIC CHALLENGES
----------------------------
¶11.  (C) Returning to his priorities for France, Sarkozy
noted that France's biggest challenges were outsourcing, a
lagging research sector, savings that are "too static and
don't really help move the economy," and a lack of profitable
mid-size companies; "we have lots of big ones and lots of
really small ones, but few in between."  He sees natural
strengths for France in the health, agriculture and food,
transportation, communication and nuclear energy sectors.

WORKING TOGETHER AT THE WTO
---------------------------
¶12.  (C) Responding to Mr. Hubbard's observation on the need
for the Doha trade round to move forward this autumn, Sarkozy
agreed, and noted that the EU needed to reach a better
understanding with the U.S. on agricultural issues.  He said
that U.S. and EU officials were talking but prescribed much
more intensive discussion so that a common understanding
could be reached.  If that happened, he believed the upcoming
Hong Kong ministerial could be a success.

COMMENT
-------
¶13.  (C) For many years, Nicolas Sarkozy has been France's
most popular politician.  Current polls show his approval
ratings holding steady at around 60 percent, and defeating
any probable opponent in 2007.  By experience and conviction
-- his experience as interior minister and his "liberal,"
free-market oriented convictions -- he seems particularly
well-suited to lead France in meeting the key challenges it
now faces: security in this era of global terrorism and
prosperity in this era of adapting to economic globalization.
In addition, Sarkozy's deep identification with American
values -- opportunity, initiative, competition, society that
sustains individual liberty as much as it supports national
power, make him France's best hope for catalyzing the shift
in social values that the French need to make if they are to
take full advantage of globalization.

COMMENT CONTINUED
-----------------
¶14. (C) Sarkozy's vision for France is a powerful one, and,
as his popularity reflects, it resonates with a big part of
the electorate.  However, resistance to social change is
particularly strong in France.  Attachment to the benefits
and advantages that most of them receive, in one way of
another, from the state -- the substance of the "French
social model" -- is very strong among ordinary French people.
Sarkozy's popularity may be a reflection of change the
French would like to make, but are too conservative to in
fact undertake.  End Comment.
STAPLETON