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EU envoy pronounces 'Paris II' a success drop in interest rates cited as proof - The Daily Star

But conference was not the end of the road; more must still be done - and a government austerity program is the first step.

The success of the "Paris II" donor conference held last month in the French capital can be weighed by the ensuing drop in interest rates on Lebanese debts, a European Union official said Tuesday.

"We think the (Paris II) conference was a success because it led to the reduction of interest rates not just on short-term, but long-term debt," said Alain Seatter, head of the Mashrek/Israel unit at the Europe Commission's external relations directorate-general. "This is a measure of increased confidence." Seatter and a host of other Brussels-based EU officials are visiting Lebanon one week after the Lebanese Parliament ratified Lebanon's association agreement with the EU.

The European Union, along with the representative for six European member states, participated in the Paris II donor meeting, which promised Lebanon $4.4 billion in soft loans.
The package, which includes soft loans for debt rescheduling and development projects, has led to an increased demand for the Lebanese pound and a drop in interest rates on government Treasury-bills. "We have also heard from banking circles (of) plans to subscribe to up to $4 billion in zero-interest Treasury bills," said Seatter. "Such moves, and the implementation of the government's strict fiscal program should lead to further" rate cuts.

The European states and institutions participating in Paris II pledged 1.12 billion euros ($1. 13 billion) in soft loans to reschedule debt and finance development projects. But Seatter also warned that continued confidence in the Lebanese economy required long-term solutions. "Paris II is a reflection of the government's pledges and people expect these to be implemented. But if these pledges are not accompanied by a long-term program, there lies danger. But the first step has started with a strict fiscal program for 2003."
Seatter also said an agreement with the International Monetary Fund would give Lebanon more resources. "If there is an IMF program, Lebanon may not need additional aid," said Seatter. "But we will come and support (Lebanon) with added resources if an IMF program is in place."

Right now, the European Union would like to concentrate on the implementation of Lebanon's association agreement with the EU. Beirut signed the agreement in June, as well as an interim accord that allows Lebanon early tariff-free access to European markets. "Lebanon should look into increasing its exports to Europe, particularly as the interim agreement will enter into force on Feb. 1, 2003," said Seatter.

The interim agreement grants tariff-free access to the EU for Lebanese industrial goods and gradual reductions on tariffs for agricultural goods. The agreement is part of the 1995 Euro-Med process, which promised peace and prosperity for 12 Mediterranean states through economic, political and social partnership with the EU. Lebanon is the eighth Mediterranean partner to sign the agreement, other than the three Mediterranean EU candidate states. Only Syria remains. "Negotiations with Syria have progressed, but signing an agreement is unlikely to take place before the end of 2003," said Seatter. "The political aspect of the association agreement with Syria is going much better than before."

The political part of the agreement, involving issues such as migration and terrorism, is one factor that has hampered EU talks for striking an agreement with Iran. Iran, long regarded by some Western countries as a sponsor of terrorism, is trying to negotiate such a deal , but its stance on terrorism has been a hindrance. "We have made it clear to Iran that we will not make progress on the political front until Iran claims a much more restricted role in the Middle East conflict," he added.

The European Union's role in conflict resolution in the Middle East was recently highlighted in the Israeli-Lebanese standoff over the use of the Wazzani Springs in South Lebanon. European and United Nations meditation defused a potential crisis between Lebanon and Israel, which share the waters of the Hasbani River. Although the European Union promised to study further development projects for the South, aimed at helping to ease socioeconomic ailments such as water shortages, Seatter argued that the Wazzani issue and development were two separate matters. "The Wazzani Springs issue is purely conflict resolution," he said. "The development project is a separate issue, which we are prepared to look at."

For the moment, the EU will continue to provide technical support to Lebanon to study its water needs and how to best use the Wazzani water, without provoking Israel.

Beirut,12 16 2002
Dania Saadi
The Daily Star
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