This record is a partial extract of the original cable. The full text of the original cable is not available.

UNCLAS SECTION 01 OF 05 ROME 003652 
 
SIPDIS 
 
DEPT FOR EUR/WE, EUR/ERA, EB/IFB/OMA 
STATE PASS CEA 
STATE PASS FRB FOR GUST 
TREAS FOR OASIA HARLOW, JONES 
FRANKFURT FOR WALLAR 
                       UNCLASSIFIED 
 
PAGE 02        ROME  03652  01 OF 05  240942Z 
 
SENSITIVE 
 
E.O. 12958: N/A 
TAGS: EFIN PGOV ECON IT EFIN PGOV ECON IT EFIN PGOV ECON IT EFIN PGOV ECON IT EFIN PGOV ECON IT EUN
SUBJECT: THE ECB, NATIONAL CENTRAL BANKS AND THE BANK 
OF ITALY 
 
 
SUMMARY 
------- 
¶1. (SBU) THE BANK OF ITALY (BOI), LONG A CORNERSTONE OF 
THE ITALIAN ECONOMY, FACES CHANGED RESPONSIBILITIES AND 
ROLES.  WITH THE ADVENT OF THE EUROPEAN CENTRAL BANK, 
THE BOI IS ONE OF THIRTEEN NATIONAL CENTRAL BANKS WITH 
A VOICE IN THE SINGLE ECB MONETARY POLICY.   THE ECB IS 
ORGANIZED WITH "CENTRALIZED DECISION-MAKING, 
DECENTRALIZED OPERATIONS."  ACTING UNDER ECB DIRECTION, 
THE BOI RETAINS AN IMPORTANT OPERATIONAL ROLE IN 
PRINTING CURRENCY AND MINTING COINS, MANAGING FOREIGN 
RESERVES, CONDUCTING PAYMENT OPERATIONS, MANAGING 
REPURCHASE AGREEMENTS.  THE BOI REMAINS INDEPENDENT IN 
TWO KEY AREAS:  BANK SUPERVISION AND ECONOMIC STUDIES. 
THE BOI CONTINUES TO HAVE AN AUTHORITATIVE, INDEPENDENT 
VOICE IN ITALIAN ECONOMIC POLICY.  THIS CABLE EXAMINES 
THE ROLE OF THE BANK OF ITALY, IN PARTICULAR, AND, MORE 
GENERALLY, THE ROLE OF NATIONAL CENTRAL BANKS OF THE 
ECB.  WE CONCLUDE THAT THE ECB MAY BE ONLY AS STRONG AS 
ITS KEY NATIONAL CENTRAL BANKS.  END SUMMARY. 
 
THE BANK OF ITALY 
----------------- 
                       UNCLASSIFIED 
 
PAGE 03        ROME  03652  01 OF 05  240942Z 
 
¶2.  (U) ITALY'S CENTRAL BANK, THE BANK OF ITALY (BOI), 
IS ONE OF THE COUNTRY'S MOST HIGHLY RESPECTED ENTITIES. 
FOUNDED IN 1893, THE BANK HAS ENJOYED A POWERFUL, 
INFLUENTIAL POSITION IN ITALIAN ECONOMIC AND BUSINESS 
LIFE.  THE BOI IS LARGELY AUTONOMOUS.  ITS GOVERNOR IS 
TRADITIONALLY A TECHNOCRAT, RATHER THAN A POLITICIAN, 
ALTHOUGH APPOINTED BY THE PRIME MINISTER AND APPROVED 
BY THE PARLIAMENT.  ITALIAN PRESIDENT CARLO CIAMPI WAS 
THE PREVIOUS CENTRAL BANK GOVERNOR.  THE BOI IS 
EXPECTED TO, AND REGULARLY DOES, VOICE INDEPENDENT AND 
OFTEN QUITE CRITICAL OPINIONS ON THE GOVERNMENT'S 
ECONOMIC POLICY. 
 
¶3. (U).  BEFORE THE ADVENT OF THE ECB, THE BOI HAD A 
STAFF OF OVER 9,400 EMPLOYEES. GOVERNOR ANTONIO FAZIO, 
A WELL-RESPECTED ECONOMIST, WAS APPOINTED IN 1993, AND 
IS FORMER DEPUTY DIRECTOR GENERAL OF THE BANK.  HIS 
DEPUTY, VINCENZO DESARIO, ALSO STARTED HIS CAREER IN 
THE BANK AND IS EXPERT OF BANKING SUPERVISION.   THE 
BOI HAD 11 DEPARTMENTS, INCLUDING BANK SUPERVISION, 
ECONOMIC RESEARCH, INTERNATIONAL AFFAIRS, NOTE ISSUE, 
CENTRAL BANKING AND MARKETS, PAYMENT SYSTEM AND 
TREASURY OPERATIONS. 
 
ROLE OF THE NATIONAL CENTRAL BANKS (NCBS) 
----------------------------------------- 
 
¶4. (U) WHEN THE EUROPEAN CENTRAL BANK (ECB) WAS 
ESTABLISHED IN 1998, NATIONAL CENTRAL BANKS (NCBS) 
FOUND THEMSELVES STRIPPED OF MANY OF THEIR POWERS.  THE 
                       UNCLASSIFIED 
 
PAGE 04        ROME  03652  01 OF 05  240942Z 
ECB WAS GIVEN AUTHORITY OVER MONETARY POLICY FOR MEMBER 
STATES.  AS SUCH, THE CREATION OF THE EUROPEAN CENTRAL 
BANK HAS DRAMATICALLY ALTERED THE STRUCTURE AND 
RESPONSIBILITIES OF THE BOI.  WHILE THE BOI RETAINS 
RESPONSIBILITY FOR BANK SUPERVISION AND FOR INDEPENDENT 
ECONOMIC ANALYSIS, IT NO LONGER HAS AN INDEPENDENT 
MONETARY POLICYMAKING ROLE.  INSTEAD, THE BOI AND THE 
OTHER MEMBER STATE NCBS TOGETHER CONTRIBUTE TO EURO- 
ZONE MONETARY POLICY DECISIONS AND ECONOMIC STABILITY 
AND GROWTH.  WHILE THE GOVERNING COUNCIL OF THE 
EUROPEAN CENTRAL BANK SETS MONETARY POLICY, NCBS 
IMPLEMENT THIS POLICY.  WHILE THE ECB'S COUNCIL FIXES 
CRITERIA FOR INVESTMENTS OF FOREIGN CURRENCY RESERVES 
AND SETS FOREIGN EXCHANGE POLICY (ALONG GUIDELINES 
APPROVED BY FINANCE MINISTERS) ,  THE NCBS HOLD AND 
INVEST A SUBSTANTIAL PART OF THE RESERVES AND THE 
LARGER NCB'S CONDUCT FOREIGN EXCHANGE OPERATIONS. 
 
¶5. (U) THE ECB HOLDS EURO 46.8 BILLION OF THE 
EUROSYSTEM'S EURO 386.7 BILLION IN OFFICIAL RESERVE 
ASSETS.  THE REST ARE HELD BY NCBS IN ACCORDANCE WITH 
ECB GUIDELINES AND INSTRUCTIONS. THE DISTRIBUTION OF 
RESERVES HAS BEEN SET BY THE GOVERNING COUNCIL AND 
INCLUDES GOLD, JAPANESE YEN AND U.S. DOLLARS.  NCBS 
MANAGE THEIR OWN FOREIGN CURRENCY RESERVES AS THEY SEE 
 
                       UNCLASSIFIED 
 
                           UNCLASSIFIED     PTQ6481 
 
PAGE 01        ROME  03652  02 OF 05  240942Z 
ACTION EUR-00 
 
INFO  LOG-00   NP-00    AGRE-00  AID-00   CEA-01   CIAE-00  COME-00 
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      TEDE-00  INR-00   ITC-01   LAB-01   L-00     VCE-00   AC-01 
      NSAE-00  NSCE-00  OMB-01   OPIC-01  PA-00    PM-00    PRS-00 
      ACE-00   P-00     SCT-00   SP-00    SSO-00   STR-00   TEST-00 
      USIE-00  FMP-00   EPAE-00  PMB-00   DSCC-00  DRL-02   G-00 
      NFAT-00  SAS-00     /009W 
                  ------------------CF8165  240942Z /38 
R 240939Z JUL 02 
FM AMEMBASSY ROME 
TO SECSTATE WASHDC 5067 
INFO DEPT OF TREASURY WASHDC 
EU MEMBER STATES COLLECTIVE 
USEU BRUSSELS 2758 
AMCONSUL MILAN 
AMCONSUL FLORENCE 
AMCONSUL NAPLES 
AMCONSUL FRANKFURT 
 
UNCLAS SECTION 02 OF 05 ROME 003652 
 
SIPDIS 
 
DEPT FOR EUR/WE, EUR/ERA, EB/IFB/OMA 
STATE PASS CEA 
STATE PASS FRB FOR GUST 
TREAS FOR OASIA HARLOW, JONES 
FRANKFURT FOR WALLAR 
                       UNCLASSIFIED 
 
PAGE 02        ROME  03652  02 OF 05  240942Z 
 
SENSITIVE 
 
E.O. 12958: N/A 
TAGS: EFIN PGOV ECON IT EFIN PGOV ECON IT EFIN PGOV ECON IT EFIN PGOV ECON IT EFIN PGOV ECON IT EUN
SUBJECT: THE ECB, NATIONAL CENTRAL BANKS AND THE BANK 
OF ITALY 
 
FIT.  THEIR OPERATIONS IN FOREIGN CURRENCY RESERVES, 
ABOVE CERTAIN LIMITS, ARE SUBJECT TO ECB NOTIFICATION 
OR APPROVAL, IN ORDER TO ENSURE CONSISTENCY WITH THE 
MONETARY POLICY OF THE ECB. 
 
¶6. (U) NCBS ALSO CONDUCT PAYMENT OPERATIONS.  TO ENSURE 
THE SMOOTH OPERATION OF PAYMENT SYSTEMS, THE TARGET OR 
TRANS-EUROPEAN AUTOMATED REAL-TIME GROSS SETTLEMENTS 
EXPRESS TRANSFER SYSTEM IS USED.  THIS IS A 
DECENTRALIZED SYSTEM, CONSISTING OF 15 NATIONAL REAL 
TIMES GROSS SETTLEMENT (RTGS) SYSTEMS AND THE ECB 
PAYMENT MECHANISM (EPM).  THESE ARE INTERLINKED TO 
PROVIDE A UNIFORM PLATFORM FOR PROCESSING CROSS BORDER 
PAYMENTS IN EURO. 
 
¶7. (SBU) CARLO MARTENS, DEPUTY HEAD OF THE PAYMENT 
SYSTEMS POLICY DIVISION OF THE ECB, NOTED THAT TARGET 
EVENTUALLY MIGHT BE CENTRALIZED.  THIS MAY BE 
PARTICULARLY DESIRABLE WHEN THE EU IS ENLARGED AND 
SEVERAL NEW MEMBERS JOIN THE ECB SYSTEM.  MARTENS 
ENVISIONS AN INCREASINGLY STRONG ECB WITHIN AN ENLARGED 
EU.  ACCORDING TO MARTENS, NCBS HAVE CONCEDED THIS 
UNOFFICIALLY ALREADY, BUT HAVE NOT FIXED A TIME FRAME 
                       UNCLASSIFIED 
 
PAGE 03        ROME  03652  02 OF 05  240942Z 
FOR REFORM. (NOTE: SOME NCBS ARE CONCERNED THAT TOO 
MANY FUNCTIONS ARE BEING TRANSFERRED TO THE ECB AND 
THAT IT MAY BECOME TOO POWERFUL.  GOVERNORS AND STAFF 
FROM THE BUNDESBANK, THE BANK OF IRELAND AND THE BANK 
OF FRANCE HAVE VOICED THIS CONCERN.) 
 
¶8. (U) THE BANK OF ITALY, LIKE OTHER EUROSYSTEM NCBS, 
ISSUES EURO BANKNOTES  ACCORDING THE PROCEDURES SET BY 
THE ECB GOVERNING COUNCIL.  ECB OFFICERS TOLD US THAT, 
FOR THE EURO CHANGEOVER ON JANUARY 1, 2002, THE NCBS 
WERE RESPONSIBLE FOR PRODUCING EURO BANKNOTES TO MEET 
THEIR NATIONAL REQUIREMENTS, AS SET BY THE ECB.  NCBS 
HAD PRINTED ALL THE FORMATS OF EURO BANKNOTES FROM 5 TO 
500 EUROS (92 PERCENT OF THOSE PRINTED).  THE REMAINDER 
WAS ISSUED BY THE ECB.  THE TWELVE NCBS WILL CIRCULATE 
ALL EURO BANKNOTES, INCLUDING THOSE ISSUED BY OTHER 
NCBS AND BY THE ECB. 
 
¶9. (U) NCBS WORK CLOSELY WITH THE ECB ON REPURCHASE 
AGREEMENTS.  THE NCBS COLLECT BIDS AND SEND THEM TO 
ECB.  THE ECB MAKES A SINGLE RANKING OF ALL BIDS AND 
DECIDES ON THE QUANTITY TO ALLOCATE AND THE INTEREST 
RATE.  THIS DECISION IS THEN COMMUNICATED TO THE NBCS 
FOR COMMUNICATION TO THOSE BANKS THAT PARTICIPATED IN 
THE TENDER. 
 
¶10. (U) THE BANK OF ITALY IS UNIQUE IN THAT IT IS THE 
ONLY NCB (AMONG ECB MEMBERS) THAT ACTS AS THE NATIONAL 
TREASURY.  THE BOI COLLECTS PENDING PROCEEDS, EXECUTIVE 
PAYMENT ORDERS ISSUED BY CENTRAL AND LOCAL PUBLIC 
ADMINISTRATIONS BASED ON BUDGET AND OFF-BUDGET 
                       UNCLASSIFIED 
 
PAGE 04        ROME  03652  02 OF 05  240942Z 
PROCEEDINGS; RECEIVES, HOLDS AND RETURNS BOND AND CASH 
DEPOSITS; CARRIES OUT OPERATIONS OF PLACING AND 
REIMBURSING STATE BONDS. 
 
¶11. (SBU) THE ECB HAS VIRTUALLY NO DIRECT ROLE IN BANK 
SUPERVISION BUT IS A MEMBER OF AND IS THE SECRETARIAT 
FOR THE BANKING SUPERVISION COMMITTEE.  IN MANY MEMBER 
STATES, INCLUDING ITALY, NCBS RETAIN THIS 
RESPONSIBILITY.  THE BANK OF ITALY IS RESPONSIBLE FOR 
THE SUPERVISION OF THE ACTIVITIES OF BANKS AND NON- 
BANKING INTERMEDIARIES, PROMOTION AND CONTROL OF 
COMPETITION IN THE BANKING SECTOR, MARKET SUPERVISION 
AND THE SUPERVISION OF THE DIRECT OFFER OF PAYMENT 
SERVICES.  THE BOI ALSO IS RESPONSIBLE FOR PRUDENTIAL 
SUPERVISION, WHICH INCLUDES FIVE CATEGORIES: 
SUPERVISION OF BANKS AND THE BANKING SYSTEM, THE CREDIT 
MARKET, FINANCIAL MARKET INTERMEDIARIES, THE PAYMENT 
SYSTEM AND WHOLESALE MARKETS FOR GOVERNMENT SECURITIES 
AND TRADING OF INTER-BANK FUNDS. 
 
¶12. (SBU) A PARLIAMENTARY COMMISSION IS LOOKING AT THE 
SUPERVISORY RESPONSIBILITIES OF THE BANK OF ITALY.  A 
REPORT, TO BE ISSUED IN SEPTEMBER 2002, IS EXPECTED TO 
RECOMMEND CHANGING THE DISTRIBUTION OF REGULATORY 
POWERS BETWEEN THE BANK OF ITALY AND CONSOB, ITALY'S 
 
                       UNCLASSIFIED 
 
                           UNCLASSIFIED     PTQ6482 
 
PAGE 01        ROME  03652  03 OF 05  240942Z 
ACTION EUR-00 
 
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      NSAE-00  NSCE-00  OMB-01   OPIC-01  PA-00    PM-00    PRS-00 
      ACE-00   P-00     SCT-00   SP-00    SSO-00   STR-00   TEST-00 
      USIE-00  FMP-00   EPAE-00  PMB-00   DSCC-00  DRL-02   G-00 
      NFAT-00  SAS-00     /009W 
                  ------------------CF8174  240942Z /38 
R 240939Z JUL 02 
FM AMEMBASSY ROME 
TO SECSTATE WASHDC 5068 
INFO DEPT OF TREASURY WASHDC 
EU MEMBER STATES COLLECTIVE 
USEU BRUSSELS 2759 
AMCONSUL MILAN 
AMCONSUL FLORENCE 
AMCONSUL NAPLES 
AMCONSUL FRANKFURT 
 
UNCLAS SECTION 03 OF 05 ROME 003652 
 
SIPDIS 
 
DEPT FOR EUR/WE, EUR/ERA, EB/IFB/OMA 
STATE PASS CEA 
STATE PASS FRB FOR GUST 
TREAS FOR OASIA HARLOW, JONES 
FRANKFURT FOR WALLAR 
                       UNCLASSIFIED 
 
PAGE 02        ROME  03652  03 OF 05  240942Z 
 
SENSITIVE 
 
E.O. 12958: N/A 
TAGS: EFIN PGOV ECON IT EFIN PGOV ECON IT EFIN PGOV ECON IT EFIN PGOV ECON IT EFIN PGOV ECON IT EUN
SUBJECT: THE ECB, NATIONAL CENTRAL BANKS AND THE BANK 
OF ITALY 
 
EQUIVALENT OF THE SEC.  THE COMMISSION'S CHAIRMAN, 
GIORGIO LA MALFA, HAS STATED THAT "THE PROGRESSIVE 
INTEGRATION OF EUROPEAN MARKETS WITHIN THE CENTRAL BANK 
RAISES THE QUESTION OF WHETHER BANK OVERSIGHT SHOULD 
TAKE PLACE AT A NATIONAL LEVEL OR BE LODGED WITHIN THE 
ECB."  (WHEN RELEASED, THE COMMISSION'S FINDINGS WILL 
BE REPORTED SEPTEL.) 
 
¶13. (U) THIS POSITION CONTRASTS WITH RECENT STATEMENTS 
FROM THE ECB ITSELF.  THE GOVERNING COUNCIL STATED 
FIRMLY IN MARCH 2001 THAT "THERE ARE VALID REASONS 
ARGUING IN FAVOR OF MAINTAINING A STRONG INVOLVEMENT OF 
CENTRAL BANKS IN PRUDENTIAL SUPERVISION." THE ECB'S 
BANK SUPERVISION COMMITTEE PROVIDES ADVISORY SUPPORT TO 
NATIONAL GOVERNMENTS IN DRAFTING BANK SUPERVISION 
LEGISLATION.  JUKKE VESALA, THE ECB'S SENIOR EXPERT ON 
PRUDENTIAL SUPERVISION, TOLD US THAT THE COMMITTEE CAN 
REVIEW ANY PROJECT OF REFORM OF NATIONAL BANK 
SUPERVISION LEGISLATION AT AN EARLY STAGE. 
 
¶14. (SBU)  NCBS STILL CONDUCT THE TRADITIONAL CENTRAL 
BANK FUNCTIONS OF STATISTICAL SERVICES AND ECONOMIC 
RESEARCH.  THE BANK OF ITALY'S RESEARCH AND STATISTICAL 
                       UNCLASSIFIED 
 
PAGE 03        ROME  03652  03 OF 05  240942Z 
SERVICE IS ESSENTIAL, AS IT PROVIDES AN AUTHORITATIVE, 
YET INDEPENDENT, TOP-LEVEL ADVISORY SERVICE FOR THE 
CONSTITUTIONAL BODIES (GOVERNMENT AND PARLIAMENT) IN 
THE FIELD OF ECONOMIC POLICY AND BUDGET AND FINANCIAL 
ISSUES. 
 
LEGAL STATUS OF THE BOI AND NATIONAL CENTRAL BANKS 
--------------------------------------------- ----- 
 
¶15. (U) THE BANK OF ITALY, LIKE EACH OF THE NCBS, IS A 
SEPARATE LEGAL ENTITY ACCORDING TO ITALIAN LAW.  A 
LEGISLATIVE DECREE OF THE ITALIAN PARLIAMENT STATES: 
"THE BANK OF ITALY, THE CENTRAL BANK OF THE ITALIAN 
REPUBLIC, IS AN INTEGRAL PART OF THE ESCB.  IT SHALL 
PERFORM THE TASKS AND FUNCTIONS ATTRIBUTED TO IT IN 
THAT CAPACITY IN COMPLIANCE WITH THE STATUTE OF THE 
ESCB.  IT SHALL PURSUE THE OBJECTIVES ASSIGNED TO THE 
ESCB IN CONFORMITY WITH ARTICLE 105 OF THE TREATY AND 
ACT IN ACCORDANCE WITH THE GUIDELINES AND THE 
INSTITUTIONS OF THE ECB". 
 
¶16. (U) DESPITE BEING SEPARATE LEGAL ENTITIES, THE NCBS 
FORM AN INTEGRAL PART OF THE EUROSYSTEM.  AS SUCH, THE 
BANK OF ITALY AND THE OTHER NCBS CARRY OUT THE TASKS 
ASSIGNED TO THE EUROSYSTEM IN ACCORD WITH ECB RULES. 
THROUGH THE PARTICIPATION OF THEIR RESPECTIVE 
REPRESENTATIVES IN THE VARIOUS ESCB COMMITTEES, THE 
BANK OF ITALY AND THE OTHER NCBS ALSO CONTRIBUTE TO THE 
WORK OF THE ESCB.  THE BANK OF ITALY MAY PERFORM 
FUNCTIONS DEEMED APPROPRIATE BY THE ITALIAN GOVERNMENT, 
AS LONG AS THE ECB GOVERNING COUNCIL FINDS THAT SUCH 
                       UNCLASSIFIED 
 
PAGE 04        ROME  03652  03 OF 05  240942Z 
FUNCTIONS DO NOT INTERFERE WITH THE OBJECTIVES AND 
TASKS OF THE EUROSYSTEM. 
 
ESCB COMMITTEES 
--------------- 
 
¶17. (U) ESCB COMMITTEES PLAY AN IMPORTANT ROLE IN THE 
EUROSYSTEM/ESCB.  AT THE REQUEST OF BOTH THE GOVERNING 
COUNCIL AND THE EXECUTIVE BOARD, THEY PROVIDE EXPERTISE 
IN THEIR FIELDS OF COMPETENCE AND FACILITATE THE 
DECISION MAKING PROCESS.  ESCB COMMITTEES ARE COMPOSED 
OF REPRESENTATIVES OF THE NCBS, INCLUDING THE BANK OF 
ITALY AND, WHERE APPROPRIATE, OTHER COMPETENT BODIES, 
INCLUDING NATIONAL SUPERVISORY AUTHORITIES IN THE CASE 
OF THE BANKING SUPERVISION COMMITTEE.  THERE ARE 
THIRTEEN ESCB COMMITTEES: ACCOUNTING AND MONETARY 
INCOME (AMICO), BANKING SUPERVISION (SBC), BANKNOTE 
COMMITTEE (BANCO), EXTERNAL COMMUNICATIONS (ECCO), 
INFORMATION TECHNOLOGY (ITC), INTERNAL AUDITORS (IAC), 
INTERNATIONAL RELATIONS (IRC), LEGAL (LEGCO), MARKET 
OPERATIONS (MOC), MONETARY POLICY (MPC), PAYMENT AND 
SETTLEMENT SYSTEM (PSSC) AND STATISTICAL COMMITTEE 
(STC).  TWO REPRESENTATIVES OF THE BANK OF ITALY 
PARTICIPATE IN EACH OF THESE COMMITTEES. 
 
                       UNCLASSIFIED 
 
                           UNCLASSIFIED     PTQ6483 
 
PAGE 01        ROME  03652  04 OF 05  240943Z 
ACTION EUR-00 
 
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      NFAT-00  SAS-00     /009W 
                  ------------------CF817D  240943Z /38 
R 240939Z JUL 02 
FM AMEMBASSY ROME 
TO SECSTATE WASHDC 5069 
INFO DEPT OF TREASURY WASHDC 
EU MEMBER STATES COLLECTIVE 
USEU BRUSSELS 2760 
AMCONSUL MILAN 
AMCONSUL FLORENCE 
AMCONSUL NAPLES 
AMCONSUL FRANKFURT 
 
UNCLAS SECTION 04 OF 05 ROME 003652 
 
SIPDIS 
 
DEPT FOR EUR/WE, EUR/ERA, EB/IFB/OMA 
STATE PASS CEA 
STATE PASS FRB FOR GUST 
TREAS FOR OASIA HARLOW, JONES 
FRANKFURT FOR WALLAR 
                       UNCLASSIFIED 
 
PAGE 02        ROME  03652  04 OF 05  240943Z 
 
SENSITIVE 
 
E.O. 12958: N/A 
TAGS: EFIN PGOV ECON IT EFIN PGOV ECON IT EFIN PGOV ECON IT EFIN PGOV ECON IT EFIN PGOV ECON IT EUN
SUBJECT: THE ECB, NATIONAL CENTRAL BANKS AND THE BANK 
OF ITALY 
 
ECB EMPLOYMENT 
-------------- 
 
¶18. (U) THE BANK OF ITALY AND THE OTHER ELEVEN MEMBER 
COUNTRIES HAVE REPRESENTATIVES WITHIN THE ECB.  THE 
GOVERNOR OF THE BANK OF ITALY IS A MEMBER OF THE ECB 
BOARD.  OTHER BANK OF ITALY EMPLOYEES ARE TEMPORARILY 
TRANSFERRED TO FRANKFURT FOR A THREE-YEAR TERM.  THESE 
PEOPLE REPRESENT THE ECB AS AN INSTITUTION AND NOT THE 
INTEREST OF THEIR COUNTRY OR THEIR NATIONAL BANK. 
CERTAIN BANK OF ITALY REPRESENTATIVES PARTICIPATE IN 
MONTHLY ECB MEETINGS.  OTHERS PARTICIPATE IN WORKING 
GROUPS AS REPRESENTATIVES OF THE BANK OF ITALY. 
 
¶19. (SBU) ACCORDING TO MANFRED KOLBER, ECB 
COMMUNICATIONS DIRECTOR, THE ECB EMPLOYS ABOUT 1,100 
PEOPLE. THE DISTRIBUTION OF ECB EMPLOYMENT BY 
NATIONALITY IS NOT FULLY IN LINE WITH THE NCB'S 
CONTRIBUTION TO ECB CAPITAL.  KOLBER SAID THAT IN HIS 
DEPARTMENT, THE CRITERIA FOR RECRUITMENT ARE 
CANDIDATE'S PROFESSIONAL AND LANGUAGE SKILLS.  ONLY IN 
A CASE OF EQUALLY QUALIFIED CANDIDATES MIGHT 
NATIONALITY BECOME A CRITERION, TO COMPENSATE UNDER- 
                       UNCLASSIFIED 
 
PAGE 03        ROME  03652  04 OF 05  240943Z 
REPRESENTED MEMBER STATES. ACCORDING TO OTHER SOURCES, 
ECB MANAGEMENT IS SENSITIVE TO AVOIDING A BLOATED 
BUREAUCRACY, AND IS ATTEMPTING TO KEEP PERSONNEL 
NUMBERS DOWN. 
 
¶20. (SBU) AS ECB RANKS HAVE GROWN, EMPLOYMENT AT NCBS 
HAVE FALLEN.  THE NUMBER OF JOBS IN THE BOI DECLINED 
FROM MID-1998 TO MID-2001 BY ABOUT 400 POSITIONS.  AT 
ITS PEAK IN 1995, THE BOI EMPLOYED 9,423 PEOPLE.  THE 
BOI IS PLANNING TO REDUCE EMPLOYMENT BY ANOTHER 20 
PERCENT, AROUND 1,500 POSITIONS, PRIMARILY THROUGH 
ATTRITION.  THE REMAINING BOI STAFF WILL, THUS, NUMBER 
AROUND 7,500 PEOPLE.  AMONG NCBS, EMPLOYMENT RANGES 
FROM THE 16,800 PEOPLE EMPLOYED BY THE BANK OF FRANCE, 
AND 15,900 EMPLOYED BY THE BUNDESBANK, TO THE 172 
EMPLOYEES OF THE CENTRAL BANK OF LUXEMBOURG.  ECB 
SOURCES TELL US THAT THE BANK OF FRANCE HAS CUT AROUND 
1,500 POSITIONS, BUT THAT OTHERS -- GERMANY AND 
PORTUGAL, FOR EXAMPLE -- HAVE KEPT NUMBERS RELATIVELY 
STABLE, ALTHOUGH THE GERMAN BUNDESBANK RECENTLY 
ANNOUNCED STAFF REDUCTIONS IN CONJUNCTION WITH ITS 
REORGANIZATION. 
 
NCB CONTRIBUTIONS TO ECB CAPITAL 
--------------------------------- 
 
¶21. (U) THE ECB HAS A TOTAL CAPITAL OF FOUR BILLION 
EURO, WHICH IS EXPECTED TO INCREASE TO FIVE BILLION 
EURO OVER THE NEXT FEW YEARS.  THE PRINCIPAL PURPOSE OF 
ECB CAPITAL IS TO ACT AS A RESERVE FUND, PROVIDING THE 
BANK WITH SUFFICIENT INCOME WHILE MAINTAINING AN 
                       UNCLASSIFIED 
 
PAGE 04        ROME  03652  04 OF 05  240943Z 
APPROPRIATE LEVEL OF FINANCIAL SECURITY.  IN ACCORDANCE 
WITH ARTICLE 29 OF THE STATUTES OF THE ESCB AND THE 
ECB, EACH NCB CONTRIBUTES TO THE ECB'S CAPITAL 
ACCORDING TO A WEIGHTING SCHEME.  THIS SCHEME IS BASED 
ON EACH MEMBER STATE'S SHARE OF EU POPULATION AND 
NOMINAL EU GDP.  THE ASSIGNED WEIGHTS ARE TO BE 
ADJUSTED EVERY FIVE YEARS AND UPON ACCESSION OF ANY NEW 
EU MEMBER. 
 
¶22. (U) THE GOVERNING COUNCIL OF THE ECB IS AUTHORIZED 
TO INCREASE THE CAPITAL UP TO A FURTHER E5BN.  ON THE 
BASIS OF ALL FIFTEEN EU MEMBER STATES, THE BUNDESBANK, 
BANK OF FRANCE AND BANK OF ITALY ARE THE THREE LARGEST 
CONTRIBUTORS OF ECB'S CAPITAL.  HOWEVER, ONLY TWELVE 
COUNTRIES CURRENTLY PARTICIPATE IN THE EUROSYSTEM, AND 
ONLY THESE COUNTRIES HAVE FULLY PAID THEIR 
CORRESPONDING CAPITAL SHARES (81 PERCENT OF FIVE 
BILLION EURO).  THUS, THE GERMAN SHARE IS 30 PERCENT, 
THE FRENCH SHARE IS 20.8 PERCENT AND THE ITALIAN SHARE 
IS 18.4 PERCENT.  THESE THREE MAKE UP 69.2 PERCENT OF 
THE ECB'S AGREED FIVE BILLION EURO CAPITAL.  THE 
CENTRAL BANKS OF DENMARK, SWEDEN AND THE UNITED KINGDOM 
HAVE AGREED TO PAY THE REMAINING NINETEEN PERCENT (950 
MILLION EURO) BUT HAVE TO DATE PAID ONLY FIVE PERCENT. 
ECB SOURCES TELL US THAT THIS FIVE PERCENT IS DESIGNED 
 
                       UNCLASSIFIED 
 
                           UNCLASSIFIED     PTQ6484 
 
PAGE 01        ROME  03652  05 OF 05  240943Z 
ACTION EUR-00 
 
INFO  LOG-00   NP-00    AGRE-00  AID-00   CEA-01   CIAE-00  COME-00 
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      EXME-00  E-00     FAAE-00  UTED-00  VC-00    FRB-00   H-01 
      TEDE-00  INR-00   ITC-01   LAB-01   L-00     VCE-00   AC-01 
      NSAE-00  NSCE-00  OMB-01   OPIC-01  PA-00    PM-00    PRS-00 
      ACE-00   P-00     SCT-00   SP-00    SSO-00   STR-00   TEST-00 
      USIE-00  FMP-00   EPAE-00  PMB-00   DSCC-00  DRL-02   G-00 
      NFAT-00  SAS-00     /009W 
                  ------------------CF8182  240943Z /38 
R 240939Z JUL 02 
FM AMEMBASSY ROME 
TO SECSTATE WASHDC 5070 
INFO DEPT OF TREASURY WASHDC 
EU MEMBER STATES COLLECTIVE 
USEU BRUSSELS 2761 
AMCONSUL MILAN 
AMCONSUL FLORENCE 
AMCONSUL NAPLES 
AMCONSUL FRANKFURT 
 
UNCLAS SECTION 05 OF 05 ROME 003652 
 
SIPDIS 
 
DEPT FOR EUR/WE, EUR/ERA, EB/IFB/OMA 
STATE PASS CEA 
STATE PASS FRB FOR GUST 
TREAS FOR OASIA HARLOW, JONES 
FRANKFURT FOR WALLAR 
                       UNCLASSIFIED 
 
PAGE 02        ROME  03652  05 OF 05  240943Z 
 
SENSITIVE 
 
E.O. 12958: N/A 
TAGS: EFIN PGOV ECON IT EFIN PGOV ECON IT EFIN PGOV ECON IT EFIN PGOV ECON IT EFIN PGOV ECON IT EUN
SUBJECT: THE ECB, NATIONAL CENTRAL BANKS AND THE BANK 
OF ITALY 
 
TO PRODUCE AN INCOME COVERING COSTS RELATED TO THE 
THREE NCBS OUTSIDE THE EUROSYSTEM. 
 
COMMENT 
------- 
 
¶23. (SBU) DESPITE THE STRENGTH OF THE ECB, THE 
EUROSYSTEM IS STILL BASED ON THE BASIC PRINCIPLE OF 
"CENTRALIZED DECISION-MAKING, DECENTRALIZED 
OPERATIONS".  NATIONAL CENTRAL BANKS, INCLUDING THE 
BANK OF ITALY, CONTINUE TO PLAY A KEY ROLE.  AS THE 
EUROSYSTEM EXPANDS THROUGH EU ENLARGEMENT, THE 
INEFFICIENCIES AND COSTS OF DECENTRALIZED OPERATIONS 
ARE LIKELY TO INCREASE.  THIS WILL BE A CHALLENGE FOR 
THE EUROSYSTEM.  THE LARGEST AND MORE EFFICIENT -- SUCH 
AS THE BANK OF ITALY -- ARE EXPECTED TO HOLD THE SYSTEM 
TOGETHER.  THE EUROSYSTEM MAY ONLY BE AS STRONG AS 
THESE KEY NATIONAL CENTRAL BANKS. 
 
¶25.  THIS MESSAGE WAS COORDINATED WITH TREASURY ATTACHE 
AT CONGEN FRANKFURT. 
SEMBLER 
 
                       UNCLASSIFIED 
 
PAGE 03        ROME  03652  05 OF 05  240943Z 
 
                       UNCLASSIFIED 
 
> 
 2002ROME03652 - Classification: UNCLASSIFIED