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

C O N F I D E N T I A L SECTION 01 OF 02 ROME 000474 
 
SIPDIS 
 
DOD PASS TO OSD - STEVE WILLIAMS 
 
E.O. 12958: DECL: 01/29/2012 
TAGS: EAGR ECON EFIN IT ECON EFIN IT PREL FAS PRELEAGR FAS
SUBJECT: FINMIN VIEWS ON JOINT STRIKE FIGHTER, TERRORIST 
ASSETS, THE EURO AND THE ECONOMY 
 
                       CONFIDENTIAL 
 
PAGE 02        ROME  00474  01 OF 02  310905Z 
REF: ROME 372 
 
CLASSIFIED BY: ECONOMIC MINISTER COUNSELOR MARGARET M. DEAN BY 
REASON 1.5 (A) AND (E) 
 
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SUMMARY 
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¶1.  (SBU) WHEN THE AMBASSADOR CALLED ON FINANCE MINISTER 
GIULIO TREMONTI, HE PRAISED ITALIAN ACTION IN FREEZING 
TERRORIST ASSETS, INQUIRED HOW ECONOMIC REFORM WAS 
PROGRESSING AND MADE A STRONG ARGUMENT THAT THE JOINT STRIKE 
FIGHTER WAS IN ITALY'S TECHNOLOGICAL AND COMMERCIAL 
INTERESTS.  TREMONTI WAS PLEASED WITH THE WAY THE 
INTER-MINISTERIAL FINANCIAL SECURITY COMMITTEE WAS WORKING TO 
IDENTIFY AND FREEZE TERRORIST ASSETS, DESCRIBED HIS PROGRESS 
AND PROBLEMS WITH IMPLEMENTING ECONOMIC REFORM, PARTICULARLY 
IN THE AREAS OF TAX AND PENSION REFORM, FRETTED ABOUT 
FINANCING PUBLIC DEBT IN A EURO CAPITAL MARKET, AND WAS 
INTERESTED IN OUR ARGUMENT SUPPORTING THE JSF.  END SUMMARY. 
 
---------------- 
WAR ON TERRORISM 
---------------- 
 
¶2.  (C) AMBASSADOR SEMBLER PAID A COURTESY CALL ON FINANCE 
MINISTER GIULIO TREMONTI WEDNESDAY, JANUARY 23.  ALSO PRESENT 
WERE U/S DOMINICO SINISCALCO AND DIPLOMATIC REPRESENTATIVE 
GUGLIERMO ARDIZZONI.   IN RESPONSE TO THE AMBASSADOR'S 
EXPRESSED APPRECIATION FOR THE HIGH LEVEL OF ITALIAN 
                       CONFIDENTIAL 
 
PAGE 03        ROME  00474  01 OF 02  310905Z 
COOPERATION AND ENFORCEMENT OF THE FINANCIAL WAR ON 
TERRORISM, TREMONTI SAID THAT HE WAS PLEASED WITH THE 
OPERATION OF THE NEWLY ESTABLISHED FINANCIAL SECURITY 
COMMITTEE.  HE PRAISED IT AND ITS BI-MONTHLY MEETINGS, AS 
FRUITFUL, EFFICIENT, WORKING IN CLOSE COOPERATION, AND 
CAPABLE OF EFFECTIVELY MONITORING LISTS FROM US AND THE E.U., 
BUT ALSO CAPABLE OF GENERATING ITS OWN LISTS.  (COMMENT:  WE 
FIND THIS IS A RARE EXAMPLE OF A STRONG, FUNCTIONING 
INTER-MINISTERIAL COMMITTEE.  MUCH OF ITS OPERATIONAL SUCCESS 
BELONGS TO TREMONTI AND SINISCALCO.  END COMMENT).  TREMONTI 
AND SINISCALCO NOTED THAT ACTUAL PERFORMANCE IS EVEN BETTER 
THAN IT APPEARS BECAUSE THERE ARE ACTUALLY TWO LISTS.  ONE IS 
THE LEGAL LIST, WHICH HAS JURIDICAL DIMENSIONS, AND ONE IS AN 
OPERATIONAL LIST FOR THE LAW ENFORCEMENT SERVICES WHICH 
ALLOWS A WIDER HORIZON OF SURVEILLANCE AND INVESTIGATIVE 
ACTIVITY. 
 
----------- 
THE ECONOMY 
----------- 
 
¶3.  (SBU) IN RESPONSE TO A QUESTION ON THE ECONOMY, TREMONTI 
THEN PRESENTED A LIST, SHOWING THE STATUS OF ACTION ON ALL OF 
THE PRIME MINISTER'S FINANCIAL CAMPAIGN PROMISES.  EVERY ONE 
HAD BEEN ENACTED INTO LAW (E.G., REFTEL) EXCEPT THE REFORM OF 
THE TAX LAW AND OF THE PENSION SYSTEM.  THESE ARE TWO OF THE 
MOST DIFFICULT AREAS, AND ONES THAT LIE OUTSIDE OF THE SOLE 
CONTROL OF THE MINISTRY.   THEY EXPECT TO MAKE PROGRESS IN 
THESE TWO AREAS, ALTHOUGH THE UNEXPECTEDLY LARGE DEFICIT THAT 
THE TREMONTI GROUP HAD FOUND WHEN THEY ARRIVED IN OFFICE HAS 
MADE TAX REFORM MUCH MORE DIFFICULT.   (COMMENT:  PREVAILING 
                       CONFIDENTIAL 
 
PAGE 04        ROME  00474  01 OF 02  310905Z 
GLOBAL MARKET CONDITIONS AND DECLINING TAX REVENUES, 
PRIMARILY FROM CAPITAL GAINS, ALSO HAS PUT PRESSURE ON THE 
GOI'S COFFERS). 
 
¶4.  (SBU) TAX REFORM, HOWEVER, IS A HIGH PRIORITY BECAUSE IT 
WAS CENTRAL TO THE BERLUSCONI CAMPAIGN.  TAX REFORM IS A 
PROMISE THAT BERLUSCONI IS COMMITTED TO KEEPING.  MANAGING 
THE BUDGET AND THE DEFICIT (AND INDIRECTLY THE TIMING OF TAX 
REFORM) DEPENDS ON THREE THINGS:  THE COMMISSION, THE ITALIAN 
ECONOMY AND ITALY'S OWN CONTROL (I.E., LEGISLATION, 
DEVOLUTION OF EXPENSES TO THE REGIONS, ETC.)).  EXPENSES FOR 
AFGHANISTAN WERE NOT OVERWHELMING AND COULD BE MANAGED. 
LEGALLY, TAX CUTS MUST BE COVERED BY OTHER MEANS.  (NOTE: 
RECOVERY CANNOT TECHNICALLY BE SPREAD OUT OVER TIME, BUT MUST 
OCCUR IN THE SAME TAX YEAR.)  THIS HAS BLOCKED A CERTAIN 
AMOUNT OF PUBLIC SPENDING.  TREMONTI REMAINED CONFIDENT THAT 
IT COULD BE DONE HOWEVER, SAYING THAT "SINCE 1992, WE HAVE 
DROPPED MANY POINTS IN THE DEFICIT/GDP RATIO; WE ARE ONLY 
TALKING ONE OR PERHAPS 1.5 PERCENTAGE POINTS NOW".  (COMMENT: 
 THE GOI OFFICIALLY MAINTAINS THAT THE DEFICIT WILL BE 1.1 
PERCENT IN 2001.  WE BELIEVE THAT WHEN FOURTH QUARTER RESULTS 
ARE IN, THE DEFICIT WILL BE CLOSER TO 1.3 PERCENT.) 
 
¶5.  (SBU) NONETHELESS, TREMONTI IS LOOKING FORWARD TO 
STARTING THE TAX REFORM DISCUSSION.  HE ANTICIPATES A NEW 
FISCAL FEDERALISM, ALTHOUGH HE WAS NOT SURE WHEN THAT WOULD 
BE.  THE FIRST STEP WILL BE A SIMPLIFICATION OF THE MULTIPLE, 
 
                       CONFIDENTIAL 
 
                           CONFIDENTIAL     PTQ5696 
 
PAGE 01        ROME  00474  02 OF 02  310905Z 
ACTION EUR-00 
 
INFO  LOG-00   NP-00    AGRE-00  AID-00   A-00     ACQ-00   CA-01 
      CCO-00   CEA-01   CIAE-00  COME-00  CTME-00  INL-00   DOTE-00 
      SRPP-00  DS-00    EB-00    EXIM-01  E-00     FAAE-00  FBO-00 
      VC-00    FRB-00   H-01     TEDE-00  INR-00   ITC-01   LAB-01 
      L-00     VCE-00   M-00     AC-01    DCP-01   NSAE-00  NSCE-00 
      OCS-03   OMB-01   OPIC-01  OPR-01   PA-00    PM-00    PRS-00 
      ACE-00   P-00     SCT-00   SP-00    IRM-00   SSO-00   SS-00 
      STR-00   TRSE-00  T-00     USIE-00  USSS-00  SNIS-00  NISC-00 
      PMB-00   DSCC-00  DRL-02   G-00     NFAT-00  SAS-00     /016W 
                  ------------------5FE230  310905Z /38 
R 310845Z JAN 02 
FM AMEMBASSY ROME 
TO SECSTATE WASHDC 1901 
SECDEF WASHDC 
INFO AMCONSUL FLORENCE 
AMCONSUL MILAN 
AMCONSUL NAPLES 
 
C O N F I D E N T I A L SECTION 02 OF 02 ROME 000474 
 
SIPDIS 
 
DOD PASS TO OSD - STEVE WILLIAMS 
 
E.O. 12958: DECL: 01/29/2012 
TAGS: EAGR ECON EFIN IT ECON EFIN IT PREL FAS PRELEAGR FAS
SUBJECT: FINMIN VIEWS ON JOINT STRIKE FIGHTER, TERRORIST 
ASSETS, THE EURO AND THE ECONOMY 
 
                       CONFIDENTIAL 
 
PAGE 02        ROME  00474  02 OF 02  310905Z 
SOMETIMES CONFLICTING, LAWS ON TAXATION.  THE NEXT STEP WOULD 
BE TO REDUCE THE TAX BRACKETS AND TO REDUCE THE RATE OF TAX. 
 (COMMENT:  SIMPLIFICATION IS A CHARACTERISTIC GOAL FOR 
TREMONTI.  HE CLEARLY USES IT AS A CRITERION FOR ACTION AND 
IT WAS A CRITERION UNDERLYING THE LAWS THAT WERE ALREADY 
PASSED.  END COMMENT). 
 
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THE EURO 
-------- 
 
¶6.  (SBU) ON THE INSTITUTION OF THE EURO, TREMONTI SAID THERE 
WAS NO IMPACT OPERATIONALLY.  THINGS WERE GOING WELL. 
HOWEVER, THE PUBLIC DEBT IS HIGH AND NOW FOR THE FIRST TIME 
THE COST OF FINANCING THE PUBLIC DEBT BECOMES MUCH MORE 
TRANSPARENT.  THE FINANCING RATE BECOMES CRITICAL, BUT HAVING 
A SINGLE CURRENCY SHOULD MAKE THE PROCESS MORE COMPETITIVE 
AND MORE EFFECTIVE.   TREMONTI'S CONCERN IS THAT ITALY STAY 
WITHIN THE MAASTRICHT TREATY GUIDELINES.   STATING THAT THE 
ITALIAN GDP WAS DIRECTLY LINKED TO BOTH THE GLOBAL AND U.S. 
ECONOMIES, TREMONTI WAS MUCH MORE INTERESTED IN A POTENTIAL 
US ECONOMIC RECOVERY. 
 
-------------------- 
JOINT STRIKE FIGHTER 
-------------------- 
 
¶7.  (C) THE AMBASSADOR MADE A CLEAR EXPLANATION OF THE 
BENEFITS TO ITALY ON JSF PARTICIPATION, PARTICULARLY AT A 
FULL LEVEL TWO COMMITMENT.  HE EXPLAINED THE INDUSTRIAL 
PARTICIPATION AS WELL AS THE RETURN ON JSF SALES TO ITALY AS 
                       CONFIDENTIAL 
 
PAGE 03        ROME  00474  02 OF 02  310905Z 
A PARTNER.  THE AMBASSADOR EMPHASIZED THAT THE INDUSTRIAL 
PARTICIPATION WAS NOT JUST FOR ONE COMPANY BUT COULD INCLUDE 
COMPANIES ACROSS ITALY.  HE MADE CLEAR THAT ITALIAN 
PARTICIPATION WOULD BE WELCOME, PARTICULARLY IN THE DESIGN 
STAGE, AS AN AREA OF ITALIAN STRENGTH AND THAT LOCKHEED IS 
AWARE OF MANY SMALL AND MEDIUM SIZE COMPANIES THAT WOULD BE 
COMPETITIVE FOR CONTRACTS.   HE ALSO MENTIONED THE LOOMING 
DECISION DEADLINE AS REAL BECAUSE LOCKHEED IS CONTRACTUALLY 
OBLIGATED TO THE USG TO ASSIGN CONTRACTS (THE POINT OF 
INTENSE ITALIAN INTEREST) IN THE NEAR FUTURE.  (COMMENT.  THE 
AMBASSADOR MADE THE SMALL AND MEDIUM SIZE INDUSTRY POINTS 
BECAUSE WE HAVE FOR SOME TIME BELIEVED THAT ALENIA'S GIORGIO 
ZAPPA, WHO IS NEGOTIATING FOR ALL OF ITALIAN INDUSTRY, IS NOT 
REPRESENTING ANYONE'S INTERESTS BUT ALENIA'S.  THUS, WE 
BELIEVE THAT THE GOVERNMENT OVERALL IS LESS THAN FULLY 
KNOWLEDGEABLE OF ALL THE BENEFITS THAT MIGHT ACCRUE TO ITALY 
FROM THE JSF.) 
 
¶8.  (C) TREMONTI SAID THAT THE DECISION WAS GOING TO BE MADE 
BY BERLUSCONI.  FINANCE'S ONLY RESPONSIBILITY IS "WE WILL 
PAY".  HE DID NOT PROFFER ANY VIEWS ON THE DIFFERENCES 
BETWEEN A DECISION TO BUY-IN AT ONE BILLION VERSUS EIGHT 
HUNDRED MILLION DOLLARS.  NOR DID THEY HAVE THE DETAILS. 
DESPITE SAYING THAT FINANCE WILL PAY, TREMONTI WAS EXTREMELY 
INTERESTED IN THE MECHANICS:  WOULD THE GOVERNMENT BE ABLE TO 
WRITE THE MONEY FOR JSF INTO AN INVESTMENT CATEGORY, AS AN 
ACQUISITION OF EQUITY, OR WOULD IT HAVE TO BE LISTED AS AN 
EXPENDITURE?  WOULD THE MONEY GO TO ITALIAN FIRMS, THE USG OR 
US CORPORATIONS?  (COMMENT:  WE WILL APPROACH MOD ABOUT 
PROVIDING INFORMATION TO MOF OR TO INCLUDE THEM (AS WELL AS 
THE MINISTRY OF PRODUCTIVE ACTIVITIES, AND PERHAPS THE 
                       CONFIDENTIAL 
 
PAGE 04        ROME  00474  02 OF 02  310905Z 
MINISTRY OF TECHNOLOGICAL INNOVATION) IN THE UP-COMING 
INDUSTRY BRIEFING AS POTENTIAL SUPPORTERS OF ITALY'S 
PARTICIPATION.) 
SEMBLER 
 
                       CONFIDENTIAL 
 
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 2002ROME00474 - Classification: CONFIDENTIAL