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Reference ID	Created	Released	Classification	Origin
02ROME2794	2002-06-10 17:22	2011-08-30 01:44	UNCLASSIFIED//FOR OFFICIAL USE ONLY	Embassy Rome

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

UNCLAS SECTION 01 OF 04 ROME 002794 
 
SIPDIS 
 
SENSITIVE 
 
DEPT FOR EUR/WE, EUR/ERA, EB/OMA 
TREASURY FOR OASIA - HARLOW, JONES 
                       UNCLASSIFIED 
 
PAGE 02        ROME  02794  01 OF 04  101655Z 
STATE PASS FEDERAL RESERVE BANK 
FRANKFURT FOR WALLAR 
 
E.O. 12958: N/A 
TAGS: ECON EFIN ELAB PGOV EFIN ELAB PGOV EFIN ELAB PGOV EFIN ELAB PGOV IT ITECON ITECON ITECON
SUBJECT: BERLUSCONI'S FIRST YEAR ECONOMIC SCORECARD 
 
REF: A. ROME 02198 
     ¶B. ROME 01744 
     ¶C. 2001 ROME 06227 
 
¶1. (U) SUMMARY. TWELVE MONTHS AGO, PRIME MINISTER BERLUSCONI 
TOOK OFFICE WITH A PROMISE TO JUMPSTART THE FALTERING ITALIAN 
ECONOMY.  A MUCH-HERALDED 100-DAY ECONOMIC PLAN WAS DESIGNED 
AS AN INITIAL STIMULUS, TO BE FOLLOWED BY MORE FUNDAMENTAL 
ECONOMIC REFORMS. AFTER A YEAR IN OFFICE, THE PRIME MINISTER 
AND HIS ECONOMIC TEAM ARE STILL SEEKING TO IMPLEMENT WAYS TO 
RESTORE HEALTH TO ITALY'S AILING ECONOMY. 
 
¶2. (SBU) THE PROLONGED GLOBAL ECONOMIC DOWNTURN, DOMESTIC 
POLITICS AND SEPTEMBER 11 HAVE SLOWED PROGRESS. OPPOSITION 
FROM TRADE UNIONS, WHICH HAVE PLAYED A KEY ROLE IN SOCIAL AND 
ECONOMIC POLICY MAKING, HAS STALLED PROGRESS ON KEY LABOR AND 
ECONOMIC REFORMS. SOME UNIONS INTERPRET RECENT GOVERNMENT 
ACTIONS AS AN EFFORT BY IT TO ASSUME A DOMINANT POLICY MAKING 
ROLE. ALTHOUGH HE ENJOYS A SECURE MAJORITY IN PARLIAMENT, PM 
BERLUSCONI SEEKS TO BUILD CONSENSUS RATHER THAN IMPOSE MAJOR 
CHANGES. SINCE THIS PROCESS WILL TAKE TIME, THE PROSPECT FOR 
SIGNIFICANT ECONOMIC REFORMS IS NOT ROSY.  THAT, COMBINED 
WITH THE ECONOMIC TEAM'S INABILITY SO FAR TO FIND THE RIGHT 
FISCAL FIXES, MEANS THAT THE PROGNOSIS REMAINS UNINSPIRING, 
                       UNCLASSIFIED 
 
PAGE 03        ROME  02794  01 OF 04  101655Z 
FOR THE NEXT YEAR OR SO, FOR THE ITALIAN ECONOMY.  END 
SUMMARY. 
 
ECONOMIC SNAPSHOT 
----------------- 
 
¶3. (U) ITALY'S STAGNANT PERFORMANCE IN 2001 HAS CONTINUED IN 
¶2002.  DURING THE FIRST FOUR MONTHS OF THIS YEAR, ITALY'S 
BUDGET DEFICIT BALLOONED TO 41.4 BILLION EUROS, UP FROM 38.7 
BILLION EUROS IN THE SAME PERIOD LAST YEAR.  CONSUMER 
CONFIDENCE IS DOWN. THE GOVERNMENT HAS TWO ECONOMIC 
FORECASTS: AN "OPTIMISTIC" FIGURE HAS GROWTH AT 2.3 PERCENT; 
THE "PESSIMISTIC" ONE AT 1.2 PERCENT. THE CONSENSUS FORECAST 
IS THAT GROWTH IN 2002 WILL BE 1.3 PERCENT.  FINANCE MINISTER 
TREMONTI INSISTS THAT THERE WOULD BE NO MID-YEAR CORRECTIVE 
BUDGET EVEN IF THE LOWER PREDICTION HOLDS.  ITALY'S ANEMIC 
GROWTH IS A RESULT NOT ONLY OF THE GLOBAL ECONOMIC SLOWDOWN 
BUT ALSO OF THE GOI'S DELAY IN CUTTING SPENDING AND ENACTING 
KEY REFORMS. 
 
BERLUSCONI'S 100-DAY PLAN: SUCCESSES AND SETBACKS 
--------------------------------------------- ---- 
 
¶4. (U) THE CENTER-RIGHT GOVERNMENT CAME INTO OFFICE IN JUNE 
2001 WITH A 100-DAY ECONOMIC PACKAGE DESIGNED TO TURN ITALY'S 
ECONOMY AROUND.  KEY ELEMENTS OF THIS PLAN INCLUDED: A "NEW 
TREMONTI LAW" (BASED ON ONE FROM THE 1994 BERLUSCONI 
GOVERNMENT) PROVIDING TAX EXEMPTIONS FOR REINVESTED PROFITS 
AND NEW HIRING; THE ABOLITION OF INHERITANCE TAXES; NEW AND 
MORE FLEXIBLE LABOR CONTRACTS; TAX FORGIVENESS FOR 
REPATRIATION OF CAPITAL, AND INCENTIVES FOR COMPANIES IN THE 
                       UNCLASSIFIED 
 
PAGE 04        ROME  02794  01 OF 04  101655Z 
UNDERGROUND ECONOMY TO BECOME LEGAL, TAX-PAYING ENTITIES. 
 
¶5. (U) IN THE FIRST SIX MONTHS OF THE BERLUSCONI GOVERNMENT, 
THE PARLIAMENT PASSED THE TREMONTI LAW AND APPROVED THE 
ABOLITION OF INHERITANCE TAXES (WHICH ALREADY WERE BEING 
PHASED OUT UNDER PREVIOUS GOVERNMENTS). THE GOI EXPECTED THE 
TREMONTI LAW, BASED ON 1994 RESULTS, WOULD ADD ONE-HALF TO 
ONE PERCENT OF GDP GROWTH IN A 12-MONTH PERIOD.  EVEN UNDER 
THE BEST SCENARIO, WE BELIEVED THIS PREDICTION WAS 
OPTIMISTIC.  THE TREMONTI LAW HAS HAD LITTLE IMMEDIATE 
EFFECT, SINCE MOST ITALIAN COMPANIES, IN LIGHT OF THE 
CONTINUED ECONOMIC DOWNTURN, HAVE POSTPONED INVESTMENTS. 
 
¶6. (U) IN CONTRAST, THE TAX AMNESTY FOR CAPITAL ILLEGALLY 
EXPATRIATED HAS BEEN A SUCCESS.  THE GOVERNMENT OFFERED AN 
AMNESTY FOR OFFSHORE, ILLEGALLY EXPORTED CAPITAL WITH A 
ONE-TIME TAX PAYMENT OF 2.5 PERCENT.  WHEN THE PROGRAM ENDED 
IN MID-MAY, MORE THAN 40 BILLION EUROS HAD REPORTEDLY FLOWED 
BACK INTO ITALY. THE GOVERNMENT ESTIMATES 360-400 BILLION 
EUROS HAVE BEEN MOVED TO OFFSHORE ACCOUNTS SINCE THE END OF 
WORLD WAR TWO.  THE AMNESTY HAS BEEN A BOON TO ITALIAN BANKS 
BUT ALSO WILL LIKELY LEAD TO HIGHER INVESTMENT IN ITALY'S 
SMALL AND MEDIUM-SIZED BUSINESSES, THE BACKBONE OF THE 
ITALIAN ECONOMY.  LONGER-TERM BENEFITS ARE HARDER TO PREDICT. 
FINANCE MINISTER TREMONTI, THE ARCHITECT OF THE PLAN, CLAIMS 
 
                       UNCLASSIFIED 
 
                           UNCLASSIFIED     PTQ8064 
 
PAGE 01        ROME  02794  02 OF 04  101655Z 
ACTION EUR-00 
 
INFO  LOG-00   NP-00    AGRE-00  AID-00   CEA-01   CIAE-00  CTME-00 
      DODE-00  ITCE-00  DOTE-00  WHA-00   SRPP-00  DS-00    EB-00 
      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   PMB-00   DSCC-00  DRL-02   G-00     NFAT-00 
      SAS-00     /009W 
                  ------------------BAD839  101655Z /38 
P 101722Z JUN 02 
FM AMEMBASSY ROME 
TO SECSTATE WASHDC PRIORITY 4142 
INFO EU MEMBER STATES COLLECTIVE PRIORITY 
AMCONSUL FLORENCE PRIORITY 
AMCONSUL FRANKFURT PRIORITY 
AMCONSUL MILAN PRIORITY 
AMCONSUL NAPLES PRIORITY 
DEPT OF TREASURY WASHDC PRIORITY 
USEU BRUSSELS PRIORITY 2699 
USDOC WASHDC PRIORITY 
 
UNCLAS SECTION 02 OF 04 ROME 002794 
 
SIPDIS 
 
SENSITIVE 
 
DEPT FOR EUR/WE, EUR/ERA, EB/OMA 
TREASURY FOR OASIA - HARLOW, JONES 
                       UNCLASSIFIED 
 
PAGE 02        ROME  02794  02 OF 04  101655Z 
STATE PASS FEDERAL RESERVE BANK 
FRANKFURT FOR WALLAR 
 
E.O. 12958: N/A 
TAGS: ECON EFIN ELAB PGOV EFIN ELAB PGOV EFIN ELAB PGOV EFIN ELAB PGOV IT ITECON ITECON ITECON
SUBJECT: BERLUSCONI'S FIRST YEAR ECONOMIC SCORECARD 
 
THE TAX AMNESTY WILL INCREASE THE TAX BASE AND HELP REDUCE 
TAX EVASION. CRITICS SAY THAT THIS ONE-TIME MEASURE WILL NOT 
DIMINISH THE PROPENSITY TO DODGE TAXES. 
 
¶7. (U) COMMENT: ALTHOUGH THESE MEASURES WERE DESIGNED TO GIVE 
A SHOT IN THE ARM TO ITALY'S ECONOMY, WE BELIEVE MORE 
SIGNIFICANT REFORMS ARE NECESSARY FOR LONG-TERM ECONOMIC 
VITALITY. 
 
WHAT IS REALLY NEEDED 
--------------------- 
 
¶8. (U) TAX REFORM: ONE OF THE TOP PRIORITIES OF THE 
BERLUSCONI GOVERNMENT IS TO REDUCE TAXES. CHANGES WILL 
INCLUDE A REDUCTION OF PERSONAL INCOME TAX RATE BRACKETS, 
FROM FIVE TO TWO (23 PERCENT UP TO 100,000 EUROS OF TAXABLE 
INCOME AND 33 PERCENT ABOVE THAT LEVEL); AND REFORM OF 
CORPORATE TAXES, WITH A DECREASE FROM A 36 PERCENT TO 33 
PERCENT TAX RATE.  WHILE THE CHAMBER OF DEPUTIES ALREADY HAS 
APPROVED THESE CHANGES, THE SENATE HAS NOT YET DISCUSSED 
THEM.  EVEN IF THE SENATE MOVES BEFORE THE SUMMER RECESS, THE 
REFORMS WILL LIKELY ONLY BE APPROVED IN LATE 2002.  THE 
GOVERNMENT WOULD THEN HAVE A TWO-YEAR DEADLINE TO PRESENT ALL 
THE DETAILS OF THESE REFORMS.  AT BEST, THEREFORE, THE 
                       UNCLASSIFIED 
 
PAGE 03        ROME  02794  02 OF 04  101655Z 
POSITIVE EFFECTS OF TAX REFORM WILL NOT OCCUR EARLIER THAN 
¶2004.  IN ADDITION, THE NEED TO FINANCE A HIGHER THAN 
EXPECTED PUBLIC SECTOR DEFICIT -- SOME CAUSES OF WHICH WERE 
AN UNEXPECTED INHERITANCE FROM THE PREVIOUS GOVERNMENT -- MAY 
ALSO PUSH BACK THE TIMETABLE FOR TAX CUTS. COMMENT: TREMONTI 
AND BERLUSCONI BELIEVE THAT LOWER TAXES, MORE EQUITABLY 
APPLIED, WILL PRODUCE A GREATER INCOME STREAM.  TO DO THAT, 
THEY HAVE TO CAPTURE MORE OF THE UNDERGROUND ECONOMY. 
 
¶9. (U) INCORPORATING THE UNDERGROUND ECONOMY: ACCORDING TO 
THE IMF, ITALY'S UNDERGROUND ECONOMY IS EQUAL TO ABOUT 27 
PERCENT OF GDP.  EMPLOYEES WHO WORK OFF THE BOOKS ACCOUNT FOR 
30-48 PERCENT OF THE ENTIRE WORKFORCE.  THE GOVERNMENT HAS 
PROPOSED THREE YEARS OF TAX BREAKS FOR EMPLOYERS WHO BECOME 
LEGAL ENTITIES; SIMILAR INCENTIVES ARE OFFERED TO EMPLOYEES. 
THE TAX BREAKS, APPROVED AS PART OF THE 100-DAY PACKAGE, 
EXPIRE NOVEMBER 30. THE PACKAGE HAS HAD LIMITED SUCCESS. AS 
OF LATE MAY, ONLY 159 EMPLOYERS AND 500 WORKERS HAVE 
REPORTEDLY COME FORWARD. COMMENT: WITHOUT CAPTURING MORE OF 
THIS ECONOMY, IT IS LIKELY THAT TAX REFORM WILL GENERATE LESS 
REVENUE.  END COMMENT. 
 
¶10. (U) PRIVATIZATION:  THE BERLUSCONI GOVERNMENT ALSO HAS 
PROPOSED THE THE SALE OF STATE-OWNED ENTITIES OR 
GOVERNMENT-OWNED SHARES OF MAJOR COMPANIES, INCLUDING THE 
ENERGY COMPANY ENEL AND ENTE TABACCI ITALIANI  (ITALY'S 
NATIONAL TOBACCO COMPANY).  KEY CABINET OFFICIALS CONTINUE TO 
REITERATE THIS COMMITMENT TO PRIVATIZATION.  UNCERTAIN MARKET 
CONDITIONS HAVE, HOWEVER, RAISED QUESTIONS ABOUT BOTH THE 
TIMING AND THE PRICE.  COMMENT: PRIVATIZATION IS CRITICAL TO 
BRINGING DOWN THE PUBLIC DEFICIT.  IN ADDITION, THE EU 
                       UNCLASSIFIED 
 
PAGE 04        ROME  02794  02 OF 04  101655Z 
COMMISSION'S RECENT RULING AGAINST GOVERNMENT OWNED "GOLDEN 
SHARES" COULD COMPEL THE GOI TO SELL ITS REMAINING STAKES IN 
TELECOM ITALIA.  END COMMENT. 
 
¶11. (U) PENSION REFORM: ANOTHER CRITICAL STEP FOR LONG-TERM 
RECOVERY IS PENSION REFORM. ITALY SPENDS NEARLY 15 PERCENT OF 
ITS GDP ON PENSIONS, ONE OF THE HIGHEST RATES IN THE WORLD, 
AND, WITH THE LOWEST BIRTHRATE IN EUROPE, FACES THE PROSPECT 
OF A STAGNANT OR DECLINING ACTIVE WORK FORCE. BY LAW, THE 
BERLUSCONI IS REQUIRED TO REVIEW THE EFFECTIVENESS OF THE 
1995 PENSION REFORM. THE GOVERNMENT HAS PROPOSED MODEST 
REFORMS, WITH TWO KEY ASPECTS: INCREASE IN AVERAGE RETIREMENT 
AGE AND INCREASED USE OF PRIVATE PENSION FUNDS. THE 
GOVERNMENT HAS PROPOSED INCENTIVES, INCLUDING REDUCED 
CONTRIBUTION RATES, THAT WOULD ENCOURAGE EMPLOYEES TO WORK 
BEYOND THE CURRENT RETIREMENT AGES OF 60 AND 65, 
RESPECTIVELY, FOR WOMEN AND MEN. 
 
¶12. (SBU) FEARING THE IMPACT ON THE SOCIAL SECURITY SYSTEM'S 
VIABILITY, UNIONS OBJECT TO LOWERING EMPLOYER CONTRIBUTIONS. 
THE GOVERNMENT HAS INDICATED THAT IT WILL TRY TO ADDRESS 
UNION CONCERNS. DEBATE IN THE TWO CHAMBERS HAS BEEN POSTPONED 
WHILE THE GOVERNMENT SEARCHES FOR AN AGREEMENT WITH THE 
UNIONS.  EVEN IF UNIONS AND THE GOVERNMENT AGREE, PENSION 
REFORM WILL BE PURSUED BUT CAUTIOUSLY, DELAYING ANY POSITIVE 
 
                       UNCLASSIFIED 
 
                           UNCLASSIFIED     PTQ8065 
 
PAGE 01        ROME  02794  03 OF 04  101656Z 
ACTION EUR-00 
 
INFO  LOG-00   NP-00    AGRE-00  AID-00   CEA-01   CIAE-00  CTME-00 
      DODE-00  ITCE-00  DOTE-00  WHA-00   SRPP-00  DS-00    EB-00 
      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   PMB-00   DSCC-00  DRL-02   G-00     NFAT-00 
      SAS-00     /009W 
                  ------------------BAD83D  101656Z /38 
P 101722Z JUN 02 
FM AMEMBASSY ROME 
TO SECSTATE WASHDC PRIORITY 4143 
INFO EU MEMBER STATES COLLECTIVE PRIORITY 
AMCONSUL FLORENCE PRIORITY 
AMCONSUL FRANKFURT PRIORITY 
AMCONSUL MILAN PRIORITY 
AMCONSUL NAPLES PRIORITY 
DEPT OF TREASURY WASHDC PRIORITY 
USEU BRUSSELS PRIORITY 2700 
USDOC WASHDC PRIORITY 
 
UNCLAS SECTION 03 OF 04 ROME 002794 
 
SIPDIS 
 
SENSITIVE 
 
DEPT FOR EUR/WE, EUR/ERA, EB/OMA 
TREASURY FOR OASIA - HARLOW, JONES 
                       UNCLASSIFIED 
 
PAGE 02        ROME  02794  03 OF 04  101656Z 
STATE PASS FEDERAL RESERVE BANK 
FRANKFURT FOR WALLAR 
 
E.O. 12958: N/A 
TAGS: ECON EFIN ELAB PGOV EFIN ELAB PGOV EFIN ELAB PGOV EFIN ELAB PGOV IT ITECON ITECON ITECON
SUBJECT: BERLUSCONI'S FIRST YEAR ECONOMIC SCORECARD 
 
IMPACT ON THE ECONOMY FOR SEVERAL YEARS. INDEPENDENTLY, 
RECENT STOCK MARKET BEHAVIOUR HAS ERODED PUBLIC CONFIDENCE IN 
MARKET-BASED PRIVATE PENSION FUNDS. 
 
LABOR LAW REFORM 
---------------- 
 
¶13. (U) REFORM PROPOSALS ATTRACTING THE GREATEST PUBLIC 
ATTENTION AND DEBATE INVOLVE LABOR, WITH THE MOST CONTENTIOUS 
ISSUE BEING ARTICLE 18 OF THE 1970 WORKERS' STATUTE.  THIS 
PROVISION ALLOWS EMPLOYEES FIRED "WITHOUT JUST CAUSE" (AS 
DETERMINED BY A MAGISTRATE) TO BE REINSTATED IN THEIR JOBS, 
AS OPPOSED TO RECEIVING ONLY MONETARY COMPENSATION.  THE 
EMPLOYERS' ASSOCIATION "CONFINDUSTRIA" AND THE GOVERNMENT 
CONTEND THAT ARTICLE 18 DISCOURAGES COMPANIES FROM FIRING 
WORKERS AND, THUS,  DISSUADES THEM FROM HIRING NEW EMPLOYEES. 
TO ENCOURAGE JOB CREATION, THE GOVERNMENT PROPOSES THAT, 
UNDER CERTAIN CONDITIONS, THE RIGHT TO REINSTATEMENT BE 
WITHDRAWN FOR A TRIAL PERIOD. (ARTICLE 18 APPLIES ONLY TO 
FIRMS WITH MORE THAN 15 WORKERS. EMPLOYEES OF FIRMS WITH 
FEWER THAN 15 ON THEIR PAYROLL CAN ONLY ASK FOR COMPENSATION, 
NOT REINSTATEMENT.) 
 
¶14. (SBU) THE UNIONS SEE ARTICLE 18 AS A PROFOUND SYMBOL, A 
                       UNCLASSIFIED 
 
PAGE 03        ROME  02794  03 OF 04  101656Z 
"BILL OF RIGHTS" FOR WORKERS, REPRESENTING A SUCCESSFUL FIGHT 
FOR DIGNITY AND LEGAL PROTECTION.  AS SUCH, IT HAS BECOME A 
RALLYING POINT FOR TRADE UNIONS AND A WAY FOR THEM TO UNITE 
OTHERWISE FRAGMENTED LEFTIST GROUPS. THE GOVERNMENT'S 
PROPOSAL TO ALTER ARTICLE 18 ALSO HAS OTHER ASPECTS. TRADE 
UNIONISTS BELIEVE THAT THE GOVERNMENT, PROMPTED BY EMPLOYER 
ASSOCIATIONS, IS TRYING TO CHANGE THE "RULES OF THE GAME" 
UNILATERALLY. SINCE THE EARLY 1990S, THE THREE SOCIAL 
PARTNERS -- GOVERNMENT, EMPLOYERS, AND UNIONS -- HAVE ENGAGED 
IN A PROCESS OF "CONCERTAZIONE" -- ROUGHLY TRANSLATED AS 
"CONSULTATION" -- TO HAMMER OUT SOCIAL AND ECONOMIC POLICY 
THROUGH CONSENSUS. THIS WAS BELIEVED TO BE ESSENTIAL TO 
STABILITY DURING A TIME WHEN RULING COALITIONS WERE WEAK. TO 
TRADE UNIONISTS, THE GOVERNMENT'S ACTION ON ARTICLE 18 IS AN 
ATTEMPT BY IT AND EMPLOYERS TO TILT THE BALANCE OF POWER IN 
THEIR FAVOR. (COMMENT: THE UNIONS' FEAR THAT THE GOVERNMENT 
AND EMPLOYERS ARE TRYING TO SHIFT THE BALANCE IS NOT FAR OFF 
THE MARK. THE EMERGENCE AFTER THE MAY 2001 ELECTIONS OF A 
SIZABLE AND CENTER-RIGHT MAJORITY HAS MEANT THAT UNIONS' 
PARTICIPATION IN ECONOMIC POLICY-MAKING IS NO LONGER 
REQUIRED. END COMMENT) RESPONDING TO THIS PERCEIVED THREAT, 
CGIL, JOINED BY UNIONS CISL AND UIL, SUCCESSFULLY ORGANIZED 
THE LARGEST ONE-DAY GENERAL STRIKE IN RECENT ITALIAN HISTORY 
ON APRIL 16TH. 
 
¶15. (SBU) DESPITE THE STRIKE'S SUCCESS, THE BERLUSCONI 
GOVERNMENT EMERGED LARGELY UNSCATHED.  OPINION POLLS STILL 
GIVE OVERWHELMING MAJORITY SUPPORT TO THE CENTER-RIGHT 
GOVERNMENT.  RECENT LOCAL ELECTIONS (WITH NONE OF ITALY'S 
MAJOR CITIES OR MORE SIGNIFICANT PROVINCES INVOLVED) SAW NO 
LOSS IN CENTER-RIGHT POWER.  THE BERLUSCONI GOVERNMENT 
                       UNCLASSIFIED 
 
PAGE 04        ROME  02794  03 OF 04  101656Z 
MAINTAINS THAT IT STILL INTENDS TO CONSULT WITH UNIONS OVER 
ARTICLE 18. 
¶16. (SBU) INDEED, THE GOVERNMENT IS NOT RUSHING TO ENACT ITS 
PROPOSED CHANGES TO ARTICLE 18 AND RECENTLY DROPPED THE 
MEASURE OUT OF AN OMNIBUS LABOR REFORM BILL, WHILE 
"POSTPONING" ARTICLE 18 CHANGES TO AN UNDEFINED FUTURE 
OCCASION. LABOR MINISTER MARONI HAS CALLED FOR A NEW SOCIAL 
PACT ON LABOR AND WELFARE, AND OFFERED A SEAT AT THE TABLE TO 
ALL UNIONS, WITH A SPECIAL APPEAL TO CGIL.  CISL AND UIL 
ACCEPTED THE GOVERNMENT'S OFFER; CGIL DID NOT AND HAS CALLED 
FOR NEW ROUND OF REGIONAL STRIKES. 
 
¶17. (SBU) HOW THIS CONFRONTATION WILL ULTIMATELY PLAY OUT IS 
STILL UNCERTAIN. UNLIKE 1994, BERLUSCONI DOES NOT FEAR THAT 
HIS COALITION WILL BREAK APART BECAUSE OF UNION OPPOSITION. 
INDEED, THE NORTHERN LEAGUE, THE WITHDRAWAL OF WHICH FROM THE 
GOVERNING COALITION WAS RESPONSIBLE FOR THE DEMISE OF THE 
PREVIOUS BERLUSCONI GOVERNMENT, IS SPEARHEADING THE CHARGE 
FOR SUCH REFORM. LABOR MINISTER MARONI, A NORTHERN LEAGUE 
PARTY MEMBER, IS THE ARCHITECT OF THE LABOR REFORMS. 
MAJORITY POPULAR SUPPORT FOR THE BERLUSCONI GOVERNMENT ALSO 
STRENGTHENS ITS POSITION. 
 
¶19. (SBU) WHATEVER THE OUTCOME -- AN OUTRIGHT WIN FOR THE 
GOVERNMENT, A WATERED-DOWN COMPROMISE VERSION OF ARTICLE 18 
 
                       UNCLASSIFIED 
 
                           UNCLASSIFIED     PTQ8066 
 
PAGE 01        ROME  02794  04 OF 04  101656Z 
ACTION EUR-00 
 
INFO  LOG-00   NP-00    AGRE-00  AID-00   CEA-01   CIAE-00  CTME-00 
      DODE-00  ITCE-00  DOTE-00  WHA-00   SRPP-00  DS-00    EB-00 
      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   PMB-00   DSCC-00  DRL-02   G-00     NFAT-00 
      SAS-00     /009W 
                  ------------------BAD841  101656Z /38 
P 101722Z JUN 02 
FM AMEMBASSY ROME 
TO SECSTATE WASHDC PRIORITY 4144 
INFO EU MEMBER STATES COLLECTIVE PRIORITY 
AMCONSUL FLORENCE PRIORITY 
AMCONSUL FRANKFURT PRIORITY 
AMCONSUL MILAN PRIORITY 
AMCONSUL NAPLES PRIORITY 
DEPT OF TREASURY WASHDC PRIORITY 
USEU BRUSSELS PRIORITY 2701 
USDOC WASHDC PRIORITY 
 
UNCLAS SECTION 04 OF 04 ROME 002794 
 
SIPDIS 
 
SENSITIVE 
 
DEPT FOR EUR/WE, EUR/ERA, EB/OMA 
TREASURY FOR OASIA - HARLOW, JONES 
                       UNCLASSIFIED 
 
PAGE 02        ROME  02794  04 OF 04  101656Z 
STATE PASS FEDERAL RESERVE BANK 
FRANKFURT FOR WALLAR 
 
E.O. 12958: N/A 
TAGS: ECON EFIN ELAB PGOV EFIN ELAB PGOV EFIN ELAB PGOV EFIN ELAB PGOV IT ITECON ITECON ITECON
SUBJECT: BERLUSCONI'S FIRST YEAR ECONOMIC SCORECARD 
 
REFORM (THE TWO OPTIONS MOST LIKELY), OR A RETREAT BY THE 
GOVERNMENT (LEAST LIKELY) -- ONE THING IS CERTAIN: 
SIGNIFICANT LABOR REFORM IS YEARS AWAY.  ARTICLE 18 REFORM IS 
PERIPHERAL TO REFORMS THAT ARE TRULY NEEDED. 
 
COMMENT 
------- 
 
¶20. (SBU) THE BERLUSCONI GOVERNMENT HAS YET TO FACE STRONG 
CRITICISM FOR FAILURE TO REVERSE ITALY'S ECONOMIC SLOWDOWN. 
THE EVENTS OF SEPTEMBER 11 AND THE GLOBAL ECONOMIC WOES 
CONTINUE TO BUY THE GOVERNMENT TIME.  IN ADDITION, THE PUBLIC 
AND POLITICAL OBSERVERS SEEM TO UNDERSTAND THAT THE 
GOVERNMENT IS SERIOUS ABOUT ECONOMIC REFORM.  ITS EXPRESSED 
DESIRE TO CONSULT WITH UNIONS ALSO HAS BOUGHT THE GOVERNMENT 
PUBLIC GOOD WILL. 
 
¶21. (SBU) CRITICISM IS, HOWEVER, HEATING UP.  THE EUROPEAN 
COMMISSION HAS CRITICIZED ITALY FOR ITS BALLOONING BUDGET 
DEFICIT. CENTRAL BANK GOVERNOR FAZIO, IN HIS ANNUAL ADDRESS 
ON MAY 30, RAISED CONCERNS ABOUT THE INSUSTAINABILITY OF THE 
PUBLIC DEFICIT.  THE GOVERNMENT CAN NOT DELAY MUCH LONGER ON 
BOTH SHORT-TERM AND LONG-TERM MEASURES TO CUT SPENDING, REIN 
IN THE DEFICIT, AND STIMULATE GROWTH. THE NEXT MONTHS ARE 
                       UNCLASSIFIED 
 
PAGE 03        ROME  02794  04 OF 04  101656Z 
CRITICAL. IF THE BELUSCONI GOVERNMENT DOES NOT SOON IMPLEMENT 
THE RIGHT MIX OF FISCAL FIXES AND BEGIN TO ENACT SIGNIFICANT 
REFORMS, THE ROAD TO A STRONG ECONOMIC RECOVERY WILL BECOME 
EVEN LONGER AND HARDER.  MOREOVER, THE EFFECTS OF ANY 
SUCCESSFUL REFORM WILL NOT BE FELT BEFORE THE NEXT NATIONAL 
ELECTION IN 2005. 
SEMBLER 
 
                       UNCLASSIFIED 
 
> 
 2002ROME02794 - Classification: UNCLASSIFIED

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Viewing cable 02ROME2794, BERLUSCONI'S FIRST YEAR ECONOMIC SCORECARD