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 04 ROME 001117 
 
SIPDIS 
 
 
E.O. 12958: DECL: 03/14/2008 
TAGS: ECON PGOV PREL ELAB IT NATO ITALIAN POLITICS EUN
SUBJECT: FINANCE MINISTER TREMONTI SPEAKS HIS MIND ON 
ECONOMIC REFORM, THE EU AND ITALY'S PRESIDENCY, DEFENSE 
SPENDING, AND IRAQ 
 
REF: ROME 579 
 
CLASSIFIED BY: AMBASSADOR MEL SEMBLER FOR REASONS 1.5 (B) AND (D) 
 
¶1. (C) SUMMARY:  ECONOMIC REFORM, INCLUDING OF THE PENSION 
SYSTEM, WILL MOVE FORWARD THIS YEAR, FINANCE MINISTER GIULIO 
TREMONTI UNDERSCORED IN A WIDE-RANGING DISCUSSION WITH 
AMBASSADOR AND EMBOFFS ON MARCH 13TH. FRUSTRATED WITH 
STABILITY PACT CONSTRAINTS IMPOSED BY BRUSSELS, TREMONTI SAID 
THAT ITALY, AS EU PRESIDENT, WOULD PROMOTE A "NEW WAY OF 
THINKING" ABOUT BUSINESS AND MARKETS. THE GOI IS CONCERNED 
ABOUT THE ECONOMIC CONSEQUENCES OF MILITARY ACTION IN IRAQ 
AND ALREADY IS DESIGNING AN EMERGENCY ECONOMIC STIMULUS 
PACKAGE.  ALSO ON IRAQ, TREMONTI NOTED HE HAD PLAYED A 
PERSONAL ROLE IN ENSURING FIRM GOI POLITICAL SUPPORT FOR THE 
U.S. POSITION.  END SUMMARY. 
 
¶2. (SBU) AT THE INVITATION OF THE AMBASSADOR, MINISTER OF 
ECONOMY AND FINANCE TREMONTI AND HIS SENIOR ADVISOR ANTONIO 
PETRONE PARTICIPATED IN AN INFORMAL LUNCH AT THE AMBASSADOR'S 
RESIDENCE.  ECMIN AND ECONOFF (NOTETAKER) ALSO ATTENDED. 

ECONOMIC REFORM 
--------------- 
 
¶3. (SBU) IN THE SUMMER OF 2001, TREMONTI SAID THAT HE AND HIS 
ECONOMIC TEAM HAD BEEN RIDING ON A CREST.  PARLIAMENT HAD 
RAPIDLY PASSED THE 100-DAY-ECONOMIC PROGRAM, INCLUDING 
MEASURES DESIGNED TO JUMP-START THE ECONOMY, SUCH AS TAX 
BREAKS FOR BUSINESSES.  "THEN SEPTEMBER 11 HAPPENED, AND ALL 
OUR PLANS HAD TO BE POSTPONED," TREMONTI ACKNOWLEDGED. 
ITALY, LIKE ALL OTHER MAJOR ECONOMIES, CONTINUES TO STRUGGLE 
IN RESPONSE TO THE EFFECTS OF THE GLOBAL RECESSION AGGRAVATED 
BY THE TERRORIST ATTACKS AND THE UNCERTAINTY ABOUT MILITARY 
ACTION IN THE MIDDLE EAST. 
 
¶4. (SBU) THAT SAID, TREMONTI NOTED PROUDLY, THE GOVERNMENT, 
DEFYING ITS CRITICS, HAS INTRODUCED SOME IMPORTANT ECONOMIC 
REFORMS, WHICH PARLIAMENT RECENTLY PASSED.  (NOTE: TREMONTI 
WAS REFERRING PRIMARILY TO THE BIAGI LAW (REFTEL), WHICH 
INTRODUCES NEW KINDS OF FLEXIBLE LABOR CONTRACTS, INCLUDING: 
"JOB ON CALL,"  UNDER WHICH THE EMPLOYER PAYS THE WORKER A 
RETAINER AND CAN EMPLOY HIM WHENEVER  NEEDED; JOB SHARING; 
AND "STAFF LEASING," ESSENTIALLY HIRING WORKERS FROM AN 
EMPLOYMENT AGENCY.  THE LAW ALSO REDUCES BARRIERS TO 
PART-TIME HIRING IN ORDER TO ENCOURAGE EMPLOYMENT OF YOUNG 
PEOPLE AND WOMEN. COMPANIES WILL RECEIVE MORE FREEDOM TO 
"OUTSOURCE" ASPECTS OF THEIR BUSINESS AND WILL BE REQUIRED TO 
PROVIDE MORE TRAINING TO APPRENTICESHIP EMPLOYEES.  END 
NOTE.) TREMONTI ARGUES THAT BECAUSE OF THE BIAGI LAW AND 
PREVIOUS MEASURES TAKEN BY THIS GOVERNMENT, ITALIAN LABOR 
MARKETS WILL SOON BE AMONG THE MORE FLEXIBLE IN EUROPE. 

¶5. (SBU) PENSION REFORM IS THE TOUGHEST CHALLENGE AHEAD, 
TREMONTI ACKNOWLEDGED.  NONETHELESS, THE BERLUSCONI 
GOVERNMENT IS COMMITTED TO TACKLING THIS PROBLEM HEAD-ON, 
INCLUDING BY CREATING "DISINCENTIVES" FOR THOSE WHO RETIRE 
EARLY.  "WE HAVE TO CONVINCE ITALIANS TO THINK DIFFERENTLY 
ABOUT RETIREMENT BENEFITS.  A FUNDAMENTAL CREED OF 
DEMOCRACIES IS NO TAXATION WITHOUT REPRESENTATION," TREMONTI 
MUSED.  "WHAT WE HAVE NOW IS REPRESENTATION - I.E., PENSIONS 
-- WITHOUT TAXATION.  ITALIANS MUST BEAR MORE OF THE 
FINANCIAL BURDEN." 
 
¶6. (C) PENSION REFORM MEASURES WILL BE INTRODUCED IN THE 
SUMMER, AFTER LOCAL ELECTIONS AND MILITARY ACTION IN IRAQ. 
(NOTE: LOCAL ELECTIONS ARE IN MAY.  END NOTE.) AS THE ECMIN 
POINTED OUT, SOME OBSERVERS OF ITALY'S ECONOMIC SCENE BELIEVE 
THAT THE BERLUSCONI GOVERNMENT HAS ONLY THIS YEAR TO ENACT 
FUNDAMENTAL ECONOMIC REFORMS, IN LIGHT OF THE ECONOMIC 
CONSEQUENCES OF EU ENLARGEMENT AND OF EUROPEAN PARLIAMENTARY 
ELECTIONS IN 2004.  TREMONTI DOWNPLAYED THIS POSSIBILITY, 
ARGUING THAT SIGNIFICANT REFORMS TAKE TIME AND THE GOI IS 
MAKING PROGRESS. NEVERTHELESS, TREMONTI AGAIN REITERATED THAT 
THE GOI PLANS TO MOVE AHEAD BOLDLY, ONCE IRAQ-RELATED 
UNCERTAINTIES AND ITALIAN LOCAL ELECTIONS ARE NO LONGER 
ISSUES. 
 
ROME 00001117  002 OF 004 
 
CRITICIZED THE STABILITY AND GROWTH PACT. "YOU CAN HAVE 
GROWTH WITHOUT STABILITY AND STABILITY WITHOUT GROWTH.  THE 
PACT AS IT EXISTS NOW PROVIDES NEITHER," HE REMARKED. 
DEFICIT SPENDING, EVEN IF ON THE ORDER OF THE UNITED STATES, 
IS NECESSARY FOR LONG-TERM GROWTH.  ZERO-GROWTH, WHICH IS AN 
ALMOST INEVITABLE CONSEQUENCE OF THE PACT AS DESIGNED, IS NOT 
TOLERABLE ECONOMICALLY OR POLITICALLY.  THE MODEL OF 
ONE-SIZE-FOR-ALL FIFTEEN JUST DOES NOT WORK, TREMONTI ARGUED. 
 
¶8. (C) REGARDING THE COMMISSION, TREMONTI RECALLED THAT ITALY 
WAS IN A DIFFICULT SPOT LAST SUMMER.  ECONOMIC DATA AND 
FORECASTS WERE INDICATING THAT ITALY MIGHT EXCEED 2002 
STABILITY PACT TARGETS.  THE GOI HAD HEARD INDICATIONS FROM 
BRUSSELS THAT IT MIGHT BE THE FIRST TO RECEIVE AN EARLY 
WARNING.  POLITICALLY, THE GOI DID NOT WANT TO BE AT THE TOP 
OF THE LIST NOR EVEN SINGLED OUT FOR "EARLY WARNING." IN A 
    SELF-CONGRATULATORY TONE, HOWEVER, TREMONTI COMMENTED THAT 
HIS ECONOMIC TEAM'S PRESENTATION TO THE COMMISSION WAS A 
"MASTERPIECE," WHICH CONVINCED THE COMMISSION THAT ITALY'S 
ECONOMIC PERFORMANCE, WHILE SUB-PAR, SHOULD NOT BE 
CRITICIZED.   WITH GERMANY AND FRANCE'S ECONOMIES PERFORMING 
EVEN MORE POORLY, THE COMMISSION COULD NOT RISK CRITICIZING 
THE BIG THREE; OTHERWISE THE VIABILITY OF STABILITY PACT 
ITSELF WOULD BE JEOPARDIZED. 
 
IRAQ - ITALY'S SUPPORT 
---------------------- 
 
¶9. (C) TREMONTI CONFIDED TO THE AMBASSADOR THAT HE HAD TO 
PERSONALLY CONVINCE NATIONAL LEAGUE CHAIRMAN UMBERTO BOSSI 
THAT ITALY HAD TO SUPPORT THE UNITED STATES IN THE WAR 
AGAINST GLOBAL TERRORISM AND, SPECIFICALLY, REGARDING IRAQ. 
BOSSI, HE SAID, INITIALLY SAW THE CONFLICT AS ONE AGAINST 
MUSLIMS GENERALLY AND OPPOSED ITALIAN SUPPORT FOR U.S. 
ACTION.  TREMONTI SAID HE EVENTUALLY CONVINCED BOSSI OF THE 
MERITS OF THE U.S. POSITION AND THE RATIONALE FOR STRONG 
ITALIAN SUPPORT.  COMMENT: TREMONTI IS A CLOSE PERSONAL 
FRIEND OF BOSSI AND IS USED BY THE PRIME MINISTER TO HELP 
KEEP THE NORTHERN LEAGUE IN SYNC WITH THE REST OF THE 
CENTER-RIGHT COALITION.  END COMMENT. 
 
¶10. (C) NOTE: TREMONTI IS NOT THE ONLY FINANCE MINISTRY 
OFFICIAL TO TAKE A STRONG STAND IN FAVOR OF GOI SUPPORT FOR 
THE U.S. ON IRAQ.  EARLIER IN THE WEEK, FINANCE'S VICE 
MINISTER MARIO BALDASSARI TOLD A GROUP OF DIPLOMATS FROM OECD 
GOVERNMENTS THAT ITALY, AND EUROPE IN GENERAL, HAD A MORAL 
OBLIGATION TO HELP THE UNITED STATES.  THE U.S., HE OBSERVED, 
    HAD COME TO THE ECONOMIC RESCUE OF EUROPE AFTER WORLD WAR II; 
AMERICAN TAXPAYERS HAD PAID THE BURDEN SO THAT EUROPEANS 
COULD BECOME RICH.  NOW, IT IS "OUR TURN," HE ARGUED, TO HELP 
BEAR THIS BURDEN.  IN ADDITION, EUROPEANS HAD A MORAL 
OBLIGATION TO HELP THE PEOPLE OF THE MIDDLE EAST BY 
ENCOURAGING DEMOCRACY IN THE REGION.  WE HAVE LIVED AND 
GOTTEN RICH OFF THEIR NATURAL RESOURCES AND NOW, WE MUST PAY 
OUR DEBT, HE ARGUED FERVENTLY. END NOTE. 
 
IRAQ - ECONOMIC CONSEQUENCES FOR ITALY 
-------------------------------------- 
 
¶11. (C) TREMONTI SAID THE GOI ASSUMES THAT ANY MILITARY 
ACTION IN IRAQ WILL DEPRESS, HOPEFULLY ONLY TEMPORARILY, THE 
GLOBAL ECONOMY EVEN FURTHER. THE GOI IS, THEREFORE, DESIGNING 
AN EMERGENCY ECONOMIC PACKAGE TO STIMULATE ITALY'S NATIONAL 
ECONOMY.  TREMONTI SAID HE CHAIRED A MARCH 12 
INTER-MINISTERIAL MEETING, WHICH IDENTIFIED MEASURES, 
INCLUDING A NEW ROUND OF TAX BREAKS FOR BUSINESSES AND 
INCENTIVES FOR CONSUMER SPENDING. 
 
DEFENSE SPENDING 
---------------- 
 
¶12. (C) TREMONTI RUEFULLY ACKNOWLEDGED THAT HE WAS ON THE 
 
ROME 00001117  003 OF 004 
 
PENDING IN ALL BUDGETS, THE 
PRIME MINISTER AND DEFENSE MINISTER MARTINO PERSUASIVELY 
LOBBIED TO MAINTAIN A DEFENSE BUDGET SUFFICIENT FOR ITALY TO 
MEET ITS BASIC DEFENSE REQUIREMENTS IN NATO AND UNDER THE 
EUROPEAN SECURITY DEFENSE POLICY.  WHEN THE AMBASSADOR 
POINTED OUT ALL THE BENEFITS TO ITALY FOR ITS PARTICIPATION 
IN THE JOINT STRIKE FIGHTER, INCLUDING IN RESEARCH AND 
DEVELOPMENT, TREMONTI CONCURRED.  BUT, HE SAID, HE HAD 
STRESSED WITH MARTINO THE DIFFICULTY FOR ITALY TO PARTICIPATE 
FINANCIALLY IN TWO JET FIGHTER PROJECTS, THE EURO-FIGHTER AND 
JSF.  BOTH TREMONTI AND PETRONE ACKNOWLEDGED THAT THE JSF IS 
A FAR SUPERIOR PLANE.  THE EURO-FIGHTER, PETRONE, COMMENTED 
SARDONICALLY, HAS BEEN ON THE DRAWING BOARD FOR 30 YEARS AND 
STILL IS NOT RIGHT.  UNFORTUNATELY, HOWEVER, ITALY HAS TO 
ABIDE BY ITS CONTRACTUAL COMMITMENTS FOR THE PURCHASE OF 121 
EURO-FIGHTERS, THEY NOTED.  (COMMENT: WE DO NOT BELIEVE THAT 
TREMONTI WILL ATTEMPT TO CUT SPENDING FOR THE JSF.  RATHER, 
HE WAS AND IS FACING THE CHALLENGE OF RATIONALIZING SPENDING 
-- AS ANY GOOD FINANCE MINISTER MUST.  END COMMENT.) 
 
    EU CONVENTION 
------------- 
 
¶13. (C) WHEN QUERIED BY THE AMBASSADOR ABOUT THE EU 
CONVENTION, BOTH TREMONTI AND PETRONE STRONGLY ARGUED THAT 
THE CONVENTION PROCEEDINGS ARE A "DISASTER."   IDEOLOGICALLY, 
THEY OPPOSE THE DIRECTION IN WHICH THE PROCEEDINGS ARE GOING; 
THE STRUCTURE BEING CREATED IS TOO STATIST, IF NOT OUTRIGHT, 
SOCIALIST, THEY ARGUED.  PETRONE WAS THE MOST VOCIFEROUS, 
ARGUING THAT THE CONVENTION IS A "CONSTITUTIONAL TAKEOVER OF 
EUROPE BY GERMANY."  SOME OF THE CONVENTION'S DRAFT ARTICLES, 
HE MAINTAINED, MIRROR TO THE WORD ARTICLES IN GERMANY'S BASIC 
LAW.  WHAT THE CONVENTION IS ATTEMPTING TO DO, TREMONTI 
REMARKED, IS ELIMINATE COMPETITION AMONG THE MEMBER STATES 
AND RATHER, TRANSFER "NATIONAL CARTELS" TO THE PAN-EUROPEAN 
LEVEL.  THAT IS NOT WHAT WE WANT TO HAVE DONE, HE SAID. 
 
¶14. (C) TREMONTI AND PETRONE ACKNOWLEDGED THAT THE PRIME 
MINISTER IS EAGER TO HAVE A SECOND "TREATY OF ROME" SIGNED 
DURING ITALY'S EU PRESIDENCY.  NEITHER IS CONFIDENT, HOWEVER, 
THAT THE CONVENTION PROCEEDINGS WILL BE FINISHED BEFORE OR 
EVEN DURING ITALY'S PRESIDENCY.   THEY HAVE NOT BROACHED THE 
SUBJECT WITH THE PM.  BOTH BELIEVE A SLOWER PACE WOULD BE 
BENEFICIAL, ALLOWING MEMBER STATES SUCH AS THE UK AND ITALY 
TO ADDRESS SOME OF THE MORE QUESTIONABLE PROVISIONS. 
 
ITALY'S EU PRESIDENCY 
--------------------- 
 
¶15. (C) TREMONTI'S FRUSTRATION WITH BRUSSELS WAS CLEAR IN HIS 
RESPONSE TO THE AMBASSADOR'S QUERY ABOUT ITALY'S EU 
    PRESIDENCY PRIORITIES.   "WE WANT TO PROPOSE SOME RADICAL 
MEASURES, WHICH ECOFIN WILL JUST BLOCK.  SO I'LL JUST HAVE TO 
GO AROUND ECOFIN AND SPEAK DIRECTLY TO THE PEOPLE AND TO 
BUSINESS," TREMONTI REMARKED.   WITHOUT GONG INTO THE FINER 
ASPECTS OF THESE PROPOSALS, TREMONTI SAID THE GOI WILL FOCUS 
ON THREE AREAS: FREE TRADE, KEEPING PRODUCTION IN EUROPE, AND 
A "NEW DEAL" FOR MARKETS AND BUSINESSES. HE IS NOT CERTAIN 
HIS COUNTERPARTS IN THE EU WILL CONCUR.  ONLY THE FRENCH 
FINANCE MINISTER IS THINKING ALONG SIMILAR LINES, HE 
REMARKED. 
 
¶16. (SBU) REGARDING FREE TRADE AND PRODUCTION, TREMONTI 
SKETCHED, LITERALLY ON A NAPKIN, TWO SEEMINGLY IDENTICAL "CE" 
TRADEMARK SYMBOLS - ONE THAT DESIGNATES PRODUCTS MADE IN THE 
EUROPEAN UNION, THE OTHER MADE IN CHINA.  THAT THE TWO 
SYMBOLS ARE IDENTICAL IS NOT JUST A COINCIDENCE.  CHINA, HE 
SAID, IS TAKING AWAY MUCH OF WESTERN PRODUCTION AND MARKETS. 
 TRADE MUST BE FREE, TREMONTI STATED, BUT IT MUST ALSO BE 
EQUITABLE. 
TERRORISM FINANCE 
----------------- 
 
¶17. (C) IN RESPONSE TO THE AMBASSADOR'S EXPRESSED 
APPRECIATION FOR ITALY'S EFFORTS ON HALTING FINANCIAL SUPPORT 
FOR TERRORISM, TREMONTI NOTED THAT WHILE PROGRESS HAS BEEN 
 
ROME 00001117  004 OF 004 
 
 IT WILL NEVER BE TRACED. 
TO STAUNCH THE FLOW OF FUNDS, TREMONTI ARGUED VIGOROUSLY THAT 
IT WAS ESSENTIAL TO GET THE SWISS TO CHANGE THEIR BANK 
SECRECY LAWS. 
 
COMMENT 
------- 
 
¶18. (C) WE SAW A RELAXED, CONFIDENT FINANCE MINISTER, WHO 
LACED HIS COMMENTS WITH MUCH SARCASM AND WIT.  TREMONTI KNOWS 
HE HAS THE CONFIDENCE OF THE PRIME MINISTER, A TRUST 
CERTAINLY BOLSTERED BY TREMONTI'S ABILITY TO PERSUADE A 
SKEPTICAL BOSSI REGARDING IRAQ.  HE WAS UNABASHED IN HIS 
CRITICISM OF BRUSSELS AND OTHER EU GOVERNMENTS AND FRANK 
ABOUT THE CHALLENGES OF ENACTING REFORMS, BOTH WITHIN ITALY 
AND IN EUROPE AS A WHOLE.  HE ALSO ACKNOWLEDGED THE PROBLEMS 
OF DOING BUSINESS IN ITALY AND EXPRESSED HIS COMMITMENT TO 
MAKING THE MARKET MORE TRANSPARENT AND FREER.  IN THE 
EMBASSY'S VIEW, TREMONTI'S LEADERSHIP AND CONTINUED STRONG 
PRESENCE IN THE GOVERNMENT REMAINS AN ESSENTIAL PREREQUISITE 
    FOR FURTHER ECONOMIC REFORM IN ITALY.  END COMMENT. 
 
SEMBLER 
 
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 2003ROME01117 - Classification: CONFIDENTIAL