VZCZCXRO5821
PP RUEHFL RUEHNP
DE RUEHRO #1900 1810925
ZNR UUUUU ZZH
P 300925Z JUN 06
FM AMEMBASSY ROME
TO RUEHC/SECSTATE WASHDC PRIORITY 5230
RUEATRS/DEPT OF TREASURY WASHDC PRIORITY
INFO RUEHMIL/AMCONSUL MILAN 7313
RUEHNP/AMCONSUL NAPLES 1609
RUEHFL/AMCONSUL FLORENCE 1539

UNCLAS ROME 001900 
 
SIPDIS 
 
SIPDIS 
 
TREASURY FOR U/S TIMOTHY ADAMS 
 
E.O. 12958: N/A 
TAGS: ECON ETRD EFIN OVIP IT
SUBJECT: SCENESETTER FOR U/S ADAMS' VISIT TO ROME, JULY 
5-6, 2006 
 
 
¶1.  (U) Summary.  Embassy Rome warmly welcomes the visit of 
Treasury Under Secretary for International Affairs Timothy 
Adams at this important juncture in U.S. - Italy relations as 
the new center-left government takes hold.  Your meetings at 
the Ministry of Finance and Bank of Italy will provide us the 
opportunity to engage the GOI on issues of mutual concern, 
such as revitalizing Italy's stagnant economy, and will 
enable us to get a better sense of the center-left 
government's economic priorities.  End summary. 
 
The Italian Economy: A Tough Road Ahead 
--------------------------------------- 
 
¶2.  (U) Italy's economy is not growing, but its deficit and 
public debt are.  Modest first quarter 2006 growth of 1.6 
percent is cause for joy only when compared with average 
annual GDP growth over the last five years of 0.66 percent. 
As a Eurozone member, Italy is obliged by the Stability and 
Growth Pact to keep its deficit below 3.8 percent of GDP and 
debt below 60 percent of GDP.  An independent panel of 
Italian economists said June 5 that Italy's deficit in 2006 
is on trend to end the year between 4.1 - 4.6 percent of GDP. 
 The Berlusconi government had reached an agreement with 
Eurozone members to bring the deficit down to 3.8 percent of 
GDP in 2006 and then to 3.0 percent by 2007.  Italy's public 
debt rose last year for the first time since 1994 and hit 
106.4 per cent of GDP.  Public debt is on track this year to 
rise to 108 percent.  Standard & Poor's and Fitch have both 
threatened to lower Italy's sovereign debt rating from its 
current AA rating.  The spread between Italian and German 
10-year bonds is up from 0.19 percent to 0.32 percent since 
March 2006. 
 
¶3.  (U) The center-left government faces the daunting 
challenge of bridging the gap between limited budget 
resources and growing social, welfare, and health care costs. 
 Complicating this task is the governing coalition's 
razor-thin majority in both houses of Parliament, a situation 
that gives parties on the far left a disproportionate amount 
of political clout.  The GOI's challenge is to show it is 
serious about reducing the deficit and debt, at the same time 
finding the money necessary to meet its spending priorities. 
During a pull-aside with Secretary Snow at the June 10 G-8 
Finance Ministerial in St. Petersburg, Finance Minister 
Padoa-Schioppa said he planned to tighten Italy's budget in 
2006, but admitted he would not be able to stop the growth of 
the debt/GDP ratio. 
 
The Partnership For Growth 
-------------------------- 
 
¶4.  (U) The stagnant economy is at the heart of Italy's 
economic and budgetary woes.  Economic growth would simplify 
the job of reducing the deficit and debt, at the same time 
enabling Italy to continue to play a leading role on the 
world stage.  To this end, Ambassador Spogli introduced "the 
Partnership for Growth" during a late April speech to Italy's 
leading industrialists.  The goal of the Partnership for 
Growth is to promote economic dynamism in the Italian 
economy.  The program seeks first to encourage increased 
university-private sector collaboration to strengthen 
technology transfer and the creation of new companies. 
Second, the Partnership seeks to broaden and deepen capital 
markets, especially access to risk capital.  The third 
objective of the initiative is to promote stronger 
intellectual property rights protection to encourage 
innovation.  Finally, we are in the early stages of exploring 
ways to create a mechanism to send more Italian science, 
engineering, and business/economic graduates to the United 
States to study entrepreneurship and gain a first-hand 
appreciation for the business culture and practices of 
high-growth U.S. enterprises.  We hope our activities in 
these areas will form a virtuous cycle, such as the one 
created between Stanford University, Berkeley, and the 
start-ups of Silicon Valley, which has driven tremendous 
growth in the American economy in recent decades and which 
has been repeated many times in universities around the 
United States. 
 
¶5.  (U) The Embassy has been aggressive in reaching out to 
GOI officials to engage them on the goals of the Partnership 
for Economic Growth.  GOI officials have responded positively 
to our efforts.  Your visit is an opportunity to remain 
engaged with the highest levels of the GOI concerning this 
important initiative. 
SPOGLI