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C O N F I D E N T I A L SECTION 01 OF 04 ROME 000159 
 
SIPDIS 
 
E.O. 12958: DECL: 02/06/2018 
TAGS: PGOV PREL IT

SUBJECT: SCENESETTER FOR SPEAKER PELOSI'S FEBRUARY 13-22 
VISIT TO ITALY 



ROME 00000159  001.2 OF 004 
 
 
Classified By: Charge d'Affaires a.i. Elizabeth Dibble for reasons 1.4 
(b) and (d). 
 
¶1. (C) Madame Speaker, I would like to extend a warm welcome 
from Team Italy in anticipation of your upcoming visit.  Your 
trip comes at a critical moment as the Berlusconi government 
seeks to understand how it fits into the new Administration's 
reengagement with Europe.  Berlusconi's close personal ties 
to President Bush and his position on the right hand side of 
the political spectrum are leading some here to fear that 
U.S.-Italian relations have already become cooler.  Your 
visit will serve to reassure the GOI that Italy still remains 
within the inner circle of Allies that we rely on in the most 
difficult of moments.  But it is also an opportunity to 
challenge them to do more in Afghanistan, moderate their 
behavior as a proxy for Russian policies in Europe, be a 
reliable partner on Iran and work closely with us to address 
the global financial crisis which is rapidly undermining 
Italy's already sclerotic economy. 
 


Domestic Politics: Berlusconi in Control, 
but Challenges Emerging 
- - - - - - - - - - - - - - - - - - - - - 
 

¶2. (C) After two years of a divided and ineffectual 
center-left government, Italy saw Silvio Berlusconi return to 
power last year.  Berlusconi enjoys a broad base of power 
that has allowed us to make good progress in continuing to 
advance our agenda.  He used his first months back in office 
to deliver results on election promises, though long-term 
solutions to most problems are still needed.  The trash 
problem in Naples is not yet permanently solved, but the 
streets are cleared and troops are keeping dumps and 
incinerators open.  Public worries about street crime have 
been addressed by a sweeping new security law.  A public 
finance law has overhauled the annual budget process, which 
traditionally has eaten up months of Parliament's time, but 
Italy's faltering economy casts doubt on whether budget 
targets will be met.  Berlusconi's government drafted and 
passed these laws mostly without consulting the center-left 
opposition, which has grown more fragmented and less 
effective.  Most foreign policy initiatives are directed by 
Berlusconi personally without the need of any legislation. 
 


¶3. (C) Berlusconi's honeymoon period now appears to be over 
as some key initiatives have stalled and intra-coalition 
squabbling has begun to erupt.  Education reform was 
significantly scaled back after large protests in October, 
justice reform is stalled, and fiscal federalism is the 
subject of infighting between the Northern League (LN) and 
Berlusconi's People of Liberty (PdL) party.  In the run-up to 
the June 2009 European parliament elections, tensions between 
PdL and LN are sure to grow as LN seeks to differentiate 
itself from its larger partner.  The center left remains 
deeply divided, and the European elections will be a critical 
moment for it to evaluate whether it needs new leadership. 
 
Organized Crime: 

Slowing Growth 
and Fraying the Social Fabric 
- - - - - - - - - - - - - - - - 

 
¶4. (C) Organized crime remains a serious and pervasive 
problem throughout the country, particularly in the South. 
By some estimates, organized crime accounts for nine percent 
of Italy's GDP.  Crime syndicates are engaged in trafficking 
in drugs, arms and persons; extortion; the production and 
distribution of pirated and counterfeit products (including 
American movies, music and software); illegal construction; 
loan sharking; and illegal dumping of toxic waste.  There are 
some indications that the drug and arms trade have at least 
indirectly benefited terrorist groups in Colombia and Central 
Asia.  While there are some glimmers of hope (in Sicily, 
dramatic law enforcement successes and changing public 
attitudes have created severe problems for the Cosa Nostra's 
traditional hold on the island), these successes have not 
been replicated elsewhere.  The Camorra remains deeply 
entrenched in Campania, and Calabria is the base for Western 
Europe's largest Mafia group, the 'Ndrangheta.  There are 
large swaths of territory in southern Italy where the state 
is nearly completely absent and the crime syndicates control 
most facets of society and the economy.  These groups create 
a huge drag on Italy's economic growth and its ability to 
apply the rule of law.  The Berlusconi government has taken a 
hard line on crime, sending soldiers and more police to 
patrol cities.  Nonetheless, Mafia businesses have not been 
interrupted.  I hope you will mention, both publicly and 
 
ROME 00000159  002.2 OF 004 
 
 
privately, the importance for both Italy and the United 
States of the fight against organized crime.  We need both 
the public and the politicians to focus on just how damaging 
the mobs are to Italian society and economic well-being. 
 


Financial Crisis: Banks OK, But Economy Suffers 
- - - - - - - - - - - - - - - - - - - - - - - - 
 

¶5. (SBU) Because of a somewhat conservative banking sector, 
Italy did not suffer the kind of financial meltdown 
experienced elsewhere. Italian banks had little reason to 
engage in sub-prime lending, or buy significant assets 
derived from sub-prime loans overseas, given their dominance 
in their own high-margin, low-risk domestic market.  All the 
same, they were caught in the worldwide economic downturn at 
a time when earnings -- as opposed to asset quality -- were 
already coming under pressure due to Italy's anemic economic 
performance the previous 3 years.  Italy is now fully into a 
serious economic slowdown , with some economists predicting a 
GDP drop of 2 percent in 2009, the largest drop since 1975, 
when production shrunk by just over 2 percent.  The 
Berlusconi government has managed the public aspects of the 
crisis fairly well, focusing initially on maintaining the 
public's confidence in the banking system.  Italy has 
participated fully in the global coordinated response to the 
crisis, taking limited measures aimed at re-starting 
interbank lending and strengthening Italian banks' capital. 
The government is currently considering a modest economic 
stimulus package, while resisting calls for direct taxpayer 
assistance to specific industries, such as autos.  Italy has 
a limited ability to respond to this crisis with additional 
government spending because of its already very high 
government debt levels (around 104% of GDP). 
 


Russia: Indulging Putin's Worst Impulses 
- - - - - - - - - - - - - - - - - - - - - 
 

¶6. (C) Our cooperation with Berlusconi does not extend to all 
issues.  Energy dependence, close personal relations between 
Berlusconi and Putin, and a lack of institutional influence 
on Berlusconi's crafting of Italy's Russia policy (the MFA's 
entire Russia Department consists of one person and there is 
no one devoted exclusively to Russia in the PM's office) have 
made Italy one of Russia's most reliable partners in the EU 
in pressing the Kremlin's political agenda.  Italy's foreign 
policy with regard to Russia is now driven almost entirely by 
Berlusconi's desire to appease Putin and guarantee stable 
supplies of energy.  Contrary to the GOI's general positive 
actions on the ground, Berlusconi personally has been 
unhelpful, making zinger pronouncements undermining our 
efforts to bring stability to the Balkans, build closer ties 
between NATO and Georgia and Ukraine, and hold Russia 
accountable for its invasion of Georgia last summer.  He has 
publicly announced his intention to try to broker the 
relationship between President Obama and President Medvedev. 
You could usefully underline to PM Berlusconi, FM Frattini 
and Chamber President Fini that Italy's high-profile efforts 
to champion Putin's initiatives, especially when they appear 
to support archaic notions of a Russian ""sphere-of-influence"" 
over sovereign countries, will find no support in Washington, 
and indeed, may only damage Italy's credibility. 
 


Iran: Awaiting Promised New Direction in U.S. Policy 
- - - - - - - - - - - - - - - - - - - - - - - - - - - 
 

¶7. (C) Berlusconi entered office promising us more 
cooperation on Iran, and has been better than his predecessor 
in proffering a tough rhetorical line vis-a-vis Tehran.  That 
said, the GOI is still far from forceful in pushing for 
Iranian compliance with the demands of the international 
community, where such demands rub up against Italian 
commercial interests.  Italian diplomats have been obsessed 
with being included in the P5-plus-1 decision-making body on 
Iran sanctions, and have in the past dragged their feet on 
Iran actions due to displeasure about their exclusion.  GOI 
officials are pleased that we now routinely consult with them 
through the Quint mechanism prior to each P5-plus-1 meeting, 
but you may hear complaints that Italy is still not ""fully 
represented.""  Nevertheless, Italy has cooperated with us on 
Iran in a number of ways: it has placed Iranian banking 
activity in Italy under close supervision, and has recently 
cooperated on actions against Iran government shipping 
operations.  There is one problematic Iranian bank with ties 
to the regime still open in Rome: Bank Sepah.  The Italians 
are watching this bank closely, but still have not formally 
closed it.  You might take this opportunity to encourage full 
 
ROME 00000159  003.2 OF 004 
 
 
EU implementation of UNSCR 1803 and the broadest adoption of 
national measures.  You will likely be pressed for insight 
into the future direction of U.S. Iran policy under the new 
administration. 
 


Afghanistan: Willing to do More, 
But Wary of the Price Tag 
- - - - - - - - - - - - - - - - - 
 

¶8. (C) Italy is the sixth largest contributor to ISAF with 
2,600 troops and a PRT in Herat.  ISAF's Regional 
Command-West is under Italian command, and the Italian 
military has pledged to increase the number of training teams 
(OMLTs) provided for the Afghan Army to a total of seven. 
Italy's Carabinieri and Financial Police help to train Afghan 
Police, and Italy has agreed to send additional units to 
provide security during the August 20 Afghan Presidential 
Elections.  FM Frattini is eager to hold an 
Afghanistan-Pakistan Conference at the level of Foreign 
Ministers on the margins of the G8 Foreign Ministerial 
(Trieste June 26-27).  While Italian interlocutors routinely 
tell us that they cannot do much more in Afghanistan, we 
believe they are preparing a package of small increases for 
an eventual request from the Obama Administration.  You can 
remind Italy's leadership that the U.S. is about to almost 
double its troop commitments to Afghanistan and match that 
with a powerful package of civilian assistance, and encourage 
the GOI to overcome budgetary and political constraints to 
make significant new contributions to stabilizing 
Afghanistan. 
 


G8: The Ever-Growing Agenda 
- - - - - - - - - - - - - - 
 

¶9. (SBU) Italy's ambitious list of priorities for its G8 
Presidency include global financial governance, energy and 
climate change, Afghanistan, peacekeeping and development 
(particularly in Africa), food security and 
non-proliferation.  Italy will host a record nine G8 
Ministerials this year, culminating in the G8 Summit at La 
Maddalena, Sardinia.  Italy plans a greater role for the G8's 
traditional Outreach session, by seeking greater involvement 
from the ""Outreach Five"" (China, India, South Africa, Brazil 
and Mexico) in the final Summit Declaration and by inviting 
Egypt.  By expanding both the scope and the participation in 
the Summit, Italy runs the risk of diluting the agenda and 
duplicating efforts in areas like financial governance which 
are normally the purview of the G7 and G20. 
 


Gaza: Eager to Assist 
- - - - - - - - - - - 
 

¶10. (SBU) While Italy called on Israel to take all measures 
to avoid civilian casualties, it squarely laid the blame for 
the recent Gaza crisis at Hamas' feet and reconfirmed that 
there can only be one Palestinian state.  FM Frattini has 
made several recent trips to the region in an effort to 
assist resolving the issue.  PM Berlusconi will host both 
Palestinian leader Abbas and Egyptian President Mubarak the 
week before your visit.  Italy fully supports the 
Egyptian-led effort to create a sustainable ceasefire in 
Gaza.  PM Berlusconi has indicated an Italian willingness to: 
-- participate in a multilateral effort to interdict the flow 
of arms to Gaza; 
-- help reactivate and expand EU Border Assistance Mission 
Rafah with the deployment of additional resources into an 
international monitoring force that would include the 
participation of Egypt, Turkey and the Palestinian Authority 
to stop the smuggling of weapons to Hamas; 
-- provide naval assets to patrol the Gaza coastline; 
-- and otherwise assist in Egyptian and Israeli efforts to 
prevent the resumption of the arms flow to Gaza. 
 


Climate Change: A Bridge Between Europe and the U.S.? 
- - - - - - - - - - - - - - - - - - - - - - - - - - - 
 

¶11. (SBU) On climate change, Italy sees itself, as it does on 
a number of other sensitive issues, as a bridge between the 
U.S. and other states.  In this case, the proposed bridge is 
to the rest of Europe.  The Italian Environment Ministry also 
has longstanding cooperation projects with China and 
developing countries in the climate and clean energy area, 
and strongly supports the use of ""carbon credits"" from such 
projects for meeting EU targets.  The Ministry leads the 
U.S.-Italy climate partnership, which is focused on joint 
climate research and low-carbon technology development. 
 
ROME 00000159  004.2 OF 004 
 
 
Environment Director General Dr. Corrado Clini and scientist 
Dr. Antonio Navarra, who will join you in a panel discussion 
of climate change, are the policy-level and technical leads 
for this partnership.  Dr. Clini has led Italy's climate 
policy formulation for over 15 years.  Two points to watch 
out for:  1) Italy has offered to host a meeting of the major 
economies' leaders at the G8 Summit; the Administration is 
still considering the nature and timing of such a meeting. 
2) The European Commission just released a ""communication"" 
outlining its negotiating goals for the December climate 
meeting in Copenhagen, which has some problematic elements 
including a call for binding commitments from all OECD 
countries and up to $175 billion a year in funding for 
developing countries, conditional on commitments by those 
countries.  It would be difficult for the USG to address this 
proposal before our domestic program has taken shape. 
 


Conclusion 
- - - - - - 
 

¶12. (C) Berlusconi's shoot-from-the-hip style and verbal 
gaffes sometimes create bumps in relations between Italy and 
the U.S.  Nevertheless, he staunchly supports and admires the 
U.S. and its people, and presides over a government that is 
forward-leaning in its desire to connect with and support the 
new administration as it moves forward on issues ranging from 
the Middle East peace process, Iran, Afghanistan, and the 
closure of Guantanamo.  Despite its economic malaise, Italy 
remains a close and influential partner and will continue to 
be an important ally for the U.S. in NATO, the region and the 
world.  Italians were proud to see you become the first 
Italian-American Speaker of the House. Your visit will be an 
important sign of the strength and closeness of the bilateral 
relationship and I am delighted that you are taking the 
opportunity to visit Italy. 
DIBBLE 
"