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RR RUEHAG RUEHAST RUEHDA RUEHDBU RUEHDF RUEHFL RUEHIK RUEHKW RUEHLA
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DE RUEHRO #0342/01 0830754
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R 240754Z MAR 09
FM AMEMBASSY ROME
TO RUEHC/SECSTATE WASHDC 1808
RUEHC/DEPT OF LABOR WASHDC
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE
RUEHFL/AMCONSUL FLORENCE 3521
RUEHMIL/AMCONSUL MILAN 9913
RUEHNP/AMCONSUL NAPLES 3701
RUEHC/SECSTATE WASHDC 1809

UNCLAS SECTION 01 OF 02 ROME 000342 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: PGOV PREL IT
SUBJECT: G8 LABOR MINISTERIAL: SCENESETTER FOR SECRETARY 
SOLIS'S MARCH 29-31 VISIT TO ITALY 
 
ROME 00000342  001.2 OF 002 
 
 
 ¶1. (SBU) Madame Secretary, I would like to extend a warm 
welcome from Team Italy in anticipation of your trip to 
participate in the G8 Labor Ministerial.  The Labor 
Ministerial will be the first full G8 ministerial and it 
offers an excellent opportunity to highlight the new 
Administration's policies in the context of this key 
organization. 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. Your visit 
is an opportunity to deepen our engagement on the global 
financial crisis which is rapidly undermining Italy's 
economy. The financial crisis has not yet had the same 
immediate impact in Italy as it has had in other countries, 
but as the economic downturn reverberates through Italy's 
export-dependent economy, existing social tensions could 
worsen. Italy will use the Labor Ministerial to discuss 
strategies to tackle the impact of the economic crisis on the 
labor market, and intends to feed these ideas into other 
international summits, including the G20 meeting taking place 
in London on April 2. 
 
G8: The Ever-Growing Agenda 
- - - - - - - - - - - - - - 
 
¶2. (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. 
 
Financial Crisis: Banks OK, But Economy Suffers 
- - - - - - - - - - - - - - - - - - - - - - - - 
 
¶3. (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 almost 3 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 implemented a modest economic stimulus 
package, which includes tax incentives for purchasers of some 
durable goods and 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). 
 
¶4. (SBU) Italy has shed relatively few jobs since the 
economic crisis began, but the crisis here is likely to 
deepen before it gets better, and Italy's relatively low 
unemployment rate of 6.1 percent in 2008 is likely to rise to 
over 7 percent by year end. The government's main concern is 
for the large segment of the workforce that is employed on 
temporary contracts (shut out of the workforce by costly 
government-mandated employee benefits) who will likely bear 
the brunt of job cuts. Unemployment numbers can be deceptive, 
moreover, because of the very diverse labor picture across 
the country, with nearly full employment in the 
industrialized north, and unemployment rates at 20 percent or 
higher in some parts of the underdeveloped south. Labor 
unions continue to play a major role in Italian politics and 
determining labor contracts, but their influence is nowhere 
near where it stood ten years ago. Labor unions have declined 
in influence as the political system has evolved and most 
recently as the left--and particularly far left--have been 
 
ROME 00000342  002.2 OF 002 
 
 
marginalized. 
 
¶5. (SBU) The social dimensions of the economic crisis have 
thus far been relatively minimal, however with the expected 
rise in unemployment and decline in exports, increased 
strains are likely. Rising uneployment could lead to greater 
anti-immigrant sentiment and some sense of competition for 
jobs. The slowing of the economy and diminished labor 
opportunities will particularly worsen the already difficult 
labor market for youth. While Interior Ministry contacts 
expect primarily economic immigrant flows to slow, immigrants 
from sub-Saharan Africa fleeing war, instability or 
persecution will continue to arrive and will find diminished 
opportunities to find work and integrate into Italian social 
life. 
 
Domestic Politics: Berlusconi in Control, but Challenges 
Emerging 
- - - - - - - - - - - - - - - - - - - - - 
 
¶6. (SBU) After two years of a divided center-left government, 
Italy saw Silvio Berlusconi return to power last year. 
Berlusconi enjoys a broad base of power that has allowed him 
to use 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. 
 
Organized Crime: Slowing Growth and Fraying the Social Fabric 
- - - - - - - - - - - - - - - - 
 
¶7. (SBU) Organized crime remains a serious and pervasive 
problem throughout the country, particularly in the South. 
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.  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. 
Worsening economic conditions may further strengthen the grip 
of organized crime in some of Italy's least economically 
developed regions. 
 
Conclusion 
- - - - - - 
 
¶8. (SBU) Despite its economic malaise, Italy remains a close 
and reliable partner and will continue to be an important 
ally for the U.S. in NATO, the region and around the globe, 
especially in key international security partnerships in 
Afghanistan, the Balkans, and the Middle East. Italy's 
slowing economy, with unemployment set to rise, will lead to 
rising social tensions, particularly affecting those on the 
margins of Italy's faltering economy--youth and immigrants. 
Italy's Labor Ministry intends to use this summit as a 
platform to discuss ways to help the labor force adjust to 
the economic crisis, without reverting to protectionism or 
allowing labor standards to be relaxed. Italy also intends 
for the conclusions of this ministerial to be relevant to the 
G20 in April, the OECD ministerial meeting in June, and the 
G8 leaders summit in July. The Italian government will 
welcome your participation at the Labor ministerial, which is 
the first full G8 ministerial, as evidence of the enduring 
strength of our bilateral relationship. 
DIBBLE