VZCZCXRO2402
PP RUEHDE RUEHFL RUEHNP
DE RUEHRO #0358/01 0861618
ZNR UUUUU ZZH
P 271618Z MAR 09
FM AMEMBASSY ROME
TO RUEHC/SECSTATE WASHDC PRIORITY 1841
INFO RUEHAM/AMEMBASSY AMMAN 0604
RUEHAK/AMEMBASSY ANKARA 3305
RUEHGB/AMEMBASSY BAGHDAD 0377
RUEHBUL/AMEMBASSY KABUL 0470
RUEHTV/AMEMBASSY TEL AVIV 1006
RUEHDE/AMCONSUL DUBAI 0243
RUEHFL/AMCONSUL FLORENCE 3547
RUEHIT/AMCONSUL ISTANBUL 0632
RUEHJM/AMCONSUL JERUSALEM 0479
RUEHMIL/AMCONSUL MILAN 9935
RUEHNP/AMCONSUL NAPLES 3725

UNCLAS SECTION 01 OF 03 ROME 000358 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: PREL OREP IT
SUBJECT: ITALY: SCENESETTER FOR CODEL MCCONNELL 
 
¶1.  (U) Summary.  Your visit to Rome comes at an important 
period in our relationship with Italy.  As Italy's leadership 
undertakes engagement with the new Administration, Italians 
are eager to show that Italy remains committed to maintaining 
a strong relationship with the U.S. and is ready to 
contribute actively to efforts to address the issues that 
matter most to U.S.  In fact, Italy has been a solid and 
active partner and has contributed to every U.S.- and 
NATO-led effort to address crises around the world, including 
Afghanistan/Pakistan, Iraq, the Balkans and the Middle East. 
You can reassure your counterparts that the U.S. continues to 
see Italy as an important ally and partner and thank them for 
their past support.  In the near future, however, we will 
need robust efforts from Italy, coordinated with the U.S. and 
other allies, to make sustained progress in Afghanistan and 
to successfully resolve the Iranian nuclear issue.  Both will 
require Italy to make tough economic choices that they might 
have been able to avoid previously.  You may want to caution 
them privately, therefore, that despite the current economic 
crisis and its effect on Italy's budget, adequate funding of 
military, diplomatic and economic institutions is vital for 
Italy's continued influence in the world.  From their side, 
your counterparts will be eager to hear your views about the 
U.S. Government's approach to the economic crisis and the 
development of this administration's political and economic 
priorities.  End summary. 
 
Domestic Politics 
- - - - - - - - - 
¶2.  (U) This government enjoys a broad base of popular 
support and faces a weak and divided opposition.  Silvio 
Berlusconi led a center-right coalition back into government 
in April 2008 after two years of a divided center-left 
government, assuming office as Prime Minister for the third 
time since 1994.  Berlusconi has used the first year back in 
office to produce concrete deliverables on the law-and order 
agenda he promised during the electoral campaign and though 
many long-term solutions to most problems are still elusive, 
he has brought results in a number of areas.  He addressed a 
long-standing garbage problem in Naples (though a permanent 
solution has not yet been devised),  passed a sweeping new 
security law that has addressed some of the public's worries 
about street crime, and implemented a public finance law that 
has overhauled the annual budget process, which traditionally 
has eaten up months of Parliament's time.  Many of these 
initiatives were adopted without the need to consult the 
opposition and Berlusconi is confident that he can continue 
to make progress on his agenda with little resistance from 
the divided center-left.  Arresting Italy's long-term 
economic decline is Berlusconi's greatest challenge, however, 
and the public will judge him accordingly. 
 
Economic Outlook 
- - - - - - - - 
¶3.  (U) A conservative banking sector prevented Italy from 
suffering 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.  Nevertheless, the 
worldwide economic downturn caught them at a time when 
earnings - as opposed to asset quality - were already coming 
under pressure due to Italy's anemic economic performance 
over 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 well, focusing initially on maintaining the public's 
confidence in the banking system.  The government implemented 
a modest economic stimulus package, which includes tax 
incentives for purchasers of some durable goods and autos. 
 
¶4.  (SBU) Italy's economic downturn, however, has produced 
budgetary pressure that has translated into cuts in the areas 
of greatest concern to the U.S.: military spending, economic 
assistance and expenditures in support of diplomatic efforts 
to address global crises.  While budget pressures are real, 
Italy has focused its limited resources on producing 
short-term results that resonate with the public but provide 
little long-term effect.  We have pressed Italy to prioritize 
its spending in areas that will preserve its influence and 
effectiveness, but a message from you would serve to 
reinforce that point. 
 
G8: Italy Looking for an Opportunity to Shine 
- - - - - - - - - - - - - - - - - - - - - - - 
¶5.  (U) Italy holds the presidency of the G-8 for 2009 and 
has embarked on an ambitious agenda.  Its list of priorities 
for its G8 Presidency include global financial governance, 
energy and climate change, Afghanistan, peacekeeping and 
development, food security and non-proliferation.  Italy is 
also seeking an expanded the role for the G8's outreach 
session with the involvement of China, India, South Africa, 
Brazil, Mexico and Egypt.  There are nine ministerials 
planned for this year with the Summit at La Maddalena, 
Sardinia in July.  While Italy is looking at its G8 
presidency as an opportunity to involve itself virtually in 
every global problem, we would prefer to see a more focused 
agenda with solid follow-up that would preserve the G8 as an 
influential forum that can effectively address a limited 
number of problems.  Your visit presents an opportunity to 
press that point with your Italian counterparts. 
 
Afghanistan/Pakistan: Italy's Engagement in the Greatest 
International Security Challenge 
- - - - - - - - - - - - - - - - - - - - - - - 
¶6.  (U) With 8,800 troops deployed in overseas missions, 
Italy has been an indispensable ally in U.S.-led peacekeeping 
operations in the Balkans, Lebanon, and Iraq.  As the world's 
attention shifts to Afghanistan/Pakistan, we are encouraging 
Italy to take its rightful place as one of NATO's strongest 
militaries with a significant contribution to the effort in 
Afghanistan.  Italy is currently the sixth-largest force 
contributor to ISAF with 2,600 troops, a PRT in Herat and 
command of RC-West.  But the Italian military's ability is 
limited by a lack of resources.  Current Italian defense 
spending hovers at just below 1 percent of GDP, well below 
the 2 percent benchmark set for NATO countries.  Your visit 
will be an excellent opportunity to thank Italy for the good 
work it does internationally, but also challenge Italy to 
join us in doing more and Afghanistan. 
 
Iran: Real Action Needed 
- - - - - - - - - - - - 
¶7.  (U) Italy is not a member of the P5 1 negotiating group 
on Iran but participates in policy discussions with us and 
other key European Allies through a multinational mechanism 
which also includes the UK, France and Germany, called the 
Quint.  Italy believes that its large commercial relationship 
with Iran makes its participation in such discussions 
indispensable, but often laments that additional measures 
could produce economic pain for its public.  Italy's trade 
with Iran is small in actual percentages (one to two percent 
of total exports/import), but is the second largest within 
the EU, behind Germany.  You might take this opportunity to 
let your counterparts know that we view this problem with a 
sense of urgency and are looking to Italy and other key 
allies to fully and strongly support international efforts to 
bring Iran into compliance with its international 
obligations. Robust Italian participation in EU-wide and 
UN-mandated sanctions are an important element in the way 
forward. 
 
Guantanamo Detainees 
- - - - - - - - - - 
¶8. (SBU) In our initial discussions with Italian officials, 
they have expressed their desire to work with us to resettle 
Guantanamo detainees so that we may arrive at an orderly 
closure of Guantanamo.  EU and Italian constitutional 
limitations, however, could present some obstacles.  You can 
express appreciation for Italian assistance to trouble-shoot 
these issues, and let your interlocutors know that we value 
their insights on how to navigate through the EU legal 
structure. 
 
¶9.  (U) Comment.  Your interlocutors will welcome your 
first-hand assessment of the Middle East stops in your trip, 
especially given the U.S. Administration's developing views 
on the Peace Process, Iran and Syria.  Your Italian hosts 
will also be eager to hear your insights about the 
development of the American plan to address the economic 
crisis.  They are concerned that a wave of American 
protectionism could negatively impact their important export 
sector and will want to be reassured that the U.S. sees 
global economic recovery as important to U.S. recovery.  They 
will also want to be reassured that the crisis will not 
affect the U.S. ability to continue to lead the world in 
addressing political and security crises.  We look forward to 
your visit and hope to use it as an opportunity to build 
momentum as we continue to press our agenda with Italy. 
DIBBLE