VZCZCXRO3701
RR RUEHRN
DE RUEHRO #1194/01 3021551
ZNY CCCCC ZZH
R 291551Z OCT 09
FM AMEMBASSY ROME
TO RUEHC/SECSTATE WASHDC 2819
INFO RUEHSS/OECD POSTS COLLECTIVE
RUEHFL/AMCONSUL FLORENCE 3869
RUEHMIL/AMCONSUL MILAN 0301
RUEHNP/AMCONSUL NAPLES 4082
RUEATRS/DEPT OF TREASURY WASHDC

C O N F I D E N T I A L SECTION 01 OF 02 ROME 001194 
 
SIPDIS 
 
E.O. 12958: DECL: 10/29/2019 
TAGS: ECON IT PREL EFIN PGOV
SUBJECT: ITALY: FINANCE MINISTER'S MANEUVERING OPENS MORE 
TENSIONS IN THE BERLUSCONI CABINET 
 
REF: ROME 1187 
 
Classified By: Ambassador David H. Thorne for reasons 1.4 (b) and (d). 
 
¶1. (C) SUMMARY. Money quarrels within the GOI, regional 
tensions between Berlusconi coalition partners, and some 
preliminary maneuvering for the post-Berlusconi period have 
led to speculation that Finance Minister Tremonti may resign 
or be forced out of office. The continued strong of support 
from Northern League President (and Berlusconi coalition 
partner) Umberto Bossi, along with the realization that bond 
markets might react harshly to Tremonti's departure will 
almost certainly keep the Finance Minister in office, but 
this latest round of speculation about Tremonti is a further 
reminder of the tensions that exist in Berlusconi's 
government. END SUMMARY. 
 
¶2. (C) The Italian press has been filled with speculation 
about the future of Economy and Finance Minister Giulio 
Tremonti.  While a long-time collaborator of Berlusconi and 
his Forza Italia movement, Tremonti has very close ties to 
the important regional party Lega Nord. Some PDL contacts 
tell us that they regard him as a member of Lega, not 
Berlusconi's party.  A tax lawyer by profession, Tremonti 
holds the powerful but extremely difficult job of Finance 
Minister in a country addicted both to profligate social 
welfare spending and to tax evasion. Italy's debt-to-GDP 
ratio has long been over 100% (it now approaches 120%). This 
high debt level made it impossible for Italy to engage in the 
kind of stimulus spending seen in the U.S. and in other 
European countries. The constraint is not so much the 
requirements of the EU Maastricht Treaty, but is instead the 
huge financing costs that come from this high level of debt. 
Berlusconi and other Ministers can engage in costly populism, 
and call for more stimulus spending, but Tremonti frequently 
has to reject imprudent populist projects; this has earned 
him enemies in the Berlusconi cabinet.  Tremonti is a true 
believer in fiscal discipline and tries to inject it into 
Italian public policy. 
 
¶3. (C) The current controversy over Tremonti was sparked on 
October 20 by his remark about the need for Italians to have 
""permanent"" jobs, a comment that has more political than 
economic sense, and which appears to be part of Tremonti's 
effort to build his own political base. This provoked 
criticism from those in favor of liberalization in Italy's 
labor market.  Berlusconi at first seemed to support 
Tremonti, but this support quickly waned when, on October 23, 
Tremonti hosted an Aspen Institute event that seemed to have 
too much of a focus on Italy's future post-Berlusconi.  Soon 
the long knives seemed to be coming out for Tremonti -- a 
Senator from Berlusconi's party (Baldasari) openly began 
preparation of an alternative budget.  Then -- without 
consulting Tremonti -- Berlusconi publicly announced plans to 
cancel an important Italian tax on businesses (the IRAP). 
Tremonti had previously rejected the cancellation of this 
tax.  At a lunch with the Ambassador on October 27, PDL 
parliamentary leaders declined to comment on the Tremonti 
affairQunderscoring the tensions within the governing 
coalition. 
 
¶4. (C)  Tremonti's position as minister is probably safe due 
to three factors:  1.  As Finance Minister, Tremonti now has 
a high profile that would make it difficult for the weakened 
Berlusconi to replace him; 2.  Tremonti has the backing of 
Northern League leader Umberto Bossi; and 3. The bond market 
(upon which the GOI is dependent) could react harshly to 
Tremonti's departure, especially if he were to be replaced 
with a someone more amenable to populist projects. 
 
¶5. (C) Regional tensions are playing a role here too. 
Tremonti does Lega Nord's work on finance issues. He has been 
resisting calls for a very costly new aid program for 
Southern Italy, a region seen by Lega Nord as a rat hole down 
which too much Northern Italian money has already been 
poured.  Tremonti instead set up a new bank for the South: 
it will operate out of post offices, will be funded by 
private sector bond issuances, and total government 
expenditures for it will be a tiny 5 million Euros. Southern 
politicians were not pleased. 
 
¶6. (C) Pressed by the media to react to all this, Tremonti 
said he would resign if he believed he had lost Berlusconi's 
confidence.  Berlusconi returned from a short visit with 
Russian PM Putin to meet privately with Tremonti and party 
loyalists.  Tremonti reportedly asked to be made Vice 
Premier, but Berlusconi rejected his request.  Instead 
Tremonti was given the leadership of a new Economic Steering 
 Committee within Berlusconi's PDL party.  Berlusconi's 
lieutenants have walked back the tax-cut proposal, claiming 
the measure was always intended for some undefined moment in 
the future.  (Comment:  While Tremonti failed in his bid to 
become Vice Premier, during this episode he has succeeded in 
raising his profile as a politician rather than a technocrat, 
as well as differentiating himself from Berlusconi.  However, 
Tremonti's weakness has also been revealed--he seems to have 
little political base beyond the Northern League.  End 
Comment.) 
 
¶7. (C) COMMENT: The Ambassador met with Tremonti on October 
¶15.  While this meeting was shortly before the worst of this 
episode, tensions were already brewing.  The Ambassador found 
Tremonti to be relaxed and sure of himself; he seemed to be 
someone who is used to taking the heat that comes with this 
kind of job. When, one week later, the Ambassador met with 
Bank of Italy President Mario Draghi (who is not only 
Tremonti's rival but is also in many ways his polar opposite 
in terms of his approach to managing the economy), Draghi 
declined to answer the Ambassador's question about his view 
of Tremonti. 
 
¶8. (C) The current situation underscores the tensions that 
exist in the Berlusconi cabinet:  Lega vs. PDL, Northerners 
vs. Southerners, populist spendthrifts vs. the thrifty 
finance minister... and tensions related to who will take 
over when Berlusconi departs from the political scene. 
 
 
THORNE 
"