US embassy cable - 03ROME5627

UNCLAS  ROME 005627 
 
SIPDIS 
 
 
DOL FOR ILAB/BRUMFIELD 
DEPARTMENT FOR DRL/IL, EUR/WE and INR 
 
SENSITIVE 
 
E.O. 12958:  N/A 
TAGS: ELAB, ECON, PGOV, IT, EUN 
SUBJECT: Pension Reform Inching Forward 
 
Ref: a) Rome 4537;  B) Rome 2474 
 
NOT FOR INTERNET DISTRIBUTION 
 
1. (SBU) Summary: After a fall devoted largely to posturing, 
the Berlusconi government and the three major trade union 
confederations have finally picked up their hammers to try 
to bang out a pension reform deal.  The government agreed 
December 10 to suspend for a month action to implement its 
proposed reform package by decree, leaving many observers 
cautiously optimistic that it still would be possible to 
craft a reform package that the confederations could 
support.  Organized labor's December 6 show of strength, 
which brought upwards of  300,000 workers and pensioners to 
Rome, underscored the emotional volatility of the issue and 
its resonance for Italy's aging labor force.  But it also 
served to mask strong differences among the confederations 
over the composition of an acceptable reform package.  The 
most difficult bargaining in the coming month probably will 
be among the unions themselves.  End Summary 
 
2. (SBU) The Berlusconi government's efforts to reform 
further Italy's generous (and unaffordable) pension system 
inched forward December 10, as the three major trade union 
confederations agreed to in-depth talks with government 
experts.  In exchange, the government suspended for thirty 
days parliamentary action on a pension reform package that 
eventually would have been implemented by decree.  The 
government package, unveiled in August (ref A), was built 
around increases in the retirement age and the number of 
years of contributions required for a full pension, with a 
relatively short phase-in period of five years.  Another 
provision would try to jump-start a largely moribund private 
pension scheme by requiring companies to transfer over funds 
held in reserve to finance employee severance payments. 
After a desultory consultation with the confederations, the 
reforms were packaged into a draft decree; Labor Minister 
Maroni announced the package would be sent to Parliament for 
approval in connection with the 2004 budget, arguing the two 
were inextricably linked. 
 
3. (U) Maroni, Finance Minister Tremonti and other senior 
members of the coalition government spent much of the fall 
trading public salvos with the unions and opposition 
parties, with both sides asserting they had proposed 
negotiations that never seemed to materialize.  Maroni and 
Finance Minister Tremonti argued that there was little 
alternative to the rapid phase-in if Italy was to meet the 
European Commission's recommended target of reducing pension 
costs by 0.7% of GDP in the next five years.  The unions and 
the center-left opposition countered that the rapid phase-in 
broke faith with workers, giving them little or no warning 
that they'd suddenly be required to work longer.  Although 
many Italian workers theoretically could retire at 57, in 
practice the average retirement age was 59.4, only one-tenth 
of a year less than the European average.  Italian workers, 
they argued, already had borne a disproportionate share of 
the economic burden of meeting the EMU convergence targets 
in the early `90s required for Italian participation in EMU. 
Moreover, they continued to carry self-employed workers, who 
received pensions calculated at a higher rate than their 
actual earnings, in the pension system.  With the Stability 
Pact in tatters and France and Germany able to spend freely 
without any serious consequences, one opposition pol 
asserted, why should workers bear the brunt of Tremonti's 
latest fiscal surgery? 
 
Fuzzy Math, in the Streets. 
---------------------------------- 
 
4. (U) The government's decision to concurrently push 
through Parliament media reform legislation that ex post 
facto legitimized the breadth of Berlusconi's broadcast 
media holdings did little to improve the confederations' 
mood.  Maroni continued to insist the government wanted to 
negotiate and asked the confederations to propose their own 
version of a reform package - provided it still accomplished 
the targeted reduction in pension expenditures.  The 
confederations pronounced themselves ready to deal - 
provided the government first withdrew the draft decree.  If 
the government insisted on proceeding with the decree, the 
confederation leaders declared, they would mobilize a 
million workers to descend on Rome's piazzas, stirring 
memories of the 1994 general strike - also over pension 
 
reform - that contributed to the collapse of  the first 
Berlusconi government. 
 
5. (SBU) The subsequent union-organized march through the 
streets of Rome December 6 was noisy, colorful - and 
somewhat smaller than the promised million pairs of work 
boots.  CISL Leader Pezzotta's claim of a million and half 
notwithstanding, Interior ministry sources reported around 
300,000 workers and pensioners took part.  Our admittedly 
unscientific sampling suggests well over half were retirees, 
reflecting the two largest confederations' demographics 
(over half their respective memberships are retired 
workers).  Many were visibly angry, though more over 
Berlusconi's legal woes and conflicts of interest than over 
pension reform;  a generally festive mood prevailed.  Many 
retirees, it appeared, had decided to trade half a day in 
the streets for a free trip to the capital, financed by 
their unions. 
 
.and at the table 
--------------------- 
 
6. (SBU) Regardless of the protest's impact, the government 
invited the confederations to a December 10 negotiation that 
amounted to "talks about talks."  The confederations agreed 
to work with government negotiators over the coming month; 
in turn, the government agreed to suspend action on the 
decree.  As so often happens in Italy, the real action now 
moves offstage, where the confederations' pension experts 
will try to hammer out - among themselves, with the center- 
left opposition, and finally with the government - an 
alternative vision of pension reform.  The confederations' 
real challenge will be to translate the unity of the street 
to the bargaining table. 
 
7. (SBU) Although all three confederations understand their 
leverage is largely a function of their unity, they have 
major differences over the basic need for additional pension 
reform, let alone the details.  Not surprisingly, CGIL, the 
largest and furthest-left confederation, has refused to 
accept the basic premise of cutting pension spending by 0.7% 
of GDP.  CGIL leader Guglielmo Epifani has proposed instead 
a broader discussion of the entire welfare system, 
suggesting that additional budget savings are more easily 
achieved by shifting more of the costs of supporting the 
social safety net to self-employed and independent 
contractors, who they currently pay a disproportionately 
smaller percentage of their earnings into the system. 
 
8. (SBU) This proposal has been met thus far with silence 
from the Berlusconi government, which draws much of its 
support from small business.  Epifani's fellow confederal 
leaders have some solid ideas for redistributing the burden 
of the necessary cuts, hinting at a package that would 
include a longer phase-in period and better incentives to 
persuade workers to forego retirement.  But they have their 
work cut out for them in coaxing CGIL, and its stalwart 
supporters in the Democratic Left opposition party, into 
supporting a package that ultimately would provide the 
Berlusconi government a modest but significant win, in 
advance of next spring's EuroParliament elections, on a key 
domestic issue. 
 
 
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 2003ROME05627 - Classification: UNCLASSIFIED