US embassy cable - 04ROME2836

UNCLAS  ROME 002836 
 
SIPDIS 
 
 
SENSITIVE 
 
DEPT FOR EUR/WE, EUR/ERA, EB/IFB/OMA 
PARIS ALSO FOR USOECD 
TREAS FOR OASIA HARLOW, STUART 
FRANKFURT FOR WALLAR 
 
E.O. 12958: N/A 
TAGS: ECON, EFIN, ELAB, PGOV, IT, ITALIAN POLITICS 
SUBJECT:  Treasury DG Domenico Siniscalco Appointed New 
Economy and Finance Minister 
 
REF: A) ROME 2800 
     B) ROME 2653 
     C) ROME 2630 
 
SENSITIVE BUT UNCLASSIFIED; NOT FOR INTERNET DISTRIBUTION 
 
SUMMARY 
------- 
 
1. (SBU)  After two weeks' debate within the Coalition 
following former Finance Minister Tremonti's resignation, PM 
Berlusconi appointed Domenico Siniscalco, Treasury 
Department Director General since 2001, as new Finance 
Minister on July 16.  Over this two-week period, Coalition 
parties could not agree upon a political Minister with real 
clout.  Thus, they fell back upon a technocratic solution, 
albeit a very good one, since Siniscalco is an excellent 
economist and well and favorably known to the Embassy. 
 
2. (SBU)  He will probably continue Tremonti's policies, but 
in a less confrontational manner - and provide the sense of 
collaboration in financial decision making that other 
Coalition parties had been seeking in Tremonti, but had not 
found.  Despite PM Berlusconi's eventual success in having 
selected a new Finance Minister and having kept his 
coalition intact, Italy nonetheless still faces painful 
financial decisions to bring Italy clearly within European 
Monetary Union (EMU) guidelines on budget deficits and to 
bring down Italy's large stock of public debt, still 106 
percent of GDP, one of the highest in the world.  End 
summary. 
 
THE NEW ECONOMY MINISTER 
------------------------ 
 
3. (U)  Domenico Siniscalco, an economist born in Turin in 
1954, received a law degree from the University of Turin and 
a PhD in economics from the University of Cambridge in 1989. 
He is Professor of Economics at the University of Turin (on 
leave), after lecturing previously at Luiss Rome University, 
University of Cagliari, Johns Hopkins University, University 
of Cambridge and Catholic University of Louvain (CORE). 
 
4. (U)  Siniscalco was appointed Treasury Director General 
(DG) in October 2001.  (Note: The Ministry of Economy and 
Finance has five departments, of which the Treasury is the 
first and most prestigious.  End note.)  Prior to this 
appointment he served on the board of numerous publicly 
listed firms, among which are ENI (Italy's energy 
conglomerate) and Telecom Italia. He is also author of over 
90 publications on privatization, environmental economics, 
and industrial organization, published in respected journals 
(among them, European Economic Review, Journal of Public 
Economics, and Resource Economics).  He has also been a 
columnist in the leading financial daily, Il Sole 24 Ore, 
and member of the Swedish Academy of Sciences and of the 
Royal Institute of International Affairs (London). 
 
5. (U)  Like his predecessor as Minister, Siniscalco 
acquired vast experience in policy-making and in government 
economics during almost fifteen years of service, in first 
governments of the left and later, of the right.  Siniscalco 
was one of the economic advisors to two center-left Prime 
Ministers, Giuliano Amato and Massimo D'Alema.  He is also 
well connected with Italy's industrial and financial 
sectors.  He is a long-time friend of FIAT President and 
Confindustria President, Luca Cordero di Montezemolo, and of 
the president of Mediobanca, Gabriele Galateri. 
 
WHAT PROBLEMS DOES SINISCALCO FACE? 
----------------------------------- 
 
6. (U)  Italy's GDP, which grew 0.3 percent last year, is 
expected to grow only between one and 1.3 percent this year 
and roughly two percent in 2005.  Without severe budget 
cuts, Italy's deficit next year could exceed four percent of 
GDP, a level that could bring heavy sanctions (i.e., an 
"early warning" from the European Commission) and further 
credit downgrades from international ratings firms beyond 
that just announced by Standard and Poor's.  The IMF has 
also called on Italy to implement budget cuts of 20 billion 
 
 
euro in 2005 to reduce the deficit/GDP ration from their 
estimate of four to 2.5 percent.  Siniscalco will also have 
to revive a languishing privatization program to help reduce 
the public debt/GDP ratio that is now 106 percent of GDP, 
the highest in Europe and the third largest in the world. 
 
WHAT BUREAUCRATIC TALENT DOES HE BRING TO THE TABLE? 
--------------------------------------------- ------- 
 
7. (U)  As the former Director General of the most important 
directorate general in the Finance Ministry, Siniscalco has 
worked at Tremonti's right hand since 2001.  For this 
reason, some see him as the only person now who could pick 
up the Finance Ministry's critical work without having to 
stop to learn the process.  Siniscalco's immediate priority 
will be his presentation to the Cabinet of the 2005-2008 
Documento di Programmazione Economica e Finanziaria 
(Economic and Financial Planning Document - or DPEF), a four- 
year economic plan setting forth economic/budgetary goals 
for each year through 2008 (ref A). 
 
DOES HE HAVE COALITION SUPPORT? 
------------------------------ 
 
8.  (SBU)  Two of the four Coalition parties, the National 
Alliance (AN) and the Union of the Christian Democrats of 
the Center (UDC), supported PM Berlusconi's choice as 
promising greater collaboration in economic policymaking. 
(Deputy Prime Minister/AN president Fini had been critical 
of the lack of "collegiality" in economic policy-making 
under Tremonti.) 
 
9. (SBU)  Another coalition partner, the Northern League, 
was less enthusiastic about Siniscalco's appointment - 
primarily because it followed Tremonti's resignation. 
League leader Umberto Bossi had forged a close alliance with 
Tremonti, and the League considered Tremonti a guarantee 
that the party's political program - in particular, 
federalism and increased autonomy for northern Italy - would 
receive close attention at the top of the government.  There 
are some indications that the League might retaliate for 
Tremonti's ouster by resisting reform of the state pension 
system, an important step to stabilizing Italy's public 
finances.  This vote is key, because financial markets view 
pension reform as essential to bringing Italy's public 
finances under control. 
 
COMMENT 
------- 
 
10. (SBU)  We have had the chance to work closely with 
Siniscalco, who, as Chair of the inter-ministerial Financial 
Security Committee, was responsible for Italy's pro-active 
interdiction of terrorist finance.  In all cases, we have 
found him very forthcoming and aggressive on this issue. 
 
11. (SBU)  The appointment of Siniscalco may have restored 
some confidence in the Berlusconi government after two weeks 
of political turmoil following Tremonti's resignation - and 
the appointment should provide assurances that a 
professional is in charge of economic policy.  However, in 
his current position, Siniscalco's challenge will be as much 
how he navigates roiled coalition waters as how successfully 
he steers Italy's economic policy.  His background as a 
civil servant, rather than a politician, may stand him in 
good stead as he seeks to placate -- and control, if ever so 
delicately -- disparate political masters with strong 
populist interests.  While it can be seen as a weakness, his 
lack of a political power base may also be a strength. 
 
12 (SBU)  Still uncertain, however, is whether Siniscalco 
will manage GOI economic policy for the next two years and 
help Italy make the necessary painful financial decisions or 
whether he will just be a caretaker for the 2005 budget 
cycle, set up to take the blame for necessary unpopular 
spending cuts.  End comment. 
 
SEMBLER 
 
 
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	2004ROME02836 - Classification: UNCLASSIFIED