US embassy cable - 05ROME714

UNCLAS  ROME 000714 
 
SIPDIS 
 
 
DOL FOR BRUMFIELD 
 
E.O. 12958: N/A 
TAGS: ELAB, PREL, PGOV, IR, IT, IRAQI FREEDOM 
SUBJECT: ITALIAN UNIONS ON COMPETITIVENESS, IRAN AND IRAQ 
 
 
 1.  Summary.  Italian unions, led by CGIL, have proposed a 
new plan to promote competitiveness that addresses structural 
weaknesses and the need for increased investment in 
education, training, infrastructure and R&D.  It represents 
another step towards unity among the trade union 
confederations and, although it lacks a funding mechanism, 
offers an economic program the center-left could use in 
upcoming elections.  CGIL's International Affairs Chief also 
volunteered a welcome about-face on Iraq, suggesting it was 
time for the U.S. and Europe to work together to support 
democratization in Baghdad and end Iranian and Syrian 
interference in Iraq.  We also addressed union concerns about 
USG pressure on U.S. subsidiaries to end operations in Iran. 
End Summary. 
 
2.  Laborcouns met February 16 with Titti Di Salvo, Head of 
the International Affairs Office at CGIL, the largest labor 
confederation in Italy, to discuss economic and foreign 
policy issues.  CGIL is the most left-leaning of the three 
major trade union confederations; it has been critical of 
U.S. foreign policy in general and strongly opposed the war 
in Iraq.  CGIL has been at odds with the other two labor 
confederations (CISL and UIL) over whether to compromise with 
the Berlusconi government on labor and pension reform, 
privatization and tax/budget policy.  In the past few months, 
however, the three union groups have agreed to a joint policy 
to encourage investment in the South and to push for a 
significant pay raise for the metalworkers (the largest 
national labor contract) this year. 
 
A Push for Competitiveness 
-------------------------- 
 
3.  Di Salvo outlined the basics of a new initiative by the 
three unions to promote competitiveness in the Italian 
economy.  The proposal, which will be presented to the 
Berlusconi government, reads more like a corporate 
development blueprint than a union manifesto.  It cites the 
inability of previous Italian governments to confront 
structural weaknesses, including poor infrastructure, a 
bloated bureaucracy, insufficient investment in R&D and the 
limited availability of capital to small businesses from 
disinterested banks and insurance companies.  The plan calls 
for increased investment in education, training, 
infrastructure, R&D, and subsidies to assist companies in 
funding pension programs.  Di Salvo claims that Confindustria 
(the largest employers' association) supports the plan. 
 
4.  CGIL remains critical of Berlusconi's attempts to address 
economic problems through tax reduction, and it believes the 
Prime Minister's latest announcement of a 12 billion euro tax 
cut is the wrong remedy.  Even if the benefits of this tax 
cut reach the working man, Di Salvo noted that it would be 
insufficient to compensate for recent increases in inflation. 
 Therefore, it would be inadequate to raise demand for 
consumer goods and stimulate production.  Di Salvo also 
criticized efforts to revise the EU Stability Pact to allow 
an increase in the public debt to GDP ratio (Italy's debt is 
106% of GDP) that could finance the proposed tax cut. 
 
5.  Di Salvo stressed that Italy needs to focus on the 
quality, not the quantity, of its goods.  But she strongly 
denied that high labor costs and the rigidity of the labor 
market discouraged foreign investment in Italy.  Instead, she 
cited bureaucratic red tape, infrastructure gaps and limited 
capital availability as the causes, noting that salaries were 
higher in France and Germany yet did not undermine foreign 
investment there. She made a distinction between European and 
U.S. investment in Italy and noted that U.S. investment was 
sometimes hidden through other foreign ownership of Italian 
companies. 
 
Iran 
---- 
 
6.  In a January visit to CGIL's office in Florence, the 
union raised with Labourcouns concerns about USG pressure on 
a local company, Nuove Pignone (a subsidiary of General 
Electric), to cease its operations in Iran.  The union 
claimed this withdrawal would cost Italian workers jobs and 
noted rumors that the Iran business would go to the U.S. 
company Haliburton.  In response, Laborcouns briefed di Salvo 
that GE, addressing concerns of its shareholders, had asked 
its subsidiaries to end Iranian operations.  According to 
press reports, other U.S. companies, including Haliburton, 
had made the same decision.  The Senate Finance Committee had 
also expressed concerns about the operation of U.S. 
subsidiaries in Iran, but the final decision was one made by 
the company.  GE confirmed this action would not result in 
 
any labor force reductions in Italy.  Di Salvo thanked us for 
the update but expressed concern about the impact of U.S. 
foreign policy decisions on economic prospects for Italian 
firms working in the Middle East.  She expressed support for 
the EU initiative to discourage Iran from developing its 
nuclear capabilities; Laborcouns replied that the U.S. and 
the EU shared the same goal on Iran, but the U.S. was 
concerned about the likelihood that the EU initiative would 
be successful. 
 
Iraq 
---- 
 
7.  Di Salvo volunteered her view that the January elections 
in Iraq, the renewed talks between the Palestinians and the 
Israelis, and Secretary Rice's trip to Europe were all 
positive events.  CGIL, she stated, opposed the war in Iraq, 
but now it was time for Americans and Europeans to discuss 
realistic solutions.  We should find a way to advance the 
process of democratization in Baghdad by bringing the Sunnis 
into the government.  We should do our best to avoid 
splitting the country into Shia'/Sunni/Kurdish factions, and 
we should stop the interference of Iran and Syria in Iraqi 
domestic affairs. 
 
8.  Comment: CGIL's hard-headed analysis of and proposed 
solutions to Italy's economic problems were right on the 
mark.  Its proposal is a positive change from the union's 
past refusal to compromise on key labor and pension reform 
initiatives.  CGIL's new attitude probably reflects both its 
inability to stop the Berlusconi government from advancing 
labor market flexibility and privatization plans and its 
interest in providing the center-left with a working economic 
agenda for upcoming elections.  What was missing from the 
proposal, unsurprisingly, was how to fund all of these new 
investments.  The union's about-face on Iraq is particularly 
gratifying, especially since di Salvo avoided the tone of 
grudging acceptance now being expressed on Iraq by many in 
the center-left. 
 
SEMBLER 
 
 
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 2005ROME00714 - Classification: UNCLASSIFIED