US embassy cable - 05ROME3195

C O N F I D E N T I A L  ROME 003195 
 
SIPDIS 
 
 
E.O. 12958: DECL: 09/22/2015 
TAGS: PGOV, EFIN, ECON, PREL, IT, ITALIAN POLITICS 
SUBJECT: ITALY: FINANCE MINISTER REPLACED BY PREDECESSOR, 
FAZIO REMAINS UNDER FIRE: COALITION STABLE 
 
 
Classified By: Acting Political M/C Jonathan Cohen. 
Reasons 1.4 b and d. 
 
1. (C) SUMMARY: Deputy PM Giulio Tremonti was named Italy's 
Finance Minister on September 22 after Domenico Siniscalco 
resigned in protest over the government's lack of action 
against embattled Bank of Italy Governor Antonio Fazio.  This 
is Tremonti's second term as Finance Minister since 2001, his 
first having ended 14 months ago.  The decision to send 
Tremonti back to the Finance Ministry was part of a larger 
political play within Berlusconi's governing block, 
demonstrating that the center-right coalition still remains 
capable of pulling together when the situation becomes 
difficult.  However, continued squabbling should be expected 
among Berlusconi's coalition partners over coalition 
leadership.  END SUMMARY. 
 
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TREMONTI RETURNS TO FINANCE MINISTRY 
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2. (U) The long simmering dispute over whether Bank of Italy 
(BoI) Governor Antonio Fazio should resign claimed its first 
victim.  Internationally respected Minister of Finance 
Domenico Siniscalco resigned September 22, stating "it is no 
longer appropriate for the Bank of Italy Governor to continue 
in his role as it is no longer compatible with the 
international credibility of our country."  Siniscalco 
criticized the government for not working to remove Fazio; 
Siniscalco had also proposed a fiscally responsible budget 
for 2006, which was widely criticized by politicians looking 
for election-year pork.  After meeting with President Carlo 
Ciampi September 22 and later with the four parties in the 
government, Prime Minister Silvio Berlusconi named Deputy 
Prime Minister Giulio Tremonti as Finance Minister. As a vote 
of support for Tremonti, Berlusconi for the first time called 
publicly for Fazio,s resignation. 
 
3. (SBU) This is Tremonti's second term as Finance Minister 
since the Berlusconi government was elected in 2001.  He was 
ousted fourteen months ago after persistent battles both with 
Fazio and Deputy Prime Minister Gianfranco Fini.  Tremonti is 
a Berlusconi/Forza Italia (FI)  loyalist, who also maintains 
very close ties with Northern League leader Umberto Bossi. 
During his first term as FinMin, Tremonti consistently 
proposed budgets that Fini perceived as having a negative 
impact on his constituent base in southern Italy and among 
government employees.  However, when Fini threatened to 
withdraw the National Alliance (AN) from the governing 
coalition unless Tremonti was removed, Berlusconi consented. 
Siniscalco, a respected technocrat, was named the new Finance 
Minister. 
 
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SINISCALCO RESIGNATION FORCES CENTER-RIGHT TO CIRCLE WAGONS 
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4. (SBU) The decision to send Tremonti back to the Finance 
Ministry was part of a larger political play within 
Berlusconi's governing coalition. The center-right has been 
plagued over the past few months by internal squabbles over 
Fazio's refusal to resign from the BoI, a leadership 
challenge from the UDC, and a rancorous debate over electoral 
reform.  Fini reportedly told Berlusconi he would accept 
Tremonti's return if Berlusconi  publicly withdrew his tacit 
support for Fazio. 
 
5. (SBU) The details of the negotiations aired publicly in a 
joint press conference September 22 in which UDC party 
Secretary Marco Follini also repeated his call for a 
 
SIPDIS 
leadership change in the coalition; Berlusconi confirmed he 
believes he is a net "asset" for the coalition; and both 
agreed the coalition would decide the outcome of the 
leadership dispute in a "democratic process." 
 
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COMMENT 
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6. (C) Siniscalco was a non-partisan technocrat, who brought 
Italy credibility within the European Union and the 
International Monetary Fund, as well as in world markets. 
While Tremonti, in his first term, proved a competent Finance 
Minister, he was often too ready to engage in unsustainable 
one-off budgetary measures to address Italy,s budget 
imbalances and huge debt.  Nonetheless, with Italy's budget 
due by law to the Parliament by September 30, Tremonti's 
ability to take over the portfolio without a learning curve 
 
made him an obvious choice.  Tremonti will be more willing 
than Siniscalco to mold the budget to election year political 
exigencies, but his track record should offer the EU, IMF and 
international markets some measure of assurance in the short 
run.  From a broader perspective, however, this latest 
Italian melodrama reconfirms the Berlusconi Government's 
inability to make the hard choices required to lift Italy out 
of its economic difficulties. 
 
7. (C) COMMENT CONTINUED: That said, Berlusconi has once 
again proven he can still keep his coalition together.  But 
continued infighting has further weakened the coalition,s 
public image in the wake of the latest public opinion poll, 
which shows the center-right trailing by eight points.  END 
COMMENT. 
SPOGLI 
 
 
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 2005ROME03195 - Classification: CONFIDENTIAL