US embassy cable - 03ROME2294

C O N F I D E N T I A L SECTION 01 OF 03 ROME 002294 
 
SIPDIS 
 
PASS PASS USOECD; STATE PASS USTR; GENEVA FOR USTR; USDOC 
4212/ITA/OEURA/CPD/DDEFALCO 
                       CONFIDENTIAL 
 
PAGE 02        ROME  02294  01 OF 03  230857Z 
 
E.O. 12958: DECL: 05/22/2008 
TAGS: EFIN, PGOV, ETRD, PGOV, ETRD, PGOV, ETRD, IT, ITEFIN, ITEFIN 
SUBJECT: PDAS RIES VISIT: ECONOMIC PRIORITIES FOR ITALY'S 
EU PRESIDENCY 
 
CLASSIFIED BY: CHARGE D'AFFAIRS EMIL SKODON FOR REASONS 1.5 (B, D) 
 
 1. (C) SUMMARY. GOI OFFICIALS BELIEVE THAT AS EU PRESIDENT, 
ITALY'S TOUGHEST ECONOMIC CHALLENGE WILL BE TO HELP RESTORE 
CONSUMER AND INVESTOR CONFIDENCE IN THE MARKETS.  A CREDIBLE 
MESSAGE BY THE ITALIAN PRESIDENCY AND COMMITMENT BY ALL EU 
MEMBERS TO JUMP-START EURO-ZONE ECONOMIES ARE NEEDED TO WIN 
BACK CONFIDENCE, MFA AND FINANCE MINISTRY OFFICIALS TOLD 
VISITING PRINCIPAL DEPUTY ASSISTANT SECRETARY RIES DURING A 
MAY 19TH ROUNDTABLE DINNER DISCUSSION.  THE GOI ALSO WILL 
SEEK A STRONG US/EU COMMON STATEMENT IN SUPPORT OF THE DOHA 
TRADE ROUND PRIOR TO THE CANCUN MEETING, FOLLOWED BY A 
SUCCESSFUL MEETING ITSELF.  ALSO DISCUSSED WERE THE 
POSSIBILITY OF REVITALIZING THE TRANSATLANTIC BUSINESS 
DIALOGUE, ITALY'S E-GOVERNMENT PLANS, TRADE ISSUES AND THE 
MID-TERM REVIEW OF THE COMMON AGRICULTURAL PROGRAM.  END 
SUMMARY. 
 
2. (U) PARTICIPATING IN THE DCM-HOSTED DINNER FOR PDAS RIES 
WERE LORENZO BINI-SMAGHI, DIRECTOR GENERAL (AND G7 FINANCIAL 
SOUS-SHERPA) OF THE FINANCE MINISTRY; GIANDOMENICO MAGLIANO, 
THE NEW DIRECTOR GENERAL, OFFICE OF ECONOMIC COOPERATION, 
MINISTRY OF FOREIGN AFFAIRS; AMEDEO TETI, DIRECTOR GENERAL, 
COMMERCIAL AGREEMENTS, MINISTRY OF PRODUCTIVE ACTIVITIES 
(TRADE); STEFANO GATTI, DIPLOMATIC ADVISOR TO THE MINISTER OF 
                       CONFIDENTIAL 
 
PAGE 03        ROME  02294  01 OF 03  230857Z 
TECHNOLOGY AND INNOVATION, AND RAFFAELE DE LUTIO, DIPLOMATIC 
ADVISOR TO THE MINISTRY OF AGRICULTURE, AND FOR THE U.S., THE 
ECONOMIC MINISTER COUNSELOR, AGRICULTURAL MINISTER COUNSELOR 
AND ECONOFF (NOTETAKER).    MEETINGS WITH GIUSEPPE BALDOCCI, 
SECRETARY GENERAL, MINISTRY OF FOREIGN AFFAIRS, ROCCO 
 
SIPDIS 
CANGELOSI, DIRECTOR GENERAL FOR EUROPEAN INTEGRATION, MFA, 
AND OTHER MINISTRY OFFICIALS REPORTED SEPTEL. 
 
A SOMBER MACROECONOMIC PICTURE 
------------------------------ 
 
3. (C) THE CONTINUED RECESSION, THE RISING EURO (AND 
PARTICULARLY ITS IMPACT ON EUROPEAN EXPORTERS), AND INCREASED 
UNEMPLOYMENT, ALL HAVE LEFT EUROPEAN CONSUMERS AND INVESTORS 
JITTERY ABOUT THE MARKETS, COMMENTED MAGLIANO AND 
BINI-SMAGHI.  ONE OF ITALY'S KEY TASKS AS THE EU PRESIDENT 
AND A G7 COUNTRY WILL BE TO MAKE A CREDIBLE STATEMENT AND 
TAKE REAL STEPS THAT WILL HELP RESTORE CONFIDENCE, ARGUED 
MAGLIANO. NOTING THAT ATMOSPHERICS AT THE G7 FINANCE 
MINISTERS MEETING WERE POSITIVE, WITH NO VISIBLE LINGERING 
EFFECTS OF IRAQ, BINI-SMAGHI ASSERTED THAT WE SHOULD TAKE 
THIS AS A MESSAGE AND FOCUS ON ECONOMIC ISSUES DURING OUR 
PRESIDENCY TO HELP RESTORE U.S./EU RELATIONS TO GOOD HEALTH. 
 
4. (C) AT THE SAME TIME, THERE ARE NO SHORTAGES OF CONCERNS, 
BINI-SMAGHI CONTINUED.  THE DOLLAR'S FUTURE VALUE IS THE 
GREAT UNKNOWN.  AT THE END OF LAST WEEK'S MEETING, G7 FINANCE 
MINISTRY OFFICIALS THOUGHT THE U.S. STILL WOULD DEFEND A 
STRONG DOLLAR.  ALL WERE SURPRISED BY THE WEEKEND'S PRESS 
REPORTS THAT THE U.S. ADMINISTRATION HAD BACKTRACKED FROM 
THIS POSITION AND WOULD "LET THE DOLLAR FALL."  THE 
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PAGE 04        ROME  02294  01 OF 03  230857Z 
"AMBIGUITY" OF THE U.S. POSITION, AND THE FLUCTUATIONS OF THE 
DOLLAR'S VALUE VIS-A-VIS THE EURO, WORRY EUROPEAN CONSUMERS 
AND EXPORTERS, BINI-SMAGHI CONTENDED.    EUROPEAN EXPORTERS 
AND JOBS THAT DEPEND ON EXPORTS STAND TO LOSE THE MOST.  HE 
ALSO OBSERVED THAT WIDESPREAD FLUCTUATIONS HAVE ONLY OCCURRED 
IN THE DOLLAR/EURO VALUES.  ASIAN CURRENCIES ON THE WHOLE 
HAVE MAINTAINED MORE EQUILIBRIUM WITH THE DOLLAR.  TO 
COMPOUND MATTERS, MANY ASIAN INVESTORS ARE DIVERSIFYING THEIR 
FINANCIAL ASSETS TO INCLUDE EURO-DENOMINATED ASSETS, WHICH 
PUTS EVEN MORE UPWARD PRESSURE ON THE EURO. 
 
5. (C) MAGLIANO AND BINI-SMAGHI AGREED THAT ITALY, A G7 
COUNTRY HOLDING THE EU PRESIDENCY, HAS A PARTICULAR 
OBLIGATION TO REASSURE CONSUMERS AND INVESTORS.  (COMMENT: 
THE LAST G7 COUNTRY THAT HELD THE EU PRESIDENCY WAS FRANCE 
THREE YEARS AGO, WHICH WAS AT THE TAIL END OF ECONOMIC BOOM 
YEARS.  END COMMENT.) WHEN QUERIED ABOUT SPECIFIC PROPOSALS 
UNDER THE PRESIDENCY, BINI-SMAGHI, KEEPING THE GOI'S CARDS 
FAIRLY CLOSE TO THE CHEST, MENTIONED VAGUE PLANS ABOUT 
INFRASTRUCTURE INVESTMENT AND A WRY AND WEARY ACKNOWLEDGMENT 
OF THE NEED FOR PENSION REFORM.   HE CONCEDED THAT A STRONGER 
EURO MIGHT FORCE THE HAND OF GOVERNMENTS TO ADOPT SOME MAJOR 
STRUCTURAL REFORMS. 
 
6. (C) ON A DARK NOTE,  BINI-SMAGHI ACKNOWLEDGED THAT SOME 
 
                       CONFIDENTIAL 
 
                           CONFIDENTIAL     PTQ5090 
 
PAGE 01        ROME  02294  02 OF 03  230857Z 
ACTION EUR-00 
 
INFO  LOG-00   NP-00    AID-00   CEA-01   CIAE-00  CTME-00  INL-00 
      DODE-00  ANHR-00  SRPP-00  DS-00    EB-00    EXIM-01  E-00 
      VC-00    FRB-00   H-01     TEDE-00  INR-00   IO-00    ITC-01 
      LAB-01   L-00     VCE-00   AC-01    NSAE-00  NSCE-00  OES-00 
      OMB-01   OPIC-01  PA-00    PM-00    PRS-00   ACE-00   P-00 
      SCT-00   SP-00    IRM-00   SSO-00   STR-00   USIE-00  PMB-00 
      DSCC-00  PRM-00   DRL-01   G-00     NFAT-00  SAS-00     /009W 
                  ------------------69EE73  230858Z /38 
P 230850Z MAY 03 
FM AMEMBASSY ROME 
TO SECSTATE WASHDC PRIORITY 0065 
INFO EU MEMBER STATES COLLECTIVE PRIORITY 
AMCONSUL FLORENCE PRIORITY 
AMCONSUL FRANKFURT PRIORITY 
AMCONSUL MILAN PRIORITY 
AMCONSUL NAPLES PRIORITY 
DEPT OF COMMERCE WASHDC PRIORITY 
DEPT OF LABOR WASHDC PRIORITY 
DEPT OF TREASURY WASHDC PRIORITY 
USEU BRUSSELS PRIORITY 3241 
USMISSION USNATO PRIORITY 
 
C O N F I D E N T I A L SECTION 02 OF 03 ROME 002294 
 
SIPDIS 
 
PASS PASS USOECD; STATE PASS USTR; GENEVA FOR USTR; USDOC 
4212/ITA/OEURA/CPD/DDEFALCO 
 
                       CONFIDENTIAL 
 
PAGE 02        ROME  02294  02 OF 03  230857Z 
E.O. 12958: DECL: 05/22/2008 
TAGS: EFIN, PGOV, ETRD, IT 
SUBJECT: PDAS RIES VISIT: ECONOMIC PRIORITIES FOR ITALY'S 
EU PRESIDENCY 
 
GOI OFFICIALS ARE CONCERNED ABOUT THE "WORST-CASE" ECONOMIC 
SCENARIO UNDER THE ITALIAN PRESIDENCY: A BREAKDOWN IN THE 
DOHA TRADE ROUND, AN UNCONTROLLED FREE-FALL OF THE U.S. 
DOLLAR WITH A DOLLAR/EURO EXCHANGE RATE OF LEVELS UP TO 
$1.40/E1, AND UNEMPLOYMENT IN EUROPE EXACERBATED BY A STRONG 
EURO.   ALTHOUGH NONE OF THESE IS SPECIFICALLY UNDER ITALY'S 
CONTROL, THE GOI DOES NOT WANT TO BE IN THE CHAIR IF EUROPE'S 
ECONOMY TRULY STALLS. 
 
DEFENSE SPENDING AND STABILITY PACT 
----------------------------------- 
 
7. (C) ASKED ABOUT NEWS REPORTS EARLIER THAT DAY THAT GERMAN, 
ITALIAN AND FRENCH DEFENSE MINISTERS ARE ADVOCATING THAT 
DEFENSE EXPENDITURES BE EXCLUDED FROM STABILITY PACT 
REQUIREMENTS, ALLOWING THE BIG THREE TO INCREASE DEFENSE 
EXPENDITURES,  BINI-SMAGHI POLITELY SCOFFED AS THIS PURPORTED 
AGREEMENT, CALLING IT A "PRIVATE INITIATIVE."  "THEY CAN SAY 
WHAT THEY LIKE," HE SHRUGGED, BUT STRESSED THAT FINANCE 
MINISTERS, NOT DEFENSE MINISTERS, ARE THE ONES OBLIGED TO 
FULFILL STABILITY PACT REQUIREMENTS.  COMMENT: THE COMMISSION 
HAS RULED OUT EASING THE MAASTRICHT CRITERIA BY EXCLUDING 
DEFENSE FROM OVERALL EXPENDITURES. EARLIER THIS MONTH, 
DIRECTOR GENERAL ARRIGO SADUN OF THE FINANCE MINISTRY TOLD US 
THAT FINANCE MINISTER TREMONTI IS LOOKING AT CREATIVE WAYS TO 
FINANCE INCREASED DEFENSE EXPENDITURES, WITHOUT VIOLATING 
                       CONFIDENTIAL 
 
PAGE 03        ROME  02294  02 OF 03  230857Z 
STABILITY PACT COMMITMENTS.  DURING THE 2002 BUDGET DEBATE IN 
ITALY, TREMONTI PROPOSED SIGNIFICANT CUTS IN DEFENSE SPENDING 
TO MEET STABILITY PACT REQUIREMENTS.  HE BACKTRACKED, 
HOWEVER, AFTER INTENSE PRESSURE FROM DEFENSE MINISTER MARTINO 
AND LATER, FROM PRIME MINISTER BERLUSCONI, WHO HAD PROMISED 
NATO SYG ROBERTSON THAT ITALY WOULD IMPROVE ITS MILITARY 
CAPABILITIES. END COMMENT. 
 
ECONOMIC ASSISTANCE 
------------------- 
 
8. (SBU) IN RESPONSE TO PDAS RIES' SUGGESTION THAT THE US AND 
EU SHOULD DO MORE TO JOIN EFFORTS ON ECONOMIC ASSISTANCE TO 
THIRD COUNTRIES, MAGLIANO CONCURRED, NOTING THAT JOINT 
PROJECTS COULD HELP BRIDGE THE CURRENT GAP BETWEEN THE U.S. 
AND THE EU.  HE SPECIFICALLY POINTED TO THE CASE OF IRAQI 
RECONSTRUCTION PROJECTS. 
 
9. (SBU) STEFANO GATTI, DIPLOMATIC ADVISOR TO THE MINISTER OF 
TECHNOLOGY AND INNOVATION, NOTED THAT ITALY SEES E-GOVERNMENT 
AS A TOOL FOR ECONOMIC DEVELOPMENT FOR LESS-DEVELOPED 
COUNTRIES.  ONE OF THE FIRST EVENTS OF ITALY'S EU PRESIDENCY 
WILL BE AN E-GOVERNMENT CONFERENCE, BRINGING TOGETHER THE EU 
MEMBER STATES, MULTILATERAL DEVELOPMENT BANKS, THE UNITED 
NATIONS, AND SELECTED INVITED GOVERNMENTS.   THE GOI RECENTLY 
LAUNCHED TWO PROJECTS IN JORDAN ON E-PROCUREMENT AND 
E-ACCOUNTING AND WILL SOON HAVE ON-LINE PROJECTS IN NIGERIA, 
MOROCCO AND ALBANIA.   REGARDING THE LATTER, PDAS REMARKED 
THAT ANTI-CORRUPTION EFFORTS IN THE BALKANS ARE ONE OF THE 
USG'S TOP PRIORITIES AND THAT PERHAPS, THE U.S. AND ITALY, AS 
EU PRESIDENT, COULD WORK TOGETHER. 
                       CONFIDENTIAL 
 
PAGE 04        ROME  02294  02 OF 03  230857Z 
 
TRADE, CAP REFORM, AND THE TABD 
------------------------------- 
 
10. (C) THE GOI SUPPORTS A STRONG STATEMENT BY G7 COUNTRIES, 
AT THE JUNE 1-2 SUMMIT IN EVIAN, IN SUPPORT OF THE PRINCIPLES 
OF THE DOHA TRADE ROUND.  THIS WILL HELP CLEAR THE WAY FOR A 
SIMILAR U.S./EU STATEMENT, WHICH ITALY WILL PRESS FOR UNDER 
ITS PRESIDENCY.   SUCH A STATEMENT IS A WIN-WIN FOR ALL 
PARTIES, MAGLIANO ARGUED.  TRADE DG TETI STRESSED THAT THE 
GOI HOPED THE ITALIAN EU PRESIDENCY WOULD BE A TIME OF 
COOLING OFF, NON-CONFRONTATION, AND A WILLINGNESS TO SEARCH 
FOR COMMON GROUND BY BOTH SIDES OF THE ATLANTIC.  IN THIS 
CONTEXT, HE SAID THE GOI WOULD BE PREPARED TO TAKE A MORE 
LIMITED AND "PRAGMATIC APPROACH" TO GEOGRAPHIC INDICATIONS 
(ITS TOP DOHA PRIORITY).  HE PREDICTED THAT PROGRESS ON CAP 
REFORM IN THE NEAR FUTURE WOULD HAVE A POSITIVE IMPACT ON THE 
EU'S POSITION ON AGRICULTURE WITHIN THE WTO NEGOTIATIONS. 
 
11. (SBU) ON THE ISSUE OF THE MID-TERM REVIEW OF THE COMMON 
AGRICULTURAL POLICY (CAP), BOTH DE LUTIO AND TETI WERE 
HOPEFUL THAT THE AGRICULTURAL COUNCIL COULD REACH AGREEMENT 
UNDER THE GREK PRESIDENCY.  TETI IN PARTICULAR WAS SENSITIVE 
TO THE IMPORTANCE OF REACHING AGREEMENT BY THE ENDOF JUNE IF 
 
                       CONFIDENTIAL 
 
                           CONFIDENTIAL     PTQ5088 
 
PAGE 01        ROME  02294  03 OF 03  230857Z 
ACTION EUR-00 
 
INFO  LOG-00   NP-00    AID-00   CEA-01   CIAE-00  CTME-00  INL-00 
      DODE-00  ANHR-00  SRPP-00  DS-00    EB-00    EXIM-01  E-00 
      VC-00    FRB-00   H-01     TEDE-00  INR-00   IO-00    ITC-01 
      LAB-01   L-00     VCE-00   AC-01    NSAE-00  NSCE-00  OES-00 
      OMB-01   OPIC-01  PA-00    PM-00    PRS-00   ACE-00   P-00 
      SCT-00   SP-00    IRM-00   SSO-00   STR-00   USIE-00  EPAE-00 
      PMB-00   DSCC-00  PRM-00   DRL-01   G-00     NFAT-00  SAS-00 
        /009W 
                  ------------------69EE7E  230857Z /38 
P 230850Z MAY 03 
FM AMEMBASSY ROME 
TO SECSTATE WASHDC PRIORITY 0066 
INFO EU MEMBER STATES COLLECTIVE PRIORITY 
AMCONSUL FLORENCE PRIORITY 
AMCONSUL FRANKFURT PRIORITY 
AMCONSUL MILAN PRIORITY 
AMCONSUL NAPLES PRIORITY 
DEPT OF COMMERCE WASHDC PRIORITY 
DEPT OF LABOR WASHDC PRIORITY 
DEPT OF TREASURY WASHDC PRIORITY 
USEU BRUSSELS PRIORITY 3242 
USMISSION USNATO PRIORITY 
 
C O N F I D E N T I A L SECTION 03 OF 03 ROME 002294 
 
SIPDIS 
 
PASS PASS USOECD; STATE PASS USTR; GENEVA FOR USTR; USDOC 
4212/ITA/OEURA/CPD/DDEFALCO 
                       CONFIDENTIAL 
 
PAGE 02        ROME  02294  03 OF 03  230857Z 
 
E.O. 12958: DECL: 05/22/2008 
TAGS: EFIN, PGOV, ETRD, IT 
SUBJECT: PDAS RIES VISIT: ECONOMIC PRIORITIES FOR ITALY'S 
EU PRESIDENCY 
 
THERE IS TO BE ANY CHANCE OF A SUCCESSFUL AGRICULTURAL 
AGREEMENT AT THE SEPTEMBER WTO MINISTERIAL IN CANCUN.  TWO 
ISSUES - DECOUPLING OF FARMER INCOME SUPPORT PAYMENTS FROM 
PRODUCTION DECISIONS AND CONTINUATION OF THE DAIRY QUOTAS - 
WERE IDENTIFIED AS THE LARGEST STUMBLING BLOCKS FOR AG 
MINISTERS TO CONTEND WITH. COMMENT: AS USEU ALREADY HAS 
REPORTED, THE AG COUNCIL'S DEFINITION OF DECOUPLING IS FLUID 
AT BEST. TETI'S COMMENT THAT THE FRENCH ARE NO LONGER OPPOSED 
TO PARTIAL DECOUPLING AND DE LUTIO'S REMARKS THAT ITALY'S 
THREE FARMER ORGANIZATIONS ARE NOW UNITED IN THEIR SUPPORT 
FOR PARTIAL DECOUPLING SIGNALS TO US THAT THE COUNCIL HAS 
INDEED MOVED SOME DISTANCE FROM THE COMMISSION'S ORIGINAL 
PROPOSAL.  NEITHER DE LUTIO OR TETI COULD GIVE US THE AG 
COUNCIL'S WORKING DEFINITION OF PARTIAL DECOUPLING. END 
COMMENT 
 
12. (SBU) BOTH AT THE DINNER AND LUNCH EARLIER THAT DAY, 
ITALIAN OFFICIALS (SOMEWHAT UNEXPECTEDLY) RAISED THE 
TRANSATLANTIC BUSINESS DIALOGUE AS A POSSIBLE MECHANISM FOR 
IMPROVING US-EU RELATIONS GENERALLY. THEY LISTENED WITH 
INTEREST TO PDAS RIES' RECOUNTING OF THE HISTORY OF THE TABD 
AND CURRENT COMMERCE DEPARTMENT THINKING ON HOW IT MAY BE 
REINVIGORATED. THE ITALIANS EXPRESSED AN INTEREST IN KEEPING 
IN TOUCH ON THE TABD. 
 
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PAGE 03        ROME  02294  03 OF 03  230857Z 
13. (U) PDAS RIES DID NOT HAVE AN OPPORTUNITY TO CLEAR THIS 
CABLE BEFORE DEPARTING ROME. 
SKODON 
 
                       CONFIDENTIAL 
 
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 2003ROME02294 - Classification: CONFIDENTIAL