FINMIN VIEWS ON JOINT STRIKE FIGHTER, TERRORIST

C O N F I D E N T I A L SECTION 01 OF 02 ROME 000474

SIPDIS

DOD PASS TO OSD - STEVE WILLIAMS

E.O. 12958: DECL: 01/29/2012
TAGS: EAGR ECON EFIN IT ECON EFIN IT PREL FAS PRELEAGR FAS
SUBJECT: FINMIN VIEWS ON JOINT STRIKE FIGHTER, TERRORIST
ASSETS, THE EURO AND THE ECONOMY

CONFIDENTIAL

PAGE 02 ROME 00474 01 OF 02 310905Z
REF: ROME 372

CLASSIFIED BY: ECONOMIC MINISTER COUNSELOR MARGARET M. DEAN BY
REASON 1.5 (A) AND (E)

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SUMMARY
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1. (SBU) WHEN THE AMBASSADOR CALLED ON FINANCE MINISTER
GIULIO TREMONTI, HE PRAISED ITALIAN ACTION IN FREEZING
TERRORIST ASSETS, INQUIRED HOW ECONOMIC REFORM WAS
PROGRESSING AND MADE A STRONG ARGUMENT THAT THE JOINT STRIKE
FIGHTER WAS IN ITALY'S TECHNOLOGICAL AND COMMERCIAL
INTERESTS. TREMONTI WAS PLEASED WITH THE WAY THE
INTER-MINISTERIAL FINANCIAL SECURITY COMMITTEE WAS WORKING TO
IDENTIFY AND FREEZE TERRORIST ASSETS, DESCRIBED HIS PROGRESS
AND PROBLEMS WITH IMPLEMENTING ECONOMIC REFORM, PARTICULARLY
IN THE AREAS OF TAX AND PENSION REFORM, FRETTED ABOUT
FINANCING PUBLIC DEBT IN A EURO CAPITAL MARKET, AND WAS
INTERESTED IN OUR ARGUMENT SUPPORTING THE JSF. END SUMMARY.

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WAR ON TERRORISM
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2. (C) AMBASSADOR SEMBLER PAID A COURTESY CALL ON FINANCE
MINISTER GIULIO TREMONTI WEDNESDAY, JANUARY 23. ALSO PRESENT
WERE U/S DOMINICO SINISCALCO AND DIPLOMATIC REPRESENTATIVE
GUGLIERMO ARDIZZONI. IN RESPONSE TO THE AMBASSADOR'S
EXPRESSED APPRECIATION FOR THE HIGH LEVEL OF ITALIAN
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COOPERATION AND ENFORCEMENT OF THE FINANCIAL WAR ON
TERRORISM, TREMONTI SAID THAT HE WAS PLEASED WITH THE
OPERATION OF THE NEWLY ESTABLISHED FINANCIAL SECURITY
COMMITTEE. HE PRAISED IT AND ITS BI-MONTHLY MEETINGS, AS
FRUITFUL, EFFICIENT, WORKING IN CLOSE COOPERATION, AND
CAPABLE OF EFFECTIVELY MONITORING LISTS FROM US AND THE E.U.,
BUT ALSO CAPABLE OF GENERATING ITS OWN LISTS. (COMMENT: WE
FIND THIS IS A RARE EXAMPLE OF A STRONG, FUNCTIONING
INTER-MINISTERIAL COMMITTEE. MUCH OF ITS OPERATIONAL SUCCESS
BELONGS TO TREMONTI AND SINISCALCO. END COMMENT). TREMONTI
AND SINISCALCO NOTED THAT ACTUAL PERFORMANCE IS EVEN BETTER
THAN IT APPEARS BECAUSE THERE ARE ACTUALLY TWO LISTS. ONE IS
THE LEGAL LIST, WHICH HAS JURIDICAL DIMENSIONS, AND ONE IS AN
OPERATIONAL LIST FOR THE LAW ENFORCEMENT SERVICES WHICH
ALLOWS A WIDER HORIZON OF SURVEILLANCE AND INVESTIGATIVE
ACTIVITY.

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THE ECONOMY
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3. (SBU) IN RESPONSE TO A QUESTION ON THE ECONOMY, TREMONTI
THEN PRESENTED A LIST, SHOWING THE STATUS OF ACTION ON ALL OF
THE PRIME MINISTER'S FINANCIAL CAMPAIGN PROMISES. EVERY ONE
HAD BEEN ENACTED INTO LAW (E.G., REFTEL) EXCEPT THE REFORM OF
THE TAX LAW AND OF THE PENSION SYSTEM. THESE ARE TWO OF THE
MOST DIFFICULT AREAS, AND ONES THAT LIE OUTSIDE OF THE SOLE
CONTROL OF THE MINISTRY. THEY EXPECT TO MAKE PROGRESS IN
THESE TWO AREAS, ALTHOUGH THE UNEXPECTEDLY LARGE DEFICIT THAT
THE TREMONTI GROUP HAD FOUND WHEN THEY ARRIVED IN OFFICE HAS
MADE TAX REFORM MUCH MORE DIFFICULT. (COMMENT: PREVAILING
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PAGE 04 ROME 00474 01 OF 02 310905Z
GLOBAL MARKET CONDITIONS AND DECLINING TAX REVENUES,
PRIMARILY FROM CAPITAL GAINS, ALSO HAS PUT PRESSURE ON THE
GOI'S COFFERS).


4. (SBU) TAX REFORM, HOWEVER, IS A HIGH PRIORITY BECAUSE IT
WAS CENTRAL TO THE BERLUSCONI CAMPAIGN. TAX REFORM IS A
PROMISE THAT BERLUSCONI IS COMMITTED TO KEEPING. MANAGING
THE BUDGET AND THE DEFICIT (AND INDIRECTLY THE TIMING OF TAX
REFORM) DEPENDS ON THREE THINGS: THE COMMISSION, THE ITALIAN
ECONOMY AND ITALY'S OWN CONTROL (I.E., LEGISLATION,
DEVOLUTION OF EXPENSES TO THE REGIONS, ETC.)). EXPENSES FOR
AFGHANISTAN WERE NOT OVERWHELMING AND COULD BE MANAGED.
LEGALLY, TAX CUTS MUST BE COVERED BY OTHER MEANS. (NOTE:
RECOVERY CANNOT TECHNICALLY BE SPREAD OUT OVER TIME, BUT MUST
OCCUR IN THE SAME TAX YEAR.) THIS HAS BLOCKED A CERTAIN
AMOUNT OF PUBLIC SPENDING. TREMONTI REMAINED CONFIDENT THAT
IT COULD BE DONE HOWEVER, SAYING THAT "SINCE 1992, WE HAVE
DROPPED MANY POINTS IN THE DEFICIT/GDP RATIO; WE ARE ONLY
TALKING ONE OR PERHAPS 1.5 PERCENTAGE POINTS NOW". (COMMENT:
THE GOI OFFICIALLY MAINTAINS THAT THE DEFICIT WILL BE 1.1
PERCENT IN 2001. WE BELIEVE THAT WHEN FOURTH QUARTER RESULTS
ARE IN, THE DEFICIT WILL BE CLOSER TO 1.3 PERCENT.)


5. (SBU) NONETHELESS, TREMONTI IS LOOKING FORWARD TO
STARTING THE TAX REFORM DISCUSSION. HE ANTICIPATES A NEW
FISCAL FEDERALISM, ALTHOUGH HE WAS NOT SURE WHEN THAT WOULD
BE. THE FIRST STEP WILL BE A SIMPLIFICATION OF THE MULTIPLE,

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CONFIDENTIAL PTQ5696

PAGE 01 ROME 00474 02 OF 02 310905Z
ACTION EUR-00

INFO LOG-00 NP-00 AGRE-00 AID-00 A-00 ACQ-00 CA-01
CCO-00 CEA-01 CIAE-00 COME-00 CTME-00 INL-00 DOTE-00
SRPP-00 DS-00 EB-00 EXIM-01 E-00 FAAE-00 FBO-00
VC-00 FRB-00 H-01 TEDE-00 INR-00 ITC-01 LAB-01
L-00 VCE-00 M-00 AC-01 DCP-01 NSAE-00 NSCE-00
OCS-03 OMB-01 OPIC-01 OPR-01 PA-00 PM-00 PRS-00
ACE-00 P-00 SCT-00 SP-00 IRM-00 SSO-00 SS-00
STR-00 TRSE-00 T-00 USIE-00 USSS-00 SNIS-00 NISC-00
PMB-00 DSCC-00 DRL-02 G-00 NFAT-00 SAS-00 /016W
-------------- 5FE230 310905Z /38
R 310845Z JAN 02
FM AMEMBASSY ROME
TO SECSTATE WASHDC 1901
SECDEF WASHDC
INFO AMCONSUL FLORENCE
AMCONSUL MILAN
AMCONSUL NAPLES

C O N F I D E N T I A L SECTION 02 OF 02 ROME 000474

SIPDIS

DOD PASS TO OSD - STEVE WILLIAMS

E.O. 12958: DECL: 01/29/2012
TAGS: EAGR ECON EFIN IT ECON EFIN IT PREL FAS PRELEAGR FAS
SUBJECT: FINMIN VIEWS ON JOINT STRIKE FIGHTER, TERRORIST
ASSETS, THE EURO AND THE ECONOMY

CONFIDENTIAL

PAGE 02 ROME 00474 02 OF 02 310905Z
SOMETIMES CONFLICTING, LAWS ON TAXATION. THE NEXT STEP WOULD
BE TO REDUCE THE TAX BRACKETS AND TO REDUCE THE RATE OF TAX.
(COMMENT: SIMPLIFICATION IS A CHARACTERISTIC GOAL FOR
TREMONTI. HE CLEARLY USES IT AS A CRITERION FOR ACTION AND
IT WAS A CRITERION UNDERLYING THE LAWS THAT WERE ALREADY
PASSED. END COMMENT).

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THE EURO
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6. (SBU) ON THE INSTITUTION OF THE EURO, TREMONTI SAID THERE
WAS NO IMPACT OPERATIONALLY. THINGS WERE GOING WELL.
HOWEVER, THE PUBLIC DEBT IS HIGH AND NOW FOR THE FIRST TIME
THE COST OF FINANCING THE PUBLIC DEBT BECOMES MUCH MORE
TRANSPARENT. THE FINANCING RATE BECOMES CRITICAL, BUT HAVING
A SINGLE CURRENCY SHOULD MAKE THE PROCESS MORE COMPETITIVE
AND MORE EFFECTIVE. TREMONTI'S CONCERN IS THAT ITALY STAY
WITHIN THE MAASTRICHT TREATY GUIDELINES. STATING THAT THE
ITALIAN GDP WAS DIRECTLY LINKED TO BOTH THE GLOBAL AND U.S.
ECONOMIES, TREMONTI WAS MUCH MORE INTERESTED IN A POTENTIAL
US ECONOMIC RECOVERY.

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JOINT STRIKE FIGHTER
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7. (C) THE AMBASSADOR MADE A CLEAR EXPLANATION OF THE
BENEFITS TO ITALY ON JSF PARTICIPATION, PARTICULARLY AT A
FULL LEVEL TWO COMMITMENT. HE EXPLAINED THE INDUSTRIAL
PARTICIPATION AS WELL AS THE RETURN ON JSF SALES TO ITALY AS
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A PARTNER. THE AMBASSADOR EMPHASIZED THAT THE INDUSTRIAL
PARTICIPATION WAS NOT JUST FOR ONE COMPANY BUT COULD INCLUDE
COMPANIES ACROSS ITALY. HE MADE CLEAR THAT ITALIAN
PARTICIPATION WOULD BE WELCOME, PARTICULARLY IN THE DESIGN
STAGE, AS AN AREA OF ITALIAN STRENGTH AND THAT LOCKHEED IS
AWARE OF MANY SMALL AND MEDIUM SIZE COMPANIES THAT WOULD BE
COMPETITIVE FOR CONTRACTS. HE ALSO MENTIONED THE LOOMING
DECISION DEADLINE AS REAL BECAUSE LOCKHEED IS CONTRACTUALLY
OBLIGATED TO THE USG TO ASSIGN CONTRACTS (THE POINT OF
INTENSE ITALIAN INTEREST) IN THE NEAR FUTURE. (COMMENT. THE
AMBASSADOR MADE THE SMALL AND MEDIUM SIZE INDUSTRY POINTS
BECAUSE WE HAVE FOR SOME TIME BELIEVED THAT ALENIA'S GIORGIO
ZAPPA, WHO IS NEGOTIATING FOR ALL OF ITALIAN INDUSTRY, IS NOT
REPRESENTING ANYONE'S INTERESTS BUT ALENIA'S. THUS, WE
BELIEVE THAT THE GOVERNMENT OVERALL IS LESS THAN FULLY
KNOWLEDGEABLE OF ALL THE BENEFITS THAT MIGHT ACCRUE TO ITALY
FROM THE JSF.)


8. (C) TREMONTI SAID THAT THE DECISION WAS GOING TO BE MADE
BY BERLUSCONI. FINANCE'S ONLY RESPONSIBILITY IS "WE WILL
PAY". HE DID NOT PROFFER ANY VIEWS ON THE DIFFERENCES
BETWEEN A DECISION TO BUY-IN AT ONE BILLION VERSUS EIGHT
HUNDRED MILLION DOLLARS. NOR DID THEY HAVE THE DETAILS.
DESPITE SAYING THAT FINANCE WILL PAY, TREMONTI WAS EXTREMELY
INTERESTED IN THE MECHANICS: WOULD THE GOVERNMENT BE ABLE TO
WRITE THE MONEY FOR JSF INTO AN INVESTMENT CATEGORY, AS AN
ACQUISITION OF EQUITY, OR WOULD IT HAVE TO BE LISTED AS AN
EXPENDITURE? WOULD THE MONEY GO TO ITALIAN FIRMS, THE USG OR
US CORPORATIONS? (COMMENT: WE WILL APPROACH MOD ABOUT
PROVIDING INFORMATION TO MOF OR TO INCLUDE THEM (AS WELL AS
THE MINISTRY OF PRODUCTIVE ACTIVITIES, AND PERHAPS THE
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MINISTRY OF TECHNOLOGICAL INNOVATION) IN THE UP-COMING
INDUSTRY BRIEFING AS POTENTIAL SUPPORTERS OF ITALY'S
PARTICIPATION.)
SEMBLER

CONFIDENTIAL

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2002ROME00474 - Classification: CONFIDENTIAL