ITALY'S DEFENSE BUDGET - SPARED FOR NOW

C O N F I D E N T I A L ROME 005430 SIPDIS E.O. 12958: DECL: 11/06/2007 TAGS: ECON EFIN IT PGOV ITALIAN POLITICS SUBJECT: ITALY'S DEFENSE BUDGET - SPARED FOR NOW CLASSIFIED BY: ECONOMIC MINISTER-COUNSELOR SCOTT KILNER FOR REASONS 1.5 CONFIDENTIAL PAGE 02 ROME 05430 071136Z (B) AND (D) ¶1. (C) DESPITE INTENSIFYING BUDGET PRESSURES, DEFENSE SPENDING FOR 2003 WILL NOT BE CUT, FRANCESCO TRUPIANO, DIPLOMATIC ADVISOR TO DEFENSE MINISTER MARTINO, TOLD ACTING ECONOMIC COUNSELOR ON OCTOBER 31. TRUPIANO CONFIRMED THAT ITALIAN PRIME MINISTER BERLUSCONI HAS REJECTED FINANCE MINISTER TREMONTI'S RECOMMENDATION TO REDUCE DEFENSE SPENDING, AND ALREADY HAS REAFFIRMED WITH LORD ROBERTSON THAT ITALY WILL ABIDE BY ITS DEFENSE COMMITMENTS, PARTICULARLY IN UPGRADES AND PROCUREMENT. ¶2. (U) THE DRAFT BUDGET, WHICH IS BEFORE PARLIAMENT, INCREASES DEFENSE SPENDING BY .3 PERCENT IN NOMINAL TERMS, OVER LAST YEAR'S LEVELS. HOWEVER, AFTER ACCOUNTING FOR PREDICTED 2003 INFLATION OF 1.9 PERCENT, THE BUDGET WOULD BE REDUCED IN REAL TERMS BY AS MUCH AS 1.6 PERCENT. ¶3. (C) TRUPIANO SAID THE EXACT DEFENSE SPENDING LEVELS ARE STILL UNDER NEGOTIATION. HE REMAINS UNCONVINCED, HOWEVER, THAT THE MOD'S BUDGET WILL INCREASE SUFFICIENTLY TO COVER ALL THE "FIXED COSTS", SUCH AS MILITARY PAY, WHICH ARE INCREASING AS ITALY SHIFTS FROM A CONSCRIPT TO A PROFESSIONAL FORCE. HE ALSO PREDICTED THAT SPENDING FOR SPECIFIC DEFENSE PROGRAMS WILL BE SHIFTED EVEN MORE TO OTHER MINISTERIAL BUDGETS. INDEED, GABRIELE CHECCHIA, DIPLOMATIC ADVISOR TO PRODUCTIVE ACTIVITIES MINISTER MARZANO, ALSO PRESENT WHEN TRUPIANO TOLD US OF THE PM'S DECISION, COMMENTED (SOMEWHAT SARDONICALLY) THAT THE MPA'S PROGRAMS WILL THEREFORE "RECEIVE AN EVEN GREATER CUT." CONFIDENTIAL PAGE 03 ROME 05430 071136Z ¶4. (C) COMMENT: DEFENSE PROCUREMENT IS FUNDED THROUGH MULTIPLE APPROPRIATIONS, INCLUDING THOSE FOR THE MINISTRY OF PRODUCTIVE ACTIVITIES (I.E. INDUSTRY). DEFMIN MARTINO IS IN FACT TRYING TO SHIFT MORE OF THE EUROFIGHTER COSTS TO THE MPA, WHICH DOES NOT WISH TO FUND THE PROGRAM BUT ALREADY IS RESPONSIBLE FOR SOME OF ITS FINANCIAL OBLIGATIONS. IF THE MPA PICKS UP MORE OF THE EUROFIGHTER FINANCIAL BURDEN, NON-DEFENSE RELATED PROGRAMS WILL CERTAINLY BE AFFECTED. WE ALSO HAVE HEARD THAT MARTINO IS TRYING TO SHIFT DEFENSE SPENDING TO OTHER MINISTRIES BESIDES THE MPA. END COMMENT. SPECULATION ON TREMONTI'S FUTURE -------------- ¶5. (C) RUMORS ARE RAMPANT THAT FINANCE MINISTER TREMONTI PROFFERED HIS RESIGNATION AFTER THE PM'S REJECTION OF THE PROPOSED DEFENSE CUTS. A JOURNALIST WITH ITALY'S LEADING NEWSPAPER CORRIERE DELLA SERA TOLD POLMINCOUNS THAT TREMONTI CONFIRMED IN AN INTERVIEW THAT HE HAD OFFERED HIS RESIGNATION, BUT IT HAD BEEN REJECTED. WHEN CLEARING THE ARTICLE PRIOR TO PUBLICATION, HOWEVER, TREMONTI CUT THE EXCHANGE FROM THE STORY. IN RESPONSE, CORRIERE RAN A CRYPTIC EDITORIAL ALLUDING TO THE RESIGNATION AND ACCUSING TREMONTI OF "INTELLECTUAL ARROGANCE." ¶6. (C) ALTHOUGH BERLUSCONI HAS CHALLENGED TREMONTI, THE PM CLEARLY STILL NEEDS HIM IN PLACE. INTERNATIONALLY, THE FINANCE MINISTER IS ONE OF THE MOST VISIBLE AND IMPORTANT FIGURES IN THE ITALIAN CABINET. MOREOVER, THE PM COULD ILL-AFFORD THE RESIGNATION OF TREMONTI IN THE MIDST OF THE BUDGET BATTLE. CABINET MINISTERS AND PARTY MEMBERS ALREADY CONFIDENTIAL PAGE 04 ROME 05430 071136Z ARE THROWING THEIR WEIGHT ABOUT TO ENSURE THAT FAVORED PROGRAMS ARE PRESERVED. A VACANT FINANCE MINISTER SEAT COULD TRIGGER A POLITICAL FREE-FOR-ALL AND MAKE EVEN MORE DIFFICULT PASSAGE OF A BUDGET BY YEAR'S END, AS REQUIRED BY LAW. ¶7. (C) ADDITIONALLY, AN OPEN FINANCE MINISTER SLOT WOULD RENEW DEBATE ABOUT CABINET REALIGNMENT, A CONTENTIOUS ISSUE THAT, WE ARE TOLD, SIMMERS ONLY SLIGHTLY BELOW THE SURFACE IN THE BERLUSCONI GOVERNMENT AND MAY PLAY A ROLE IN THE CONTINUING DELAY OF THE APPOINTMENT OF A FOREIGN MINISTER, AS WELL. A TREMONTI RESIGNATION ALSO WOULD EXACERBATE FRICTION WITHIN THE RULING COALITION. TREMONTI OFTEN SMOOTHES THE WAY BETWEEN BERLUSCONI'S FORZA ITALIA AND BOSSI'S NORTHERN LEAGUE PARTIES. BOSSI HAS IMMEDIATELY AND PUBLICLY DECLARED THAT TREMONTI "WILL NOT BE TOUCHED... NOT THE MAN (WITH WHOM) THE LEAGUE MADE A DEAL TO CREATE THE RULING COALITION." SKODON CONFIDENTIAL > 2002ROME05430 - Classification: CONFIDENTIAL