PDAS RIES VISIT: ECONOMIC PRIORITIES FOR ITALY'S

C O N F I D E N T I A L SECTION 01 OF 03 ROME 002294

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PASS PASS USOECD; STATE PASS USTR; GENEVA FOR USTR; USDOC
4212/ITA/OEURA/CPD/DDEFALCO
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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
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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

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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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"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

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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

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PASS PASS USOECD; STATE PASS USTR; GENEVA FOR USTR; USDOC
4212/ITA/OEURA/CPD/DDEFALCO

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PAGE 02 ROME 02294 02 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

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
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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.
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TRADE, CAP REFORM, AND THE TABD
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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

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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

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PASS PASS USOECD; STATE PASS USTR; GENEVA FOR USTR; USDOC
4212/ITA/OEURA/CPD/DDEFALCO
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PAGE 02 ROME 02294 03 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

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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13. (U) PDAS RIES DID NOT HAVE AN OPPORTUNITY TO CLEAR THIS
CABLE BEFORE DEPARTING ROME.
SKODON

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2003ROME02294 - Classification: CONFIDENTIAL