Pension Reform Inching Forward

UNCLAS ROME 005627

SIPDIS


DOL FOR ILAB/BRUMFIELD
DEPARTMENT FOR DRL/IL, EUR/WE and INR

SENSITIVE

E.O. 12958: N/A
TAGS: ELAB ECON PGOV IT EUN
SUBJECT: Pension Reform Inching Forward

Ref: a) Rome 4537; B) Rome 2474

NOT FOR INTERNET DISTRIBUTION


1. (SBU) Summary: After a fall devoted largely to posturing,
the Berlusconi government and the three major trade union
confederations have finally picked up their hammers to try
to bang out a pension reform deal. The government agreed
December 10 to suspend for a month action to implement its
proposed reform package by decree, leaving many observers
cautiously optimistic that it still would be possible to
craft a reform package that the confederations could
support. Organized labor's December 6 show of strength,
which brought upwards of 300,000 workers and pensioners to
Rome, underscored the emotional volatility of the issue and
its resonance for Italy's aging labor force. But it also
served to mask strong differences among the confederations
over the composition of an acceptable reform package. The
most difficult bargaining in the coming month probably will
be among the unions themselves. End Summary


2. (SBU) The Berlusconi government's efforts to reform
further Italy's generous (and unaffordable) pension system
inched forward December 10, as the three major trade union
confederations agreed to in-depth talks with government
experts. In exchange, the government suspended for thirty
days parliamentary action on a pension reform package that
eventually would have been implemented by decree. The
government package, unveiled in August (ref A),was built
around increases in the retirement age and the number of
years of contributions required for a full pension, with a
relatively short phase-in period of five years. Another
provision would try to jump-start a largely moribund private
pension scheme by requiring companies to transfer over funds
held in reserve to finance employee severance payments.
After a desultory consultation with the confederations, the
reforms were packaged into a draft decree; Labor Minister
Maroni announced the package would be sent to Parliament for
approval in connection with the 2004 budget, arguing the two
were inextricably linked.


3. (U) Maroni, Finance Minister Tremonti and other senior
members of the coalition government spent much of the fall
trading public salvos with the unions and opposition
parties, with both sides asserting they had proposed
negotiations that never seemed to materialize. Maroni and
Finance Minister Tremonti argued that there was little
alternative to the rapid phase-in if Italy was to meet the
European Commission's recommended target of reducing pension
costs by 0.7% of GDP in the next five years. The unions and
the center-left opposition countered that the rapid phase-in
broke faith with workers, giving them little or no warning
that they'd suddenly be required to work longer. Although
many Italian workers theoretically could retire at 57, in
practice the average retirement age was 59.4, only one-tenth
of a year less than the European average. Italian workers,
they argued, already had borne a disproportionate share of
the economic burden of meeting the EMU convergence targets
in the early `90s required for Italian participation in EMU.
Moreover, they continued to carry self-employed workers, who
received pensions calculated at a higher rate than their
actual earnings, in the pension system. With the Stability
Pact in tatters and France and Germany able to spend freely
without any serious consequences, one opposition pol
asserted, why should workers bear the brunt of Tremonti's
latest fiscal surgery?

Fuzzy Math, in the Streets.
--------------


4. (U) The government's decision to concurrently push
through Parliament media reform legislation that ex post
facto legitimized the breadth of Berlusconi's broadcast
media holdings did little to improve the confederations'
mood. Maroni continued to insist the government wanted to
negotiate and asked the confederations to propose their own
version of a reform package - provided it still accomplished
the targeted reduction in pension expenditures. The
confederations pronounced themselves ready to deal -
provided the government first withdrew the draft decree. If
the government insisted on proceeding with the decree, the
confederation leaders declared, they would mobilize a
million workers to descend on Rome's piazzas, stirring
memories of the 1994 general strike - also over pension

reform - that contributed to the collapse of the first
Berlusconi government.


5. (SBU) The subsequent union-organized march through the
streets of Rome December 6 was noisy, colorful - and
somewhat smaller than the promised million pairs of work
boots. CISL Leader Pezzotta's claim of a million and half
notwithstanding, Interior ministry sources reported around
300,000 workers and pensioners took part. Our admittedly
unscientific sampling suggests well over half were retirees,
reflecting the two largest confederations' demographics
(over half their respective memberships are retired
workers). Many were visibly angry, though more over
Berlusconi's legal woes and conflicts of interest than over
pension reform; a generally festive mood prevailed. Many
retirees, it appeared, had decided to trade half a day in
the streets for a free trip to the capital, financed by
their unions.

.and at the table
--------------


6. (SBU) Regardless of the protest's impact, the government
invited the confederations to a December 10 negotiation that
amounted to "talks about talks." The confederations agreed
to work with government negotiators over the coming month;
in turn, the government agreed to suspend action on the
decree. As so often happens in Italy, the real action now
moves offstage, where the confederations' pension experts
will try to hammer out - among themselves, with the center-
left opposition, and finally with the government - an
alternative vision of pension reform. The confederations'
real challenge will be to translate the unity of the street
to the bargaining table.


7. (SBU) Although all three confederations understand their
leverage is largely a function of their unity, they have
major differences over the basic need for additional pension
reform, let alone the details. Not surprisingly, CGIL, the
largest and furthest-left confederation, has refused to
accept the basic premise of cutting pension spending by 0.7%
of GDP. CGIL leader Guglielmo Epifani has proposed instead
a broader discussion of the entire welfare system,
suggesting that additional budget savings are more easily
achieved by shifting more of the costs of supporting the
social safety net to self-employed and independent
contractors, who they currently pay a disproportionately
smaller percentage of their earnings into the system.


8. (SBU) This proposal has been met thus far with silence
from the Berlusconi government, which draws much of its
support from small business. Epifani's fellow confederal
leaders have some solid ideas for redistributing the burden
of the necessary cuts, hinting at a package that would
include a longer phase-in period and better incentives to
persuade workers to forego retirement. But they have their
work cut out for them in coaxing CGIL, and its stalwart
supporters in the Democratic Left opposition party, into
supporting a package that ultimately would provide the
Berlusconi government a modest but significant win, in
advance of next spring's EuroParliament elections, on a key
domestic issue.


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2003ROME05627 - Classification: UNCLASSIFIED