Treasury DG Domenico Siniscalco Appointed New

UNCLAS ROME 002836

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TREAS FOR OASIA HARLOW, STUART
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E.O. 12958: N/A
TAGS: ECON EFIN ELAB PGOV IT ITALIAN POLITICS
SUBJECT: Treasury DG Domenico Siniscalco Appointed New
Economy and Finance Minister

REF: A) ROME 2800
B) ROME 2653
C) ROME 2630

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SUMMARY
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1. (SBU) After two weeks' debate within the Coalition
following former Finance Minister Tremonti's resignation, PM
Berlusconi appointed Domenico Siniscalco, Treasury
Department Director General since 2001, as new Finance
Minister on July 16. Over this two-week period, Coalition
parties could not agree upon a political Minister with real
clout. Thus, they fell back upon a technocratic solution,
albeit a very good one, since Siniscalco is an excellent
economist and well and favorably known to the Embassy.


2. (SBU) He will probably continue Tremonti's policies, but
in a less confrontational manner - and provide the sense of
collaboration in financial decision making that other
Coalition parties had been seeking in Tremonti, but had not
found. Despite PM Berlusconi's eventual success in having
selected a new Finance Minister and having kept his
coalition intact, Italy nonetheless still faces painful
financial decisions to bring Italy clearly within European
Monetary Union (EMU) guidelines on budget deficits and to
bring down Italy's large stock of public debt, still 106
percent of GDP, one of the highest in the world. End
summary.

THE NEW ECONOMY MINISTER
--------------


3. (U) Domenico Siniscalco, an economist born in Turin in
1954, received a law degree from the University of Turin and
a PhD in economics from the University of Cambridge in 1989.
He is Professor of Economics at the University of Turin (on
leave),after lecturing previously at Luiss Rome University,
University of Cagliari, Johns Hopkins University, University
of Cambridge and Catholic University of Louvain (CORE).


4. (U) Siniscalco was appointed Treasury Director General
(DG) in October 2001. (Note: The Ministry of Economy and
Finance has five departments, of which the Treasury is the
first and most prestigious. End note.) Prior to this
appointment he served on the board of numerous publicly
listed firms, among which are ENI (Italy's energy
conglomerate) and Telecom Italia. He is also author of over
90 publications on privatization, environmental economics,
and industrial organization, published in respected journals
(among them, European Economic Review, Journal of Public
Economics, and Resource Economics). He has also been a
columnist in the leading financial daily, Il Sole 24 Ore,
and member of the Swedish Academy of Sciences and of the
Royal Institute of International Affairs (London).


5. (U) Like his predecessor as Minister, Siniscalco
acquired vast experience in policy-making and in government
economics during almost fifteen years of service, in first
governments of the left and later, of the right. Siniscalco
was one of the economic advisors to two center-left Prime
Ministers, Giuliano Amato and Massimo D'Alema. He is also
well connected with Italy's industrial and financial
sectors. He is a long-time friend of FIAT President and
Confindustria President, Luca Cordero di Montezemolo, and of
the president of Mediobanca, Gabriele Galateri.

WHAT PROBLEMS DOES SINISCALCO FACE?
--------------


6. (U) Italy's GDP, which grew 0.3 percent last year, is
expected to grow only between one and 1.3 percent this year
and roughly two percent in 2005. Without severe budget
cuts, Italy's deficit next year could exceed four percent of
GDP, a level that could bring heavy sanctions (i.e., an
"early warning" from the European Commission) and further
credit downgrades from international ratings firms beyond
that just announced by Standard and Poor's. The IMF has
also called on Italy to implement budget cuts of 20 billion


euro in 2005 to reduce the deficit/GDP ration from their
estimate of four to 2.5 percent. Siniscalco will also have
to revive a languishing privatization program to help reduce
the public debt/GDP ratio that is now 106 percent of GDP,
the highest in Europe and the third largest in the world.

WHAT BUREAUCRATIC TALENT DOES HE BRING TO THE TABLE?
-------------- --------------


7. (U) As the former Director General of the most important
directorate general in the Finance Ministry, Siniscalco has
worked at Tremonti's right hand since 2001. For this
reason, some see him as the only person now who could pick
up the Finance Ministry's critical work without having to
stop to learn the process. Siniscalco's immediate priority
will be his presentation to the Cabinet of the 2005-2008
Documento di Programmazione Economica e Finanziaria
(Economic and Financial Planning Document - or DPEF),a four-
year economic plan setting forth economic/budgetary goals
for each year through 2008 (ref A).

DOES HE HAVE COALITION SUPPORT?
--------------


8. (SBU) Two of the four Coalition parties, the National
Alliance (AN) and the Union of the Christian Democrats of
the Center (UDC),supported PM Berlusconi's choice as
promising greater collaboration in economic policymaking.
(Deputy Prime Minister/AN president Fini had been critical
of the lack of "collegiality" in economic policy-making
under Tremonti.)


9. (SBU) Another coalition partner, the Northern League,
was less enthusiastic about Siniscalco's appointment -
primarily because it followed Tremonti's resignation.
League leader Umberto Bossi had forged a close alliance with
Tremonti, and the League considered Tremonti a guarantee
that the party's political program - in particular,
federalism and increased autonomy for northern Italy - would
receive close attention at the top of the government. There
are some indications that the League might retaliate for
Tremonti's ouster by resisting reform of the state pension
system, an important step to stabilizing Italy's public
finances. This vote is key, because financial markets view
pension reform as essential to bringing Italy's public
finances under control.

COMMENT
--------------


10. (SBU) We have had the chance to work closely with
Siniscalco, who, as Chair of the inter-ministerial Financial
Security Committee, was responsible for Italy's pro-active
interdiction of terrorist finance. In all cases, we have
found him very forthcoming and aggressive on this issue.


11. (SBU) The appointment of Siniscalco may have restored
some confidence in the Berlusconi government after two weeks
of political turmoil following Tremonti's resignation - and
the appointment should provide assurances that a
professional is in charge of economic policy. However, in
his current position, Siniscalco's challenge will be as much
how he navigates roiled coalition waters as how successfully
he steers Italy's economic policy. His background as a
civil servant, rather than a politician, may stand him in
good stead as he seeks to placate -- and control, if ever so
delicately -- disparate political masters with strong
populist interests. While it can be seen as a weakness, his
lack of a political power base may also be a strength.

12 (SBU) Still uncertain, however, is whether Siniscalco
will manage GOI economic policy for the next two years and
help Italy make the necessary painful financial decisions or
whether he will just be a caretaker for the 2005 budget
cycle, set up to take the blame for necessary unpopular
spending cuts. End comment.

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2004ROME02836 - Classification: UNCLASSIFIED