PM BERLUSCONI LOOKING FOR EXIT STRATEGY ON

UNCLAS ROME 000402 SIPDIS SENSITIVE E.O. 12958: N/A TAGS: PGOV ECON IT ITALIAN POLITICS SUBJECT: PM BERLUSCONI LOOKING FOR EXIT STRATEGY ON GOVERNMENT CHECK-UP REF: A. 03 ROME 3679 ¶B. ROME 184 ¶C. 03 ROME 5639 ¶1. (SBU) Summary. The end of Italy's EU Presidency has compelled PM Berlusconi to address longstanding demands by two junior coalition partners for more say over policy making. The painstaking attempt to appease them without a major cabinet reshuffle may finally be drawing to a close. Vice PM Fini, in particular, wants more influence for himself and his party on economic matters. Berlusconi, loath to diminish significantly the authority of Forza Italia Finance Minister Tremonti, is working on a compromise that could include a new kitchen cabinet with NEC-like responsibilities. Fini needs enough increased visibility to help ensure that his National Alliance party does well in the June European Parliament elections. The difficulty in concluding the government "check-up" underscores that the center-right is far from being a unified bloc and Berlusconi, while authoritative, remains more a final arbiter than chief executive. U.S. interests could take a small hit if speculation that anti-GMO Agriculture Minister Alemanno could be given authority over food safety pans out. End Summary. ¶2. (SBU) As we foreshadowed in ref A, the conclusion of Italy's EU presidency has forced PM Berlusconi to treat seriously the longstanding request by two of his junior coalition partners for a reexamination of government responsibilities. The push for a government check-up (verifica) was set into motion by Vice PM Gianfranco Fini following the center-right's poor performance in local elections last May. Fini argued that his National Alliance (AN) party needed more visibility on public policy--especially economic decision making--to convince voters that AN could deliver concrete benefits. Fini was joined in this mini-crusade by Marco Follini, leader of the moderate UDC (Union of Christian Democrats of the Center). Bush-league political maneuvering over the check-up is turning an outpatient exam into a protracted operation that is consuming the government's energy and checking its ability to map out a way forward post-EU presidency. ¶3. (SBU) Each demandeur, but especially Fini whose role as Vice PM is overshadowed by key ministers, has a keen interest in accruing more decision making authority in a government whose economic policy has been dominated by a "directoire" composed of PM Berlusconi, Finance Minister Tremonti (Forza Italia),and Northern League party secretary Umberto Bossi. The divide within the coalition is not only personal, but also ideological and geographical. The National Alliance and UDC tend to represent southern-based interests with a strong stake in the Welfare State. On the other hand, the League, and to an extent Forza Italia, have their political base in northern Italy, where the demand for market-based approaches to public policy issues is somewhat more pronounced. ¶4. (SBU) What has been a tortured and opaque process may be nearing the end game. At this stage, there are two virtual certainties: there will not be a major cabinet reshuffle, and Tremonti, strengthened by his robust response to the Parmalat debacle (ref B),will remain the principal decision maker on economic policy. While Berlusconi has an interest in appeasing Fini (Note: A loyal ally and increasingly popular politician whose party commands at least 12 percent of the national vote, according to recent polls. End Note) and, to a lesser extent, Follini, he must do so in a manner amenable to other Forza Italia heavyweights and the League. Press reports and discussions with our contacts suggest that multiple and not necessarily mutually exclusive outcomes are possible. ¶5. (SBU) Fini could be given direct responsibility over the obscure but at times important Interministerial Committee for Economic Programming, which inter alia has responsibility for setting price controls on public services, e.g. national toll roads and electricity rates, and some budget authority. Adolfo Urso (AN),Vice Minister for Trade under Minister for Produtive Activities Antonio Marzano, could be promoted to ministerial rank with sole responsibility for a new independent trade bureaucracy -- boosting the party, though not Fini personally. Fini replacing Marzano now seems less likely than one week ago. Creation of a kitchen cabinet (gabinetto di consiglio) made up of the coalition's party leaders who would have some undefined influence over economic policy is still on the table. Whether such an inner core would be buttressed by turning the weak economics department attached to the PM's office into an NEC-equivalent, and how a new body might lash up to the Finance Ministry are unclear. One troubling possibility is that anti-GMO Agriculture Minister Gianni Alemanno (also AN) could be given authority over food safety, which is now handled by the Health Ministry. The UDC, which has been less vocal of late, stands to gain a few more undersecretary positions. ¶6. (SBU) Fini's dilemma is that a mere shifting around of portfolios could well seem like meager gruel to an electorate anxious about holding on to publicly-financed privileges. Nor would it be much of a follow-up to his dramatic repudiation of AN's Fascist roots during a historic trip to Israel last November. With the June 13 European Parliamentary (EP) elections now in plain view, Fini will need enough new power -- and certainly more visibility -- to make a convincing case to AN's key constituencies (national and local bureaucrats, military officials, the southern underclass) that he and the party can impact policies affecting their interests. ¶7. (SBU) The Vice PM will get some bounce out of a revised government program that reportedly will include a paean to "collegiality in economic policy making". The current patchwork of options available to Fini, an able politician, should allow him to finesse the check-up into a minor victory. We think a possible outcome is that Fini will take half a loaf now, pin his hopes on performing well at the EP elections (Note: To this end, the National Alliance has hired a U.S. political consulting firm. End Note.),and then likely re-open the bidding. ¶8. (SBU) Comment. The difficulty in concluding the check-up is indicative of the government's persistent heterogeneity. We repeat our past refrain that the center-right is at no risk of breaking apart. Nevertheless, on internal issues it has yet to find a set of guiding principles (as it has successfully done on foreign policy) that naturally lead to a discrete set of policy outcomes. The government's failure on February 3 to push through Parliament a revised broadcast reform bill (ref C),now back in Committee, highlights the current state of fragmentation. ¶9. (SBU) Comment Cont. Continued emphasis on party identity and visibility--manifested in the center-right's inability to form a unified government list for the EP elections--suggests that the governing coalition will remain a collection of self-interested groups rather than a unified bloc. One immediate impact on U.S. interests is that Berlusconi, far and away the dominant player in the government, must still be more a mediator and ultimate reconciler of competing interests than chief executive. As we have seen on biotech, this can result in some of our equities taking a back seat to the need to keep peace within the coalition. End Comment. SEMBLER NNNN 2004ROME00402 - Classification: UNCLASSIFIED