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.

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2004ROME00402 - Classification: UNCLASSIFIED