ITALY: FINANCE MINISTER REPLACED BY PREDECESSOR,

C O N F I D E N T I A L ROME 003195

SIPDIS


E.O. 12958: DECL: 09/22/2015
TAGS: PGOV EFIN ECON PREL IT ITALIAN POLITICS
SUBJECT: ITALY: FINANCE MINISTER REPLACED BY PREDECESSOR,
FAZIO REMAINS UNDER FIRE: COALITION STABLE


Classified By: Acting Political M/C Jonathan Cohen.
Reasons 1.4 b and d.


1. (C) SUMMARY: Deputy PM Giulio Tremonti was named Italy's
Finance Minister on September 22 after Domenico Siniscalco
resigned in protest over the government's lack of action
against embattled Bank of Italy Governor Antonio Fazio. This
is Tremonti's second term as Finance Minister since 2001, his
first having ended 14 months ago. The decision to send
Tremonti back to the Finance Ministry was part of a larger
political play within Berlusconi's governing block,
demonstrating that the center-right coalition still remains
capable of pulling together when the situation becomes
difficult. However, continued squabbling should be expected
among Berlusconi's coalition partners over coalition
leadership. END SUMMARY.

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TREMONTI RETURNS TO FINANCE MINISTRY
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2. (U) The long simmering dispute over whether Bank of Italy
(BoI) Governor Antonio Fazio should resign claimed its first
victim. Internationally respected Minister of Finance
Domenico Siniscalco resigned September 22, stating "it is no
longer appropriate for the Bank of Italy Governor to continue
in his role as it is no longer compatible with the
international credibility of our country." Siniscalco
criticized the government for not working to remove Fazio;
Siniscalco had also proposed a fiscally responsible budget
for 2006, which was widely criticized by politicians looking
for election-year pork. After meeting with President Carlo
Ciampi September 22 and later with the four parties in the
government, Prime Minister Silvio Berlusconi named Deputy
Prime Minister Giulio Tremonti as Finance Minister. As a vote
of support for Tremonti, Berlusconi for the first time called
publicly for Fazio,s resignation.


3. (SBU) This is Tremonti's second term as Finance Minister
since the Berlusconi government was elected in 2001. He was
ousted fourteen months ago after persistent battles both with
Fazio and Deputy Prime Minister Gianfranco Fini. Tremonti is
a Berlusconi/Forza Italia (FI) loyalist, who also maintains
very close ties with Northern League leader Umberto Bossi.
During his first term as FinMin, Tremonti consistently
proposed budgets that Fini perceived as having a negative
impact on his constituent base in southern Italy and among
government employees. However, when Fini threatened to
withdraw the National Alliance (AN) from the governing
coalition unless Tremonti was removed, Berlusconi consented.
Siniscalco, a respected technocrat, was named the new Finance
Minister.

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SINISCALCO RESIGNATION FORCES CENTER-RIGHT TO CIRCLE WAGONS
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4. (SBU) The decision to send Tremonti back to the Finance
Ministry was part of a larger political play within
Berlusconi's governing coalition. The center-right has been
plagued over the past few months by internal squabbles over
Fazio's refusal to resign from the BoI, a leadership
challenge from the UDC, and a rancorous debate over electoral
reform. Fini reportedly told Berlusconi he would accept
Tremonti's return if Berlusconi publicly withdrew his tacit
support for Fazio.


5. (SBU) The details of the negotiations aired publicly in a
joint press conference September 22 in which UDC party
Secretary Marco Follini also repeated his call for a

SIPDIS
leadership change in the coalition; Berlusconi confirmed he
believes he is a net "asset" for the coalition; and both
agreed the coalition would decide the outcome of the
leadership dispute in a "democratic process."

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COMMENT
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6. (C) Siniscalco was a non-partisan technocrat, who brought
Italy credibility within the European Union and the
International Monetary Fund, as well as in world markets.
While Tremonti, in his first term, proved a competent Finance
Minister, he was often too ready to engage in unsustainable
one-off budgetary measures to address Italy,s budget
imbalances and huge debt. Nonetheless, with Italy's budget
due by law to the Parliament by September 30, Tremonti's
ability to take over the portfolio without a learning curve

made him an obvious choice. Tremonti will be more willing
than Siniscalco to mold the budget to election year political
exigencies, but his track record should offer the EU, IMF and
international markets some measure of assurance in the short
run. From a broader perspective, however, this latest
Italian melodrama reconfirms the Berlusconi Government's
inability to make the hard choices required to lift Italy out
of its economic difficulties.


7. (C) COMMENT CONTINUED: That said, Berlusconi has once
again proven he can still keep his coalition together. But
continued infighting has further weakened the coalition,s
public image in the wake of the latest public opinion poll,
which shows the center-right trailing by eight points. END
COMMENT.
SPOGLI


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2005ROME03195 - Classification: CONFIDENTIAL