BANK OF ITALY GOVERNOR DRAGHI MAPS WAY FORWARD ON

C O N F I D E N T I A L ROME 002117 SIPDIS SIPDIS TREASURY PLEASE PASS TO U/S TIM ADAMS TREASURY PLEASE PASS TO LESLIE HULL, OFFICE OF EUROPE AND EURASIA E.O. 12958: DECL: 07/18/2021 TAGS: ECON EFIN IT SUBJECT: BANK OF ITALY GOVERNOR DRAGHI MAPS WAY FORWARD ON SWIFT, OUTLINES FISCAL PRIORITIES Classified By: Jill Byrnes, Acting Minister Counselor for Economic for Affairs Reasons 1.4 (b) and (d) ¶1. (C) Summary. In a meeting July 7 with Treasury Under Secretary for International Affairs Timothy Adams, Bank of SIPDIS Italy Governor Mario Draghi expressed his desire that USG SWIFT wire transfer monitoring continues, and proposed the G8 countries pass legislation legalizing monitoring of SWIFT wire transfers. Draghi said his priorities as Central Bank Governor are to improve economic growth and manage the economy's landing. End summary. ¶2. (C) During his meeting with Treasury Under Secretary Adams, Bank of Italy Governor Mario Draghi said that monitoring of wire transfers vis the SWIFT network must continue, "stopping would be disastrous." He noted European Central Bankers are in a difficult position because, as members of SWIFT's Board of Directors, they had been briefed on the USG's monitoring program at least once, but may not have necessarily informed their Finance Ministers. Draghi suggested the development of a unified position on the SWIFT issue, and that model legislation be drafted under which SWIFT transfers could continue to be monitored. He noted the monitoring which had taken place is illegal in Italy, Germany, France, Canada, and Japan. ¶3. (C) Draghi stated that as a logistical matter, it would be best to launch this effort after the G7 Finance Ministers have discussed the issue. They could then present a coherent package of proposals to the public. U/S Adams agreed with Draghi's proposal that the Europeans should adopt any necessary laws to facilitate tracking terrorist financing, adding that the USG might be able to provide examples of how data obtained through monitoring SWIFT wire transfers has led to arrests or otherwise been useful to law enforcement officials. ¶4. (U) Draghi said he is still settling in to his responsibilities as Governor (Draghi took office in January 2006) and is finding the problems facing the Bank of Italy and the Italian economy to be "broad, deep, and complex." He noted that the job of Governor is a high-visibility one in which "mistakes have consequences." Draghi said his two main worries are starting economic growth in Italy and "managing the landing" of the Italian economy. Specifically, he wants to define what is needed to "restart Italy's economic engine," end negative productivity, and bring back the free market of the 1950's and 1960's. He noted Italy's current economic situation (flat growth, high debt and deficit) is "unacceptable." On the issue of managing Italy's economic landing, Draghi said "there is going to be a landing, it's just a matter of when and how." Draghi's goal is to ensure Italy's avoids a "dead cat" landing, noting "a dead cat only bounces once." ¶5. (U) Comment. Before U/S Adam's meeting with Draghi, Adams' host in Italy, Italian IMF Executive Director Arrigo Sadun, stated that Draghi was still in the process of asserting full control over the Bank of Italy bureaucracy. Sadun explained that Draghi is implementing incremental changes in the way the Bank does business to bring about change without unsettling the Bank's deeply entrenched and bureaucratically conservative civil servants, whom Draghi praised during the meeting as "a great staff" and part of "a great institution." We expect that as he solidifies his control over the Bank's bureaucracy, Draghi will become bolder in implementing reform of the Bank's staid culture and approach to managing the Italian economy. Draghi, a graduate of MIT (Doctorate in economics, 1976) and a former partner in Goldman Sachs, will doubtless become a valuable and reliable interlocutor. He told U/S Adams he welcomes a visit by Treasury Secretary Paulson at Paulson's earliest convenience. End comment. ¶6. (U) This message was cleared by U/S Adams. BORG