ECONOMIC DEVELOPMENT MINISTER BERSANI CHARTS WAY

C O N F I D E N T I A L ROME 002288

SIPDIS

SIPDIS

E.O. 12958: DECL: 08/11/2016
TAGS: ECON ETRD ENRG IT
SUBJECT: ECONOMIC DEVELOPMENT MINISTER BERSANI CHARTS WAY
FORWARD ON ECONOMIC REFORMS

REF: JULY 31 2006 SIPRNET REPORT

Classified By: A/Ecmin Kathleen Reddy for Reasons 1.4 (b) and (d)


1. (U) Summary: In a courtesy call by Ambassador Spogli
August 2, Economic Development Minister Pierluigi Bersani
outlined his plans for further economic liberalization and
identified barriers to reform. He expressed enthusiasm for
the Ambassador's Partnership for Growth, and said Italian
companies have not taken full advantage of the opportunities
of globalization, due to limitations of capital and
management expertise. On energy, Bersani said EU Member
States should act as one, and expressed concern over the EU
dependence on Russian energy. End summary.

Reform Efforts Underway
--------------


2. (C) Minister Bersani told the Ambassador that reforms
being made in the taxi and pharmacy businesses are the first
in a process of opening up different sectors of the Italian
economy to new competition. By increasing the number of taxi
licenses that cities can issue and allowing supermarkets to
sell over-the-counter medication, Bersani seeks to "introduce
a new idea, that the price of public concessions can be
market-driven." Bersani said he intends to reorganize the
GOI economic agencies and authorities. The media reports
"phase two" of Bersani's reforms will include the energy
sector, class action lawsuits, and local services. (See
Sipirnet report.) The Ambassador noted that Bersani's
actions to date are in the same spirit as the Partnership for
Growth, an Embassy program to encourage Italian
entrepreneurship and economic growth. Bersani agreed, and
responded that he would like to work with the Ambassador "at
the right time" on initiatives which spur U.S. investment in
Italy and foster economic growth.


3. (C) According to Bersani, the challenge facing his reform
efforts is twofold. First, there is political opposition to
reforms which jeopardize established business interests.
Second, there is opposition from industrial interests which
do not want to adopt new technologies or change the way they
do business. Bersani lamented that many Italian businesses
do not have clearly defined objectives and that as a result,
they are unable to identify technologies or business
opportunities to assist them in achieving their goals.
Referring to the Partnership for Growth, Bersani noted that
Italian business needs to learn how to use private equity
capital and to collaborate on research. Bersani said he would
like to encourage modernization of sectors in which Italian
business has a competitive advantage, such as the
pharmaceutical, medical equipment, and energy sectors.


4. (C) Bersani noted that Italy does not have a culture or
history of professional managers, and that such managers are
necessary for small- and medium-sized businesses to take
advantage of the opportunities presented by globalization.
Without professional managers, most Italian companies cannot
cope with the many bureaucratic processes inherent in
international trade. "Italian structures are expensive and
inefficient" and, in the absence of professional managers who
know how the system works, prevent many Italian companies
from doing business in places like China, he said. He added
that family-owned companies also are not aware of the
availability of "non-bank" financing (e.g., private equity),
which hinders their growth and ability to expand into
international markets.

Energy Worries
--------------


5. (C) Turning to energy, Bersani said there is a need for
more investment in energy infrastructure to meet rising
demand. He said that "Europe needs to act as one on energy
issues" through strong diplomacy and needs long-term
contracts for energy supplies to ensure stable prices. In
order to ensure a stable energy supply within Europe overall,
Bersani said different countries should specialize in
different energy sources. He suggested that Italy could
concentrate on natural gas; France, on nuclear energy; and
Germany, on coal, for example. Bersani admitted that he is
"preoccupied" with Italy's reliance on Russian natural gas.
He stated that Russia needs to be moved to market-driven
practices in the energy sector, but did not specify how this
could be done.

Comment
--------------


6. (C) Bersani's commitment to economic reform is a welcome
change in Italy, where reforms were discussed, but often not

implemented, by the Berlusconi government. However, Bersani
faces an uphill battle in implementing reforms that will
likely be opposed for political reasons and by groups with an
interest in the economic status quo. Among top GOI economic
policy makers, Bersani and Bank of Italy Governor Mario
Draghi stand out so far for their commitment to economic
reform and their ability to make a strong case for the
benefits of reform to the Italian economy. We will seek out
opportunities to engage Bersani on reform and ways in which
to spur economic growth, including within the context of the
Ambassador's Partnership for Growth. End comment.
SPOGLI