Identifier
Created
Classification
Origin
06ROME2863
2006-10-12 16:09:00
UNCLASSIFIED
Embassy Rome
Cable title:  

ITALY SCENESETTER FOR CODEL SMITH

Tags:  OTRA OREP PREL PGOV AMGT IT 
pdf how-to read a cable
VZCZCXYZ0014
PP RUEHWEB

DE RUEHRO #2863/01 2851609
ZNR UUUUU ZZH
P 121609Z OCT 06
FM AMEMBASSY ROME
TO RUEHC/SECSTATE WASHDC PRIORITY 6234
INFO RUEHVI/AMEMBASSY VIENNA PRIORITY 1305
RUEHVEN/USMISSION USOSCE PRIORITY 0311
RUEHUNV/USMISSION UNVIE VIENNA PRIORITY 0093
UNCLAS ROME 002863 

SIPDIS

CODEL
SIPDIS

VIENNA PLEASE PASS TO CODEL SMITH

E.O. 12958: N/A
TAGS: OTRA OREP PREL PGOV AMGT IT
SUBJECT: ITALY SCENESETTER FOR CODEL SMITH

REF: STATE 163079

UNCLAS ROME 002863

SIPDIS

CODEL
SIPDIS

VIENNA PLEASE PASS TO CODEL SMITH

E.O. 12958: N/A
TAGS: OTRA OREP PREL PGOV AMGT IT
SUBJECT: ITALY SCENESETTER FOR CODEL SMITH

REF: STATE 163079


1. Embassy Rome warmly welcomes the visit of Codel Smith.
Please find below background information to serve as a
scenesetter for visit.

Summary: A Traditionally Strong Bilateral Relationship
-------------- --------------


2. U.S. - Italy relations traditionally have been strong
regardless of the party in power. The return of center-left
leader Romano Prodi as Prime Minister has not significantly
changed the substance of our bilateral relationship, despite
the new government's well-known opposition to the war in
Iraq. Early predictions that Prodi's government was unstable
and would fall quickly now appear alarmist, though Prodi
faces a difficult challenge this fall as he must pass a tight
budget hitting political allies and the opposition alike in
order to meet EU budget constraints. The Prodi Government
has taken a strong international role in resolving the
Lebanon crisis, first by hosting an international peace
conference on the conflict and later by committing to send up
to 3,000 troops to an enhanced UNIFIL force. The Italians
will assume operation command of UNIFIL in February 2007. On
the economic front Italy pledged 30 million euros for Lebanon
at the Stockholm donors conference. In Iraq, PM Prodi has
announced plans to withdraw all Italian troops by the end of

2006. However, the Prodi government pledged $30 million for
civilian reconstruction efforts and the development of a
democratic and stable Iraqi government, and the Italian
administration supports increased NATO police training.
Italy remains one of our top security partners, hosting about
17,000 U.S. military personnel at Italian bases. On Iran,
Italian officials have told us consistently that Italy will
support a sanctions regime passed by the UN even though
sanctions would significantly affect Italy's bottom line -
Italy is Iran's second largest trading partner in the EU.

Prodi Stands Despite Early Predictions
--------------


3. Prodi leads a diverse coalition of allies ranging from
centrist oriented Catholic parties to radical communists.

During the election campaign, the center-left coalition was
often plagued by internal disputes, with the radical-left
assuming an increasingly high-profile role. Radical left
parties scored significant gains, winning roughly 12 percent
of the vote and capturing 38 of the potential 158 center-left
seats in the Senate, making them essential to the Prodi
government. Prodi has been able to hold his coalition
together and to pass controversial legislation supporting
Italy's military commitments to Afghanistan. After years in
the political wilderness, fear of losing power has proven
strong glue for the center left.

Significant Economic Handicaps and a Budget Battle
-------------- --------------


4. High public debt and consistent budget deficits, rising
social welfare costs, persistent unemployment, and a stagnant
economy all limit Italy's financial ability to increase or
sustain Italy's overseas missions. The current budget has
reduced foreign assistance by 27 percent and defense spending
by ten percent (to about 0.90 percent of GDP),well below the
NATO 20 percent benchmark. Peacekeeping funding, carried as
a separate line item outside the budget, was cut by 20
percent for 2006. These economic handicaps and EU pressure
have forced Prodi to introduce an austerity budget for 2007
that has heightened tensions within his coalition. The
political battle to pass the budget will be the most
important test of the strength of Prodi's government.

Taking a High-Profile Role on Lebanon
--------------


5. Despite public differences with the U.S. on Iraq, Italy
has played a leading role in Lebanon. In July, at the
request of the U.S., Italy hosted an international conference
attended by Foreign Ministers from 20 nations and
international organizations to discuss the international
community's role in resolving the current crisis in Lebanon.
The discussion focused on support for an international
stabilization force, the need for an urgent and sustainable
cease-fire, humanitarian concerns, and the reconstruction of
Lebanon. Immediately after the conference, Italy pledged to
contribute 3,000 soldiers to an enhanced UNIFIL.

Shift to Civilian Cooperation in Iraq and Afghanistan
E
-------------- --------------


6. Italy, with approximately 1,600 troops located in the
British sector, is the third largest troop contributor in
Iraq after the U.S. and UK. Before the April elections, the
Berlusconi government announced a timetable for the gradual
drawdown of Italian troops with the aim of repatriating most
by year end and transforming the mission into a primarily
civilian one. Prodi, in an effort to distinguish his
government's policies from those of the previous government,
and citing an electoral mandate for complete troop
withdrawal, has announced he will withdraw all troops by the
end of 2006.


7. Nevertheless, Italy will continue its reconstruction
efforts and has pledged to strengthen political, civilian,
and humanitarian cooperation and support for the Iraqi
government, including training of security forces under the
NATO umbrella. Many of these efforts will be coordinated
through the recently launched Iraq Compact.


8. Italy is among the most active members of the ISAF
mission in Afghanistan maintaining an average of 2,000 troops
in Kabul and Herat, where Italy commands the western sector
of the country. However, pressure from the far left will
keep the government resistant to greater engagement in combat
operations, particularly in the south. Refunding the Afghan
mission will be a political challenge for the Prodi
government again in December.

Seeking a Broader Role in World Affairs
--------------


9. Italy is a member of the EU, NATO, G8, and will soon
rotate onto the UN Security Council. The GOI under Prodi has
sought to play a role in many international crises and hopes
its leadership in Lebanon will help give it a seat at the
table on other important global issues. In his recent visit
to Lebanon, Prodi reiterated his government's belief that the
key to long-term stability in the region is finding an
equitable solution to the Israel - Palestinian conflict, as
solution that is guaranteed by the international community.
The Italians would like to help make that happen.

Including a Role in Iran
--------------


10. Despite not being a member of the core group of nations
seeking to resolve the current impasse over Iranian nuclear
ambitions, Italy has told us repeatedly that it wants to be
consulted on Iran policy, and that they are grateful that we
have included them in consultations.


11. Total two-way trade between Italy and Iran reached 5.17
billion euros in 2005, making Italy Iran's second biggest
trade partner in the EU. According to the Italian
statistical agency, ISTAT, Italian exports to Iran are
dominated by machinery, manufactured goods, and chemicals,
while imports are overwhelmingly comprised of oil and related
products. Italian companies have an active presence in many
sectors of the Iranian economy but are concentrated in the
petroleum sector.


12. Italy had at least 433.2 million euros in foreign direct
investment in Iran as of December 31, 2004. That figure is
likely understated because it does not take into account
foreign direct investment through foreign subsidiaries or
through service contracts, whereby a firm can invest in, for
example, the oil sector, but only by relinquishing the title
to the infrastructure the firm builds in return for the
promise of a return through downstream oil flow proceeds.
For example, ENI, Italy's oil and gas parastatal, reports it
has invested 2.5 billion euros over a period of several
decades.
SPOGLI