SCENESETTER FOR PM BERLUSCONI'S VISIT TO

C O N F I D E N T I A L SECTION 01 OF 04 ROME 000453

SIPDIS

SIPDIS

E.O. 12958: DECL: 02/14/2016
TAGS: PGOV PREL IT IQ ITALY NATIONAL ELECTIONS ITALIAN POLITICS
SUBJECT: SCENESETTER FOR PM BERLUSCONI'S VISIT TO
WASHINGTON, FEBRUARY 27 TO MARCH 1


Classified By: Deputy Chief of Mission Anna Borg for reasons 1.4 (b) an
d (d).

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SUMMARY
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1. (C) PM Berlusconi is seeking an election campaign bounce
from his carefully timed visit to Washington to address a
joint session of Congress and his meeting with the President.
Elections are two months away and the campaign is in full
gear following President Ciampi's dissolution of parliament
on February 11. (Polling will take place April 9 and 10.)
Claiming to be slightly ahead in a private poll he
commissioned, Berlusconi seeks to outpace the opposition by
showing that his pro-U.S. foreign policy has its benefits,
and that a close and continuing partnership with world's only
superpower is good for Italy.


2. (C) Summary continued. Berlusconi has pushed Italy to be
active and visible around the world despite tough budgetary
constraints and a gloomy economic outlook that will make
future Italian commitments more difficult. The GOI has
weathered stiff public opposition to Italy's participation in
Iraq, and has made its contributions in Afghanistan a point
of national pride. After deploying more troops to the
Balkans than any other nation, Italy wants to be more
involved in the Balkan political processes and seeks U.S.
recognition of its potential good offices in negotiating with
Iran on the nuclear issue. GOI reluctance to be tough with
Russia is a direct result of Berlusconi's close personal ties
with President Putin. This winter's cold snap has sharpened
domestic anxieties over the prospect of energy rationing in
the midst of the campaign. End summary.

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Final Stretch Before Elections . . .
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3. (C) US-Italy relations traditionally have been strong
regardless of the party in power, but have been especially
close under Prime Minister Berlusconi and his center-right
coalition government. Despite the ups and downs since 2001,
Berlusconi's government has brought remarkable stability to
Italian politics. He is the first prime minister since World
War II to maintain the same coalition (four parties) for a
full legislative term. Berlusconi is trying to keep the
opposition on the defensive by accusing them of having a
limited vision of Italy's role abroad, poor intra-coalition
harmony, and poking at the opposition's perceived weakness on
law and order issues. Most published polls show the
center-left continues to hold the edge, but observers do not
discount Berlusconi's ability to narrow the gap in the run-up
to election day. In recent weeks, Berlusconi has managed to
set the tone in the campaign debate, exploiting allegations
of center-left impropriety in a financial scandal, quickly
approving anti-crime and anti-drug legislation in the last
days of the legislature, and blitzing the talk show circuit.


4. (C) The nine-party center-left opposition, led by former
EU Commission President (1999-2004) and former Italian PM
(1996-98) Romano Prodi, lists economic growth, employment,
education, tax policy, and the environment as some of its
policy priorities. Prodi's coalition has tried to show a
united front but is often plagued by internal disputes, which
will complicate its ability to govern if elected. If the
center-left wins, the opposition's reformist leaders are
prepared to reorient Italy,s foreign policy more toward the
EU, favor multilateral initiatives over bilateral or
unilateral ones, and tone down Italy,s relations with the
US. The center-left, however, is unlikely to radically shift
the bilateral relationship. Prodi and his moderate allies
continue to signal that the center left will reach out to
Washington as it did when Prodi was first prime minister.
However, the relative strength on the far left parties will
determine his ability to steer a moderate course.

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. . . And The Economy is the Achilles Heel.
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5. (C) Despite his public boldness in foreign policy,
Berlusconi has not effectively used his solid legislative
majority to transform Italy into a more flexible and
competitive economy. High public debt, the EU Stability and
Growth Pact deficit ceiling, rising social welfare costs, and
a stagnant economy, all limit the GOI,s ability to increase
or sustain Italy,s long-term international presence in
global hot spots. The current budget foresees a 27 percent
reduction in overseas economic assistance and large cuts (to
about 0.90 percent of GDP) in the defense budget, including a
20 percent reduction in the peacekeeping budget. Public
pessimism over persistent unemployment and complaints over
high prices (blamed partly and erroneously on the transition
to the euro) are factors that will play into the election and
against the Berlusconi government. These critical
limitations mean that we should prioritize our requests for
Italian troop deployments, economic assistance and
reconstruction funds, and other expenditures that could
severely outpace Italy's ability to contribute. We should
also share our economic best practices to help make Italy
more economically vibrant.

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Continued Engagement on Iraq
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6. (C) Berlusconi's close personal relationship with the
President has served as a key factor in maintaining Italian
military contributions in Iraq in the face of significant
domestic opposition. In addition to being among the top
troop contributors in Iraq (with nearly 3,000 troops),and
funding a variety of reconstruction projects, the GOI has
indicated it will seek to expand its non-military role there,
and has offered to lead a Provincial Reconstruction Team
(PRT) in Dhi Qar province. The GOI has publicly announced
that it will gradually draw down Italian troops, but has said
that it will do so only in close consultation with other
coalition partners and the Iraqi government, and according to
conditions on the ground. The center-left opposition has
followed suit, coming close to mirroring the government's
strategy.


7. (C) Berlusconi has skillfully taken Iraq off the campaign
agenda for the opposition but Italian involvement there
remains unpopular domestically. Berlusconi will seek
recognition for Italy's role in Iraq, support for its troop
drawdown, and a reaffirmation that Italy remains a key
partner in establishing Iraq's stability and security. It is
important for Italy to stress the success of the Italian
presence there, and highlight the civilian aspects of Italian
support as Iraqis begin to take ownership of their security.
The first-ever trilateral talks with the U.S. and UK on Iraq
in late January provided the GOI a much-needed confidence
boost because it reinforced Italy's relevance as a key
coalition partner. We should thank the Italians for their
steadfast support on Iraq and encourage continued
consultations as they proceed with their drawdown plans.

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Iran: Bring Us Into the Tent
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8. (C) The GOI shares U.S. and EU concern over Iran's nuclear
aspirations and the anti-Israel rhetoric coming out of
Tehran. Italy supports the U.S. "100 percent" on the Iranian
nuclear issue, including referral to the UN Security Council,
and they continue to stress to the Iranians the need to
suspend enrichment activities to restore the confidence of
the international community. Both Berlusconi and FM Fini
issued sharp public rejoinders after President Ahmadinejad's
declarations against Israel.


9. (C) Italians are dismayed, however, by their continued
exclusion from the so-called EU-3 negotiations and the more
recent "P5 plus 2" meeting in London. As Iran's largest
trading partner in Europe and dependent on Iranian oil, Italy
believes the stakes are too high not to be included, and they
assert they can play a useful role at the negotiating table.
The GOI welcomed the meeting in London in late January
between Undersecretary of State Burns and MFA PolDir Terzi on
Iran. Terzi proposed a "friends of the Secretary General"
group to consider next steps on Iran at the UN. We should
commend Berlusconi on his government's public stance, and
reinforce with him the importance of maintaining a solid
international front. We should also underscore our intention
to keep engaging Italy on Iran as we did in London.

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Still Active in Afghanistan
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10. (C) Unlike Iraq, Italy's ISAF participation, with around
2,200 troops, enjoys strong bipartisan political support. In
August, Italy took over command of ISAF for a period of nine
months. Italy also commands the Provincial Reconstruction
Team (PRT) in Herat, supports the Forward Support Base (FSB)
under Spanish command, and leads the multilateral effort to
reform the Afghan judiciary. Italy,s total financial
support for Afghanistan's September parliamentary elections
was four million Euros (about USD 4.8 million). The GOI has
made a special effort to insulate economic assistance to
Afghanistan from cuts falling heavily elsewhere. That said,
even with a smaller pie, the GOI could probably do more to
increase Italy's contribution to the post-Bonn reconstruction
process. We should thank the Italians for their strong and
consistent participation in Afghanistan, despite budgetary
constraints, but urge them to find ways to enhance their
contributions in Afghanistan as they draw down in Iraq.

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The Balkans Is Our Backyard
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11. (C) The Italians have been engaged in peacekeeping and
stability efforts in the former Yugoslavia since the early
1990s. They regard the Western Balkans to be in their
neighborhood and insist on playing a major military and
policy role. They currently hold the command of KFOR and
EUFOR. A probable referendum on independence in Montenegro
and the beginning of negotiations on the future status of
Kosovo will present significant challenges to the
international community. Italy is prepared to take a
leadership role in ensuring the continued stability and
security of the region, but is concerned that without close
international coordination and U.S. support, Italy's
interests will be overlooked. The recent rejection of an
Italian as High Representative in Bosnia was seen by the GOI
as an indication that neither the major EU powers nor the
U.S. have sufficient faith in the GOI to lead the
international community in the region. We should give
Berlusconi a dual message of appreciation for past efforts
and a pledge to remain in close contact as the events unfold
in the Balkans.

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Too Cozy With Russia?
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12. (C) Berlusconi enjoys a close and informal relationship
with Russian president Putin. We are concerned that this
relationship could weaken international criticism of Russia
at a time when the Russian Federation (GORF) is reversing
democratic reforms. In November 2005, the GOI was prepared
to support GORF demands to remove language from a
ministerial-level OSCE declaration calling on Russia to live
up to its Istanbul commitments in Moldova and Georgia. In
February 2006, during a visit by Russian FM Lavrov, Fini
publicly blamed the recent fuel crisis on the Ukraine,
despite assurances from contacts at the Italian Ministry of
Foreign Affairs that Fini understood the crisis to be
primarily the result of Russian negative behavior. We should
highlight to Berlusconi that Russia's pattern of resisting
democratic change, undermining international organizations,
manipulating internal politics in neighboring countries, and
using its fuel exports for political purposes, is a threat to
global stability and requires direct and sometimes public
criticism.

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A Looming Energy Crisis?
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13. (C) Senior government officials and energy analysts say
Italy will likely experience a critical energy shortage this
winter because of an unexpected cold spell and miscalculation
of Italy's consumption of natural gas. Italy's strategic gas
reserves may not be sufficient to generate electricity for
the remainder of the winter, according to our sources, and
reduced gas flows from Russia have exacerbated the shortage.
The problem is made worse because Italy, because of newer,
more efficient, gas-fired electric plants, is a net exporter
of electricity to other parts of Europe. In a worst-case
scenario, analysts say, Italy might stop exporting
electricity, passing on shortages to other parts of the EU.
Shifting the pain outside Italy may prove more palatable
during an election season than incurring the consequences of
energy rationing at home.
SPOGLI