ITALIAN ELECTIONS: WHAT IF THE CENTER-LEFT WINS?

C O N F I D E N T I A L SECTION 01 OF 04 ROME 000864

SIPDIS

SIPDIS

DEPT FOR EUR/FRIED, NEA/WELCH, IO/SILVERBERG; NSC FOR
HADLEY; DOD FOR EDELMAN

E.O. 12958: DECL: 03/20/2016
TAGS: PGOV PREL IT ITALY NATIONAL ELECTIONS
SUBJECT: ITALIAN ELECTIONS: WHAT IF THE CENTER-LEFT WINS?
(PART II OF II)

REF: A. (A) ROME 839

B. (B) ROME 768

C. (C) ROME 724

D. (D) ROME 584

E. (E) ROME 501

F. (F) ROME 371

G. (G) ROME 342

Classified By: Ambassador Spogli, for reasons 1.5 (b)(d).


1. (C) Summary. Septel outlines the possible outcomes of
the April 9-10 Italian elections; as of now, the center-left
has a slight edge in polling, suggesting neither the left nor
the right will win with a large mandate. We predict: (1)
budget constraints will challenge the next government's
ability to undertake new foreign policy or security
commitments; (2) a narrow margin of victory for either
coalition will lead to greater political instability; and (3)
political paralysis over government formation may last
through the summer and potentially longer.


2. (C) If the center-left wins, we can and will work with a
Prodi government that will provide relative continuity in
Italy's foreign policy. But the days of Italy automatically
engaging on our behalf will be over as Prodi seeks to
deliberately subordinate Italian foreign policy to the EU.
To maintain current Italian initiatives, we will have to work
much harder and expect more bumps along the road.


3. (C) We will need to engage early and often to shore up
center-right support and build a center-left consensus on key
issues including Italy's relationship to NATO/trans-Atlantic
relations, Iraq (troop withdrawal and PRT implementation),
Italy's 2007 UN Security Council seat, Iran (UNSCR),
MLAT/legal cooperation (Abu Omar); Hamas/Israel, Russia
(energy/democracy issues) and economic/commercial interests
(defense procurement, growth/competitiveness, GMOs). Post
has been engaging on these issues with key center-left
leaders; as elections outcomes unfold, we recommend adding
high-level visits to/from Washington to ensure Italy remains
our strongest ally in continental Europe. End Summary.

Budget Woes
--------------


4. (C) Regardless of who wins, spiraling debt and a
stagnant economy mean the next Italian government will have
to struggle to maintain key foreign policy commitments in
Iraq, Afghanistan and the Balkans. The 2006 budget already
cut foreign aid by 27 percent (Afghan aid protected so far)
and reduced military spending to approximately 0.9 percent of
GDP, with funding for overseas military deployments (a
separate line item) cut by 20 percent. With a budget
deficit/GDP ratio of 4.1 percent, Italy has already exceeded
its EMU ceiling of 3.5 percent. Although the EC has been
silent on this transgression, further deterioration would
invite meddling by Brussels, and a CL government might be
more inclined than Berlusconi has been to respond with
further spending cuts. We should focus our efforts on
maintaining existing commitments and lower expectations of
significant pledges of additional financial support or
materiel for new initiatives.

Political Paralysis/Instability
--------------


5. (C) Unless the center-right (CR) wins a big mandate,
which seems unlikely, we expect a prolonged period of
political paralysis within/among coalitions as they form a
government and elect a new president and prime minister.
This could mean April-July government formation, followed by
the summer holiday hiatus, and the fall dedicated to a budget
fight that could crack a weak, new coalition with a narrow
majority--for example, a center-left (CL) government
dependent on its extremist elements (Greens, Communists).
This scenario could prompt a relapse to Italy's past pattern
of frequent government turnovers.

Engagement Strategies
--------------


6. (C) We have begun to engage key CL leaders on areas of
concern, first and foremost the belief voiced by DS leader
D'Alema (Ref C) that "the road to Washington leads through
Brussels." The best news is that the CL's likely choice for
Foreign Minister, DS Party Secretary Piero Fassino, supports
U.S. policy goals on Iraq, Iran, NATO and Israel (Ref E).
However, if Prodi's more extreme coalition partners do well
at the polls, they will certainly demand key
ministerial/undersecretarial positions and press for
unwelcome shifts in foreign policy. Ambassador has laid down
clear markers with the CL on Iraq policy, NATO/the
trans-Atlantic relations, Iran, Hamas, terrorism,
Russia/energy, and Afghanistan.


7. (C) This election is focused more on Italy's dismal
economic conditions than on foreign policy issues. A strong
CL win would bring unions and traditional 'social partners'
back into power with predictable demands for increased social
spending that could erode foreign/defense commitments. On
the economic front, we anticipate the need to engage the CL
on defense procurement and GMOs and to press for economic
reforms that underpin Italy's ability to project power
overseas.


8. (C) The CR, behind Berlusconi's strong leadership, has
courageously adopted unpopular polices, especially on Iraq.
A weakened CR showing at the polls, however, will undermine
that courage as politicians scramble for position in
leadership fights and intra-coalition negotiations. As the
election outcomes unfold, we will need to also engage CR
leaders to shore up their commitment to our shared
objectives.

Key Problem Issues
--------------


9. (C) EU Bias: Should the CL win, former EC Commissioner
Prodi will deliberately subordinate Italian foreign policy to
the EU. Implicit in this approach (a fundamental change from
Berlusconi's efforts to leverage our bilateral relationship
to make Italy a "first tier" European power) is the belief
that no single state can interact with the U.S. as an equal
(Ref G). Therefore, the EU should be strengthened as a
counterweight to U.S. power. DS leader D'Alema and Daisy
Party leader Rutelli (Refs A,C,F) insist, however, that
stronger ties with the EU will not weaken ties with the U.S.
The CL supports: an EU foreign minister; EU seats in the IMF,
WB and UNSC; a European-wide 2009 referendum on the EU
Constitution; accession of Romania, Bulgaria and Croatia; and
Turkish accession conditioned on compliance with the
Copenhagen criteria (Ref G).

10 (C) We recommend high-level Washington engagement early
(May/June/July) to reinforce the benefits of strong bilateral
cooperation and the management of trans-Atlantic relations
through NATO, not the EU.

11. (C) Iraq: Berlusconi all but removed Iraq as an
election issue by announcing that Italy's current military
mission will become a largely civilian force by the end of

2006. The CL has multiple voices on Iraq; Prodi has said he
will demand a troop withdrawal timetable but will consult
with the U.S. and the Iraqi government on a transition to a
democracy-building role (Refs F,G). Our main concern is
coordinating with Rome on the implementation of withdrawal
and on the establishment of an Italian-led PRT in Dhi Qar,
especially during a transition period when key Italian
government posts may be vacant. The proposed May/June
US/UK/GOI trilats would be our first opportunity to seriously
engage the new government on Iraq, and we should have the
highest representation possible at that meeting.


12. (C) UN: Italy will assume a seat on the UNSC in January
2007, but Prodi and Rutelli (Refs F,G) claim they support
making this an "EU seat," even if this means relinquishing
Italian sovereignty. At a minimum, this approach could slow
and/or complicate our work in New York.


13. (C) Iran: The CL has been firm in opposing Iran's
nuclear ambitions, but energy and trade needs will complicate
their position on possible UN sanctions (Ref A,C). Upset at
not being adequately consulted on EU-3 negotiations, Italy
likely will use its UNSC seat to ensure greater inclusion in
EU policy formation. This presents an opportunity for
engagement that we should pursue in late summer/early fall.



14. (C) NATO/Transatlantic Relationship: The CL election
manifesto includes no mention of NATO, although CL leaders
reassured the Ambassador they considered it central to
Italian foreign and security policy (Refs A,B,D). While the
MFA NATO desk believes that Italian NATO policy will not
change dramatically, the CL manifesto says they will deploy
international missions and authorize the use of force only
under an EU/UN umbrella, conspicuously not mentioning NATO as
a source of legitimacy for such operations. The CL support
for CFSP and ESDP as part of an "autonomous" European defense
could translate into a preference for buying European, rather
than U.S. defense items. We recommend a high-level Pentagon
visit in early summer to bolster our position.


15. (C) Legal/MLAT Cooperation: The left-leaning Italian
judiciary is likely to take advantage of a CL win to press
for U.S. cooperation on pending extradition requests on Abu
Omar; it would be difficult for a weak CL government to
withstand demands from the Communists/Greens that Italy
'stand up' to America on this alleged rendition issue. The
CL also supports expanded powers for the International
Criminal Court and has been critical of our Guantanamo policy.


16. (C) Hamas/Israel: CL leaders agree that Hamas must
renounce violence and at least implicitly recognize Israel by
continuing the Oslo process (Ref C). We should encourge the
CL, if they win, to build on the improved Italy-Israel ties
created by Berlusconi and continue a balanced policy toward
the Palestnians, instead of aligning only with Palestinian
views, as the EU and the Italian left have done in the past.


17. (C) Russia: A CL win would end the special
Berlusconi-Putin relationship, for better or worse. An
EU-focused foreign policy could bolster CL inclinations to
push Moscow on democratic reforms, its Istanbul commitments,
cooperation in the OSCE, and non-interference in the affairs
of its neighbors, so we should engage them at the first
opportunity. Either a CL or CR government's desire to engage
Moscow, however, will be tempered by Italy's dependence on
Russia for energy.


18. (C) Afghanistan/Balkans: We do not anticipate policy
difficulties with a CL government here, but budget
constraints could limit Italian abilities to commit resources
to new initiatives in both Afghanistan and the Balkans. We
can help ensure continued support by agreeing to Italian
requests that their presence in policy jobs be commensurate
with their military commitments.


19. (C) Comment: If the CL wins, we can and will work with
a Prodi government that will provide relative continuity on
foreign policy issues. But a CL win would bring an end to
the (Berlusconi) days of Italy automatically engaging on our
behalf. We will have to work much harder and expect more
bumps in the road if we are to keep Italy as our strongest
ally in continental Europe. To achieve this, we recommend
high-level visits to engage the new government early on, to
both shore up CR commitments and build a CL consensus on key
strategic goals.
SPOGLI