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Cablegate: Scenesetter for the Vice President's September

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S E C R E T SECTION 01 OF 05 ROME 001021

NOFORN
SIPDIS

FOR THE VICE PRESIDENT FROM THE AMBASSADOR

E.O. 12958: DECL: 08/12/2018
TAGS: PREL PGOV IT
SUBJECT: SCENESETTER FOR THE VICE PRESIDENT'S SEPTEMBER
4-10 TRIP TO ITALY

ROME 00001...

Classified By: Ambassador Ronald P. Spogli for reasons 1.4 (b) and (d).

1. (C/NF) Summary. Mr. Vice President, Silvio Berlusconi's
government has worked hard over its first months in office to
regain its position as our best ally in continental Europe.
Your September 4-10 visit comes as the Berlusconi government
reconvenes for what promises to be an important legislative
session. Although it has a strong electoral mandate, the
government needs to take decisive steps to revitalize the
economy and reduce budget deficits. Your visit presents an
opportunity to build upon the President's June visit by
encouraging the Berlusconi government to remain focused on
much-needed economic and institutional reforms, while
maintaining the defense capabilities and commitments that are
essential to bilateral and NATO interests.

2. (C/NF) Berlusconi's government has taken pains to work
with us, but mandatory budget cuts mean we will need to
coordinate on the specifics. Berlusconi relaxed geographic
caveats for Italian ISAF forces, but we are monitoring
progress on bringing promised police and border guard
trainers into the field. Berlusconi and Foreign Minister
Frattini have been extremely cooperative on Iran, even if
Italy has not been invited to join the P5 1 as they hoped.
Coordination has been very good on Lebanon and Israel, though
we have not yet made the same type of progress on
trans-Atlantic relations with Russia. You will also be
meeting President Giorgio Napolitano, who continues to
exercise his authority with conscientiousness and to be a
stabilizing force in the government -- even when it makes him
unpopular among his colleagues on the center-left. End
Summary.

Berlusconi Government Embarks on Challenging Autumn
- - - - - - - - - - - - - - - - - - - - - - - - - -

3. (C/NF) Over his first hundred days in office, Berlusconi
delivered concrete results on election promises. His
coalition's solid majorities in both chambers of parliament
allowed the swift adoption of wide-ranging laws on domestic
security and the budget. Berlusconi intends to pass
significant judicial reforms and devolve more fiscal powers
to the regions between now and the end of the year.
Politicians of all stripes agree that deep institutional
reform is essential. But initial hopes of cross-aisle
cooperation have faded, as the weakened opposition has
signaled its intent to protest budget cuts and changes to the
dysfunctional and deeply politicized judicial system.

An Ally in Economic Decline -- We Can Help Change This
- - - - - - - - - - - - - - - - - - - - - - - - - - - -

4. (SBU) A G8 member and one of the world's largest
economies, Italy's influence is threatened by perennially
slow economic growth. Its economy has grown a full percentage
point slower than the EU average this decade. A burdensome
bureaucracy, corruption, organized crime, a low birth rate,
severe labor market rigidity, a weak educational system, and
a business culture that rewards connections instead of merit
are all factors contributing to stagnation - a condition that
bedeviled both the Prodi government and the Berlusconi
government that preceded it. The slow growth that results
from this mess seriously threatens Italy's ability to be the
kind of ""boots on the ground"" ally that we want it to be.

5. (U) To address this economic threat to our alliance, in
2006 the Embassy launched the Partnership for Growth, an
ambitious, multi-faceted effort to spur economic dynamism by
helping move research to market, grow risk capital markets,
support innovation by strengthening intellectual property
rights, and create Italian entrepreneurial role models.
Through our Fulbright Business Exchange and Student Training
(BEST) scholarship program we send young Italian
scientist-entrepreneurs to Silicon Valley for six months of
total immersion in the U.S. entrepreneurial environment. They
come back energized, ready to do in their country what we
have done in ours. Of particular note, almost all costs are
covered by donations from Italian companies. We have also
brought many of the top minds in U.S. innovation to Italy, to
share their ideas on how countries can make progress. We have
created dozens of new, web-based avenues for communication
and idea-sharing between the U.S. and Italy. And through more
than 200 events over the last two years, we have made the
Italian elite understand what needs to be done to put their
country on the path to prosperity.

6. (U) We have made tremendous progress. We have strengthened
the hands of those Italians who want to move their country
forward, and in doing so we have greatly improved Italian
perceptions of the United States. I am happy to report that
because of our Partnership for Growth, in Italy, the words
""innovation"" ""growth"" and ""entrepreneurship"" are now usually
associated with the United States of America.

Maintaining a Common Stand on Iran
- - - - - - - - - - - - - - - - - -

7. (S/NF) We have made great advances in moving Italy solidly
into our camp on Iran. The Berlusconi government has
cooperated fully on EU efforts to apply additional financial
measures against Tehran, despite Italy's disappointment with
not being included in the P5-plus-1. Their concerns have
been eased somewhat by Quint pre-meeting consultations, but
they worry that this mechanism is too informal and ad hoc to
keep them properly informed. Italian adherence to sanctions
has always been complicated by their substantial commercial
interests in Iran, but we will continue to monitor their
economic activities and discourage further energy sector
investments. Sustaining Italian support for sanctions and the
P5-plus-1 negotiations may depend on keeping up early and
high-level dialogue.

Not Seeing Eye-To-Eye on Russia
- - - - - - - - - - - - - - - -

8. (S/NF) Italy's relationship with Russia could become a
point of friction if Italy continues to insist that Russia's
demands on Kosovo, Georgia, Ukraine and Missile Defense get a
fair hearing in transatlantic and international fora. We
have advised them that taking a soft line on Russian actions
against Georgia could damage their credibility. We have also
become concerned by a growing sympathy for Medvedev's calls
for a new security framework to supersede NATO, OSCE, and
CFE. You can let Berlusconi know that public endorsement of
Russia's plans only serves to weaken the alliance.

9. (S/NF) The presence of a strong communist party and a
history of leftist governments in Italy gave Russia a degree
of influence not seen in any other Western European country.
More recently, a commercial dependence on Russia,
particularly in the energy sector, and a close personal
relationship between Putin and Berlusconi based on mutual
commercial interests and Berlusconi's preference for dealing
with assertive world leaders appear to be greater motivating
factors in Italy's relations with Russia.

Need for Energy Diversification
- - - - - - - - - - - - - - - -

10. (C/NF) Compared to EU countries further north, Italy is
less dependent on Russia for energy, especially natural gas.
Geography gives Italy access to more resources than other EU
countries, including North African energy. There are already
natural gas pipelines from Libya and Algeria to Italy. An
Algeria-Sardinia-Italy pipeline is being planned. While
Italy's North African connections seem to be good news in
terms of energy security, ENI has recently given Gazprom
access to North African energy resources, in exchange for
increased access to Siberian gas fields. Italy hopes to make
increased use of Liquid Natural Gas, but local environmental
concerns have slowed the construction of regasification
plants. The GOI claims to share our concerns, but in fact
takes comfort in what it perceives to be its special
relationship with Russia. Italy's largest energy company
(ENI -- one-third owned by the GOI) is now a major partner of
Russia's Gazprom, and is building strategically important
pipelines for Gazprom in both the Black Sea and the Baltic.
Many believe that ENI actions in furtherance of its own
commercial goals are also helping Russia tighten its grip on
Western Europe's energy supply.

11. (C/NF) At the same time, Italy is taking steps to
diversify its sources of energy. Italy, through the Edison
Company, is a key player in the Turkey-Greece-Italy (TGI)
pipeline. The availability of Azeri natural gas is a key
concern, and the EU's Nabbucco pipeline is sometimes seen by
the Italians as a competitor for this gas. Reports that
Russia is courting Azerbaijan in an attempt to buy all of
their gas is a major concern for Italy, since it would mean
the end of TGI.

Basing and Security Cooperation:
A Cornerstone of the Relationship
- - - - - - - - - - - - - - - - -

12. (C/NF) Italy remains our most important European ally for
projecting military power into the Mediterranean, Middle East
and North Africa. We have 14,000 U.S. military and DOD
civilian personnel and 16,000 of their family members on five
Italian bases. The GOI has approved the expansion of the base
at Vicenza to consolidate the 173rd Airborne and the
deployment of the USAF Global Hawk UAV in Sicily. Legal
challenges to the Vicenza expansion have been dismissed, and
both projects are on track. COESPU (Center of Excellence for
Stability Police Units), the peacekeeping training center,
has graduated over 1,600 officers from 14 countries and has
just finished training peacekeepers headed to Darfur. We are
now in discussions on locating component commands for AFRICOM
and Italy has signaled that it would like to host the overall
HQ.

Seeking Follow-Through in Afghanistan
- - - - - - - - - - - - - - - - - - -

13. (C/NF) During the President's June visit, Berlusconi
agreed to loosen geographic caveats on Italian ISAF troops
and to send approximately 30 additional Carabinieri trainers
to support the ANCOP program. Control of Kabul has passed
from Italy to France, and Italy intends to transfer a portion
of their 1,200 Kabul-based troops to the Herat district.
Because of budget constraints and large troop commitments in
Lebanon and the Balkans, Italy is likely to reduce the number
of troops stationed in Afghanistan. We would like to see
Italy maintain as many troops as possible in Afghanistan and
to provide more security training and military hardware.

Stronger Support for Israel
- - - - - - - - - - - - - -

14. (C/NF) Berlusconi and Frattini proudly and publicly
declare their support for Israel, refuse to consider Hamas a
potentially constructive partner, and support the formation
of an independent, democratic Palestinian state. Frattini
pledged additional aid to train and equip Palestinian police,
but was unable to do so due to budgetary constraints.

Lebanon and Syria: Consultation and Cooperation
- - - - - - - - - - - - - - - - - - - - - - - -

15. (C) Italy has consistently offered political, financial
and military support to Lebanon, and is the single largest
contributor of troops to UNIFIL (over 2,500), which is
currently under the command of an Italian general.
Berlusconi pledged to maintain and strengthen UNIFIL and FM
Frattini joined his Spanish and German counterparts in
calling for Syria to halt its uncooperative approach to
Lebanon. You can encourage Italy to maintain this
engagement, and to join in our efforts to improve security
along the Lebanon-Syria border.

Expanding Military Cooperation In the Face of Budget Cuts
- - - - - - - - - - - - - - - - - - - - - - - - - - - - -

16. (C/NF) The Italian MOD signaled that because of budget
constraints, it may not meet its commitment to pay for 300
flight hours in the NATO SAC C-17 program. After
considerable pressure from SECDEF, the NATO SYG and myself,
Italy agreed to postpone their decision until December. We
are, however, encouraging them to confirm their participation
by mid-September. Your visit is an excellent opportunity to
remind them of the importance of this program to the Alliance.

17. (C) Berlusconi is likely to ask for your help on
Finmeccanica's acquisition of U.S. defense contractor DRS
Technologies, a deal worth $5.2 billion. The Italian
government would like to see DRS obtain a Special Security
Agreement from DOD, and will encourage a favorable decision
by the CFIUS. A recent announcement of intentions by
Finmeccanica and Russian Technologies, a Russian para-statal
industrial and defense conglomerate, to enter into a
cooperation agreement has raised some red flags by CFIUS.
Berlusconi may mention Italy's contributions (2 billion
euros) to the Joint Strike Fighter program. He may also
express interest in the USAF Tanker program rebid; the
Italian firm Alenia Aeronautica has partnered with Boeing on
the KC767.

President Napolitano Has Limited Power,
Considerable Influence
- - - - - - - - - - - - - - - - - - - -

18. (C) You will also be meeting with President Giorgio
Napolitano. Although his constitutional powers are limited,
Napolitano exercises his authority evenhandedly, evidenced by
the praise and criticism he receives from both the political
left and right. During the collapse of the Prodi government
in January 2008, Napolitano was a calming presence in the
midst of a political maelstrom. Since Berlusconi took
office, Napolitano -- whose roots are in the former Communist
Party -- has been careful to tread a legally sound middle
ground. He signed the controversial immunity law because it
avoids the problems in earlier similar legislation, but also
warned the Berlusconi government not to abuse its decree
powers and instead to hold full debates on new legislation in
Parliament. President Napolitano's seven-year term expires
in 2013.

Comment
- - - -


19. (C/NF) Mr. Vice President, Italy has great potential to
become an even closer partner and ally in addressing some of
our most important global interests. But the country is at a
critical juncture, and could be faced with institutional and
economic failure if difficult domestic choices are not made.
Italy's ability to partner with the U.S. will depend above
all on the revival of its economy. Your discussions with
Berlusconi and key leaders can help this administration to
maintain focus and direction on international issues at a
point when their interests could be completely absorbed by
domestic concerns.

20. (U) We are pleased that you are coming to Italy at this
time. I am certain that your visit will make an already
robust relationship even stronger.
SPOGLI

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