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Cablegate: Washington Summit - Italian Position Pulled In

VZCZCXRO7126
PP RUEHFL RUEHNP
DE RUEHRO #1363/01 3150736
ZNY CCCCC ZZH
P 100736Z NOV 08
FM AMEMBASSY ROME
TO RUEHC/SECSTATE WASHDC PRIORITY 1145
RHEHNSC/WHITE HOUSE NSC WASHDC PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY
RUEATRS/DEPT OF TREASURY WASHDC PRIORITY
RUEAIIA/CIA WASHDC PRIORITY
RUCNDT/USMISSION USUN NEW YORK PRIORITY 0932
RUEHBS/USEU BRUSSELS PRIORITY 4687
INFO RUEHRL/AMEMBASSY BERLIN 1860
RUEHBJ/AMEMBASSY BEIJING 1318
RUEHNE/AMEMBASSY NEW DELHI 0824
RUEHLO/AMEMBASSY LONDON 1521
RUEHPG/AMEMBASSY PRAGUE 0285
RUEHFR/AMEMBASSY PARIS 2460
RUEHSM/AMEMBASSY STOCKHOLM 0358
RUEHBR/AMEMBASSY BRASILIA 0543
RUEHMIL/AMCONSUL MILAN 9649
RUEHNP/AMCONSUL NAPLES 3445
RUEHFL/AMCONSUL FLORENCE 3288

C O N F I D E N T I A L SECTION 01 OF 02 ROME 001363

SIPDIS

STATE FOR EEB: DAS NELSON, EEB/OMA: AWHITTINGTON, AND
EUR/RPE; TREASURY FOR IMB: BILL MURDEN, WILBUR MONROE,
CAROL CARNES

E.O. 12958: DECL: 11/07/2018
TAGS: ECON EFIN EU IT

SUBJECT: WASHINGTON SUMMIT - ITALIAN POSITION PULLED IN
DIFFERENT DIRECTIONS

REF: ROME 1354

Classified By: DCM ELIZABETH DIBBLE FOR REASONS 1.4 (b) AND (d)

1. (C) Summary -- An advisor to Italian Economics and Finance
Minister Tremonti foreshadowed a quite different Italian
position on financial market reform than post has heard from
other Finance Ministry and Bank of Italy officials (reftel).
In particular, in a conversation November 7 we were told that
Tremonti ""has always been a Bretton Woods II guy,"" and
continues to favor a major overhaul of the IFIs and the
global financial regulatory regime. As for the position it
will take at the upcoming G-20 Washington summit, Italy is
""aligned with the French, talking to Britain, and at
loggerheads with the Germans."" Coordination between the Bank
of Italy and the Finance Ministry in advising Italian
political leaders is poor, according to the advisor.
Washington officials may find in the Bank of Italy's
President Mario Draghi a useful counterweight to Tremonti's
far reaching regulatory reform ambitions. Washington may
also seek further changes in Italy's position as PM
Berlusconi, Draghi and Tremonti enter the discussions with an
apparently divided position. End Summary.

2. (C) Francesco Galietti is Counselor to Economics and
Finance Minister Giulio Tremonti. Galietti has had a long
association with Tremonti, who brought him into government
from the private sector earlier this year. Galietti is almost
certainly closer to Tremonti than is Carlo Baldocci, with
whom we spoke earlier this week (reftel). In a frank
conversation with econoffs November 7, Galietti (protect)
conveyed Tremonti's view of Italy's objectives at the
Washington Summit on Financial Markets and the World Economy.


3. (C) Galietti indicated that Tremonti intends to give a
speech at London's Chatham House early next week, enroute to
Washington, urging the permanent expansion of the G8
(mentioning Brazil, India and China specifically) and calling
again for a comprehensive restructuring of international
financial market regulation. Galietti said Tremonti wants
the IMF to assume a new role in financial sector supervision,
and the World Bank to regulate international financial flows,
but added that Tremonti has not outlined details of this
proposal.

4. (C) In the run up to the Washington summit, Italy is
""aligned with the French, talking with Britain, and at
loggerheads with Germany"", according to Galietti. The French
are pushing for broad and deep changes in financial market
regulation, along lines Tremonti has previously articulated.
France even favors regulation of executive compensation,
which Galietti characterized as political grandstanding of no
real consequence to banks' financial health. According to
our contacts and press reports, Britain is urging the
creation of a pan-European stability fund that the Italians
seem to like, especially as they have taken a similar
approach in shoring up the Italian financial sector (note:
next week the GOI will announce a plan to support Italian
banks further by issuing callable bonds in the government's
name to raise banks' capital). Germany, says Galietti,
remains overly concerned about inflation, resisting further
ECB rate cuts and generally opposing any proposal that German
voters might interpret as bailing out foreigners.

5. (C) Galietti is aware that Italian technocrats, especially
in the Central Bank, favor a more cautious approach to
financial market regulatory reform. A loyal lieutenant, he
professes that Tremonti's way is the right way, adding that
there is poor coordination between the Central Bank and the
Finance Ministry in providing economic policy advice to
political leaders. Worse, there is no independent economic
policy element in PM Berlusconi's office, so the PM is likely
being pulled in opposing directions by his key economic
advisors.

6. (C) Comment: Galietti's readout is considerably different
from that of Baldocci to us November 5. This should come as
no surprise, however, as Italian policy remains in flux and
the two officials come from different backgrounds. Baldocci
is a career Foreign Affairs Ministry diplomat, while Galietti
is a personally loyal adviser of the Minister. We believe
Tremonti's predilections, as outlined by Galietti, could
strongly influence Italy's position at the G-20 and, later,
during Italy's presidency of the G-8. A possible
counterweight to Tremonti, Central Bank President Mario
Draghi, will attend the summit as a representative of the
Financial Stability Forum and not of the GOI. Still, it may
be to the USG's benefit to highlight and promote Draghi's
expertise in conversations with the Italian delegation, so as
to blunt Tremonti's more draconian reform impulses.
SPOGLI
"

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