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Cablegate: Italian Unions On Competitiveness, Iran and Iraq

This record is a partial extract of the original cable. The full text of the original cable is not available.




E.O. 12958: N/A

1. Summary. Italian unions, led by CGIL, have proposed a
new plan to promote competitiveness that addresses structural
weaknesses and the need for increased investment in
education, training, infrastructure and R&D. It represents
another step towards unity among the trade union
confederations and, although it lacks a funding mechanism,
offers an economic program the center-left could use in
upcoming elections. CGIL's International Affairs Chief also
volunteered a welcome about-face on Iraq, suggesting it was
time for the U.S. and Europe to work together to support
democratization in Baghdad and end Iranian and Syrian
interference in Iraq. We also addressed union concerns about
USG pressure on U.S. subsidiaries to end operations in Iran.
End Summary.

2. Laborcouns met February 16 with Titti Di Salvo, Head of
the International Affairs Office at CGIL, the largest labor
confederation in Italy, to discuss economic and foreign
policy issues. CGIL is the most left-leaning of the three
major trade union confederations; it has been critical of
U.S. foreign policy in general and strongly opposed the war
in Iraq. CGIL has been at odds with the other two labor
confederations (CISL and UIL) over whether to compromise with
the Berlusconi government on labor and pension reform,
privatization and tax/budget policy. In the past few months,
however, the three union groups have agreed to a joint policy
to encourage investment in the South and to push for a
significant pay raise for the metalworkers (the largest
national labor contract) this year.

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A Push for Competitiveness

3. Di Salvo outlined the basics of a new initiative by the
three unions to promote competitiveness in the Italian
economy. The proposal, which will be presented to the
Berlusconi government, reads more like a corporate
development blueprint than a union manifesto. It cites the
inability of previous Italian governments to confront
structural weaknesses, including poor infrastructure, a
bloated bureaucracy, insufficient investment in R&D and the
limited availability of capital to small businesses from
disinterested banks and insurance companies. The plan calls
for increased investment in education, training,
infrastructure, R&D, and subsidies to assist companies in
funding pension programs. Di Salvo claims that Confindustria
(the largest employers' association) supports the plan.

4. CGIL remains critical of Berlusconi's attempts to address
economic problems through tax reduction, and it believes the
Prime Minister's latest announcement of a 12 billion euro tax
cut is the wrong remedy. Even if the benefits of this tax
cut reach the working man, Di Salvo noted that it would be
insufficient to compensate for recent increases in inflation.
Therefore, it would be inadequate to raise demand for
consumer goods and stimulate production. Di Salvo also
criticized efforts to revise the EU Stability Pact to allow
an increase in the public debt to GDP ratio (Italy's debt is
106% of GDP) that could finance the proposed tax cut.

5. Di Salvo stressed that Italy needs to focus on the
quality, not the quantity, of its goods. But she strongly
denied that high labor costs and the rigidity of the labor
market discouraged foreign investment in Italy. Instead, she
cited bureaucratic red tape, infrastructure gaps and limited
capital availability as the causes, noting that salaries were
higher in France and Germany yet did not undermine foreign
investment there. She made a distinction between European and
U.S. investment in Italy and noted that U.S. investment was
sometimes hidden through other foreign ownership of Italian


6. In a January visit to CGIL's office in Florence, the
union raised with Labourcouns concerns about USG pressure on
a local company, Nuove Pignone (a subsidiary of General
Electric), to cease its operations in Iran. The union
claimed this withdrawal would cost Italian workers jobs and
noted rumors that the Iran business would go to the U.S.
company Haliburton. In response, Laborcouns briefed di Salvo
that GE, addressing concerns of its shareholders, had asked
its subsidiaries to end Iranian operations. According to
press reports, other U.S. companies, including Haliburton,
had made the same decision. The Senate Finance Committee had
also expressed concerns about the operation of U.S.
subsidiaries in Iran, but the final decision was one made by
the company. GE confirmed this action would not result in

any labor force reductions in Italy. Di Salvo thanked us for
the update but expressed concern about the impact of U.S.
foreign policy decisions on economic prospects for Italian
firms working in the Middle East. She expressed support for
the EU initiative to discourage Iran from developing its
nuclear capabilities; Laborcouns replied that the U.S. and
the EU shared the same goal on Iran, but the U.S. was
concerned about the likelihood that the EU initiative would
be successful.


7. Di Salvo volunteered her view that the January elections
in Iraq, the renewed talks between the Palestinians and the
Israelis, and Secretary Rice's trip to Europe were all
positive events. CGIL, she stated, opposed the war in Iraq,
but now it was time for Americans and Europeans to discuss
realistic solutions. We should find a way to advance the
process of democratization in Baghdad by bringing the Sunnis
into the government. We should do our best to avoid
splitting the country into Shia'/Sunni/Kurdish factions, and
we should stop the interference of Iran and Syria in Iraqi
domestic affairs.

8. Comment: CGIL's hard-headed analysis of and proposed
solutions to Italy's economic problems were right on the
mark. Its proposal is a positive change from the union's
past refusal to compromise on key labor and pension reform
initiatives. CGIL's new attitude probably reflects both its
inability to stop the Berlusconi government from advancing
labor market flexibility and privatization plans and its
interest in providing the center-left with a working economic
agenda for upcoming elections. What was missing from the
proposal, unsurprisingly, was how to fund all of these new
investments. The union's about-face on Iraq is particularly
gratifying, especially since di Salvo avoided the tone of
grudging acceptance now being expressed on Iraq by many in
the center-left.


2005ROME00714 - Classification: UNCLASSIFIED

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