

Currently released so far... 12478 / 251,287
Browse latest releases
2010/12/01
2010/12/02
2010/12/03
2010/12/04
2010/12/05
2010/12/06
2010/12/07
2010/12/08
2010/12/09
2010/12/10
2010/12/11
2010/12/12
2010/12/13
2010/12/14
2010/12/15
2010/12/16
2010/12/17
2010/12/18
2010/12/19
2010/12/20
2010/12/21
2010/12/22
2010/12/23
2010/12/24
2010/12/25
2010/12/26
2010/12/27
2010/12/28
2010/12/29
2010/12/30
2011/01/01
2011/01/02
2011/01/04
2011/01/05
2011/01/07
2011/01/09
2011/01/10
2011/01/11
2011/01/12
2011/01/13
2011/01/14
2011/01/15
2011/01/16
2011/01/17
2011/01/18
2011/01/19
2011/01/20
2011/01/21
2011/01/22
2011/01/23
2011/01/24
2011/01/25
2011/01/26
2011/01/27
2011/01/28
2011/01/29
2011/01/30
2011/01/31
2011/02/01
2011/02/02
2011/02/03
2011/02/04
2011/02/05
2011/02/06
2011/02/07
2011/02/08
2011/02/09
2011/02/10
2011/02/11
2011/02/12
2011/02/13
2011/02/14
2011/02/15
2011/02/16
2011/02/17
2011/02/18
2011/02/19
2011/02/20
2011/02/21
2011/02/22
2011/02/23
2011/02/24
2011/02/25
2011/02/26
2011/02/27
2011/02/28
2011/03/01
2011/03/02
2011/03/03
2011/03/04
2011/03/05
2011/03/06
2011/03/07
2011/03/08
2011/03/09
2011/03/10
2011/03/11
2011/03/13
2011/03/14
2011/03/15
2011/03/16
2011/03/17
2011/03/18
2011/03/19
2011/03/20
2011/03/21
2011/03/22
2011/03/23
2011/03/24
2011/03/25
2011/03/26
2011/03/27
2011/03/28
2011/03/29
2011/03/30
2011/03/31
2011/04/01
2011/04/02
2011/04/03
2011/04/04
2011/04/05
2011/04/06
2011/04/07
2011/04/08
2011/04/09
2011/04/10
2011/04/11
2011/04/12
2011/04/13
2011/04/14
2011/04/15
2011/04/16
2011/04/17
2011/04/18
2011/04/19
2011/04/20
2011/04/21
2011/04/22
2011/04/23
2011/04/24
2011/04/25
2011/04/26
2011/04/27
2011/04/28
2011/04/29
2011/04/30
Browse by creation date
Browse by origin
Embassy Athens
Embassy Asuncion
Embassy Astana
Embassy Asmara
Embassy Ashgabat
Embassy Apia
Embassy Ankara
Embassy Amman
Embassy Algiers
Embassy Addis Ababa
Embassy Accra
Embassy Abuja
Embassy Abu Dhabi
Embassy Abidjan
Consulate Auckland
Consulate Amsterdam
Consulate Adana
American Institute Taiwan, Taipei
Embassy Bujumbura
Embassy Buenos Aires
Embassy Budapest
Embassy Bucharest
Embassy Brussels
Embassy Bridgetown
Embassy Bratislava
Embassy Brasilia
Embassy Bogota
Embassy Bishkek
Embassy Bern
Embassy Berlin
Embassy Belmopan
Embassy Belgrade
Embassy Beirut
Embassy Beijing
Embassy Banjul
Embassy Bangkok
Embassy Bandar Seri Begawan
Embassy Bamako
Embassy Baku
Embassy Baghdad
Consulate Barcelona
Embassy Copenhagen
Embassy Conakry
Embassy Colombo
Embassy Chisinau
Embassy Caracas
Embassy Canberra
Embassy Cairo
Consulate Curacao
Consulate Ciudad Juarez
Consulate Chennai
Consulate Casablanca
Consulate Cape Town
Consulate Calgary
Embassy Dushanbe
Embassy Dublin
Embassy Doha
Embassy Djibouti
Embassy Dili
Embassy Dhaka
Embassy Dar Es Salaam
Embassy Damascus
Embassy Dakar
Consulate Dubai
Embassy Helsinki
Embassy Harare
Embassy Hanoi
Consulate Ho Chi Minh City
Consulate Hermosillo
Consulate Hamilton
Consulate Hamburg
Consulate Halifax
Embassy Kyiv
Embassy Kuwait
Embassy Kuala Lumpur
Embassy Kinshasa
Embassy Kingston
Embassy Kigali
Embassy Khartoum
Embassy Kathmandu
Embassy Kampala
Embassy Kabul
Consulate Kolkata
Embassy Luxembourg
Embassy Luanda
Embassy London
Embassy Ljubljana
Embassy Lisbon
Embassy Lima
Embassy Lilongwe
Embassy La Paz
Consulate Lahore
Consulate Lagos
Mission USOSCE
Mission USNATO
Mission UNESCO
Embassy Muscat
Embassy Moscow
Embassy Montevideo
Embassy Monrovia
Embassy Minsk
Embassy Mexico
Embassy Mbabane
Embassy Maputo
Embassy Manila
Embassy Manama
Embassy Managua
Embassy Malabo
Embassy Madrid
Consulate Munich
Consulate Mumbai
Consulate Montreal
Consulate Monterrey
Consulate Milan
Consulate Melbourne
Embassy Nicosia
Embassy Niamey
Embassy New Delhi
Embassy Ndjamena
Embassy Nassau
Embassy Nairobi
Consulate Naples
Consulate Naha
Embassy Pristina
Embassy Pretoria
Embassy Prague
Embassy Port Of Spain
Embassy Port Louis
Embassy Port Au Prince
Embassy Phnom Penh
Embassy Paris
Embassy Paramaribo
Embassy Panama
Consulate Peshawar
REO Basrah
Embassy Rome
Embassy Riyadh
Embassy Riga
Embassy Reykjavik
Embassy Rangoon
Embassy Rabat
Consulate Rio De Janeiro
Consulate Recife
Secretary of State
Embassy Suva
Embassy Stockholm
Embassy Sofia
Embassy Skopje
Embassy Singapore
Embassy Seoul
Embassy Sarajevo
Embassy Santo Domingo
Embassy Santiago
Embassy Sanaa
Embassy San Salvador
Embassy San Jose
Consulate Strasbourg
Consulate St Petersburg
Consulate Shenyang
Consulate Shanghai
Consulate Sapporo
Consulate Sao Paulo
Embassy Tunis
Embassy Tripoli
Embassy Tokyo
Embassy The Hague
Embassy Tel Aviv
Embassy Tehran
Embassy Tegucigalpa
Embassy Tbilisi
Embassy Tashkent
Embassy Tallinn
Consulate Toronto
Consulate Tijuana
USUN New York
USEU Brussels
US Office Almaty
US Mission Geneva
US Interests Section Havana
US Delegation, Secretary
UNVIE
Embassy Ulaanbaatar
Embassy Vilnius
Embassy Vienna
Embassy Vatican
Embassy Valletta
Consulate Vladivostok
Consulate Vancouver
Browse by tag
AU
ASEC
AE
AF
AORC
AEMR
AMGT
ABUD
AFFAIRS
APER
AS
AMED
AY
AG
AR
AJ
AL
AID
AM
AODE
ABLD
AMG
AFIN
ATRN
AGAO
AFU
AN
AA
ALOW
APECO
ADM
ARF
ASEAN
APEC
AMBASSADOR
AO
ASUP
AZ
AADP
ACOA
ANET
AMCHAMS
ACABQ
ASECKFRDCVISKIRFPHUMSMIGEG
APCS
AGMT
AINF
AIT
AORL
ACS
AFSI
AFSN
ACBAQ
AFGHANISTAN
ADANA
ADPM
AX
ADCO
AECL
AMEX
ACAO
ASCH
AORG
AGR
AROC
ASIG
AND
ARM
AQ
ATFN
AC
AUC
ASEX
AER
AVERY
AGRICULTURE
BL
BR
BO
BA
BD
BM
BK
BG
BU
BB
BH
BTIO
BY
BEXP
BP
BE
BRUSSELS
BF
BIDEN
BT
BX
BC
BILAT
BN
BBSR
BTIU
BWC
BMGT
CA
CASC
CVIS
CM
CH
CO
CU
CD
CWC
CI
CS
CY
CMGT
CF
CG
CR
CB
CV
CW
CE
CBW
CT
CPAS
COUNTERTERRORISM
CJAN
CODEL
CIDA
CDG
CDC
CIA
CTR
CNARC
CSW
CN
CONS
CLINTON
COE
CROS
CARICOM
CONDOLEEZZA
COUNTER
CL
COM
CICTE
CIS
CFED
COUNTRY
CJUS
CBSA
CEUDA
CLMT
CAC
COPUOS
CIC
CBE
CHR
CTM
CVR
CITEL
CLEARANCE
CACS
CAN
CITT
CARSON
CACM
CDB
CAPC
CKGR
CBC
EC
EG
EPET
ECON
ETRD
EFIN
EIND
EMIN
ENRG
EAID
EAGR
EUN
ETTC
EAIR
ENIV
ES
EU
EINV
ELAB
ECIN
EFIS
ELTN
EWWT
ECPS
ECONOMIC
ENGR
EN
EINT
EPA
ELN
ESA
EZ
ER
ET
EFTA
EINVECONSENVCSJA
EUMEM
ETRA
EXTERNAL
EI
EUR
EK
ERNG
ENGY
ETRDEINVECINPGOVCS
ENERG
EINVEFIN
ENVR
ECA
ELECTIONS
ETC
EUREM
ENNP
EFINECONCS
EURN
ECINECONCS
EEPET
EXIM
ERD
ENVI
ETRC
ETRDEINVTINTCS
ETRO
EDU
ETRN
EAIG
ECONCS
ECONOMICS
EAP
ECONOMY
EINN
EIAR
EXBS
ECUN
EINDETRD
EREL
EUC
ESENV
ECONEFIN
ECIP
EFIM
EAIDS
ETRDECONWTOCS
EUNCH
EINVETC
IZ
IT
IR
IS
IN
IC
IAEA
IO
ICAO
IWC
ID
IV
ISRAEL
IAHRC
IQ
ICTR
IMF
IRS
IDP
IGAD
ICRC
ICTY
IMO
IL
INRA
INRO
ICJ
ITU
IBRD
INMARSAT
IIP
ITALY
IEFIN
IACI
ILO
INTELSAT
ILC
ITRA
IDA
INRB
IRC
INTERPOL
IA
IPR
IRAQI
ISRAELI
INTERNAL
ISLAMISTS
INDO
ITPHUM
ITPGOV
ITALIAN
IBET
INR
IEA
IZPREL
IRAJ
ITF
IF
KDEM
KU
KPAL
KNNP
KCRM
KZ
KN
KS
KJUS
KTFN
KSCA
KV
KISL
KPAO
KPKO
KIRF
KTIA
KIPR
KFLO
KFRD
KTIP
KAWC
KSUM
KCOM
KAID
KE
KTDB
KMDR
KOMC
KWBG
KDRG
KVPR
KTEX
KGIC
KWMN
KSCI
KCOR
KACT
KDDG
KHLS
KSAF
KFLU
KSEO
KMRS
KSPR
KOLY
KSEP
KVIR
KGHG
KIRC
KUNR
KIFR
KCIP
KMCA
KMPI
KBCT
KHSA
KICC
KIDE
KCRS
KMFO
KRVC
KRGY
KR
KAWK
KG
KFIN
KHIV
KBIO
KOCI
KBTR
KNEI
KPOA
KCFE
KPLS
KSTC
KHDP
KPRP
KCRCM
KLIG
KCFC
KTER
KREC
KTBT
KPRV
KSTH
KRIM
KRAD
KWAC
KWMM
KFRDCVISCMGTCASCKOCIASECPHUMSMIGEG
KOMS
KX
KMIG
KRCM
KVRP
KBTS
KPAONZ
KNUC
KNAR
KPWR
KNPP
KDEMAF
KNUP
KNNPMNUC
KERG
KGIT
KPAI
KTLA
KFSC
KCSY
KSAC
KTRD
KID
KOM
KMOC
KJUST
KGCC
KREL
KFRDKIRFCVISCMGTKOCIASECPHUMSMIGEG
KFTFN
KO
KNSD
KHUM
KSEC
KCMR
KCHG
KICA
KPIN
KESS
KDEV
KCGC
KWWMN
KPAK
KWNM
KWMNCS
KRFD
MOPS
MCAP
MPOS
MARR
MO
MNUC
MX
MASS
MG
MY
MU
ML
MR
MILITARY
MTCRE
MT
MEPP
MA
MDC
MP
MAR
MASSMNUC
MARAD
MAPP
MZ
MD
MI
MEETINGS
MK
MCC
MEPN
MRCRE
MAS
MIL
MASC
MC
MV
MTCR
MIK
MUCN
MEDIA
MERCOSUR
MW
MOPPS
MTS
MLS
MILI
MTRE
MEPI
MQADHAFI
MAPS
NO
NATO
NL
NP
NZ
NSF
NI
NH
NG
NAFTA
NU
NASA
NR
NATOPREL
NSSP
NSG
NA
NT
NW
NK
NPT
NPA
NATIONAL
NPG
NSFO
NS
NSC
NE
NGO
NDP
NIPP
NRR
NEW
NZUS
NC
NAR
NV
NORAD
OTRA
OPCW
OVIP
OAS
OREP
OPIC
OIIP
OPRC
ODIP
OEXC
OPDC
OSCE
OIC
OSCI
OECD
OFDP
OFDA
OMIG
OPAD
OFFICIALS
OVP
OIE
OHUM
OCS
OBSP
OTR
OSAC
ON
OCII
OES
PGOV
PREL
PHUM
PTER
PINS
PINR
PREF
PK
PROP
PA
PARM
PBTS
PMAR
PM
PGIV
PE
PRAM
PHUH
PHSA
PL
PNAT
PO
PLN
PAO
PSA
PHUMPGOV
PF
PEL
PBIO
POLITICS
PHUMBA
PAS
POL
PREO
PAHO
PMIL
POGOV
POV
PAK
PNR
PRL
PG
PREFA
PSI
PINL
PU
PARMS
PRGOV
PALESTINIAN
PAIGH
POLITICAL
PARTIES
POSTS
PROG
PORG
PTBS
PUNE
POLICY
PDOV
PCI
PGOVSMIGKCRMKWMNPHUMCVISKFRDCA
PBT
PP
PS
PY
PTERE
PGOF
PKFK
PSOE
PEPR
PPA
PINT
PRELP
PSEPC
PGOVE
PINF
PNG
PGOC
PFOR
PCUL
POLINT
PGGV
PHALANAGE
PARTY
PGOVLO
PHUS
PDEM
PECON
PROV
PHUMPREL
RS
RU
RELATIONS
RW
RO
RM
RP
ROOD
RICE
RUPREL
RSO
RCMP
REACTION
REPORT
REGION
RIGHTS
RF
RFE
RSP
RIGHTSPOLMIL
ROBERT
SU
SCUL
SNAR
SOCI
SF
SA
SHUM
SENV
SP
SR
SY
SANC
SC
SMIG
SZ
SARS
SW
SEVN
SO
SEN
SL
SNARCS
SNARN
SI
SG
SN
SH
SYR
SAARC
SPCE
SHI
SCRS
SENVKGHG
SYRIA
SWE
STEINBERG
SIPRS
ST
SNARIZ
SSA
SK
SPCVIS
SOFA
SIPDIS
SAN
TC
TI
TBIO
TH
TSPL
TRGY
TSPA
TPHY
TU
TW
TS
TAGS
TK
TX
TNGD
TZ
TF
TL
TV
TN
TD
TIP
TR
TP
TO
TT
TFIN
THPY
TERRORISM
TINT
TRSY
TURKEY
TBID
US
UK
UNGA
UP
UZ
UNMIK
USTR
UNO
UNSC
UN
UNESCO
UNAUS
UNHRC
UY
UG
UNHCR
UNCND
USOAS
USEU
UNICEF
UNEP
UV
UNPUOS
UNCSD
USUN
UNCHR
UNDC
USNC
UE
UNDP
UNC
USPS
USAID
UNVIE
UAE
UNFICYP
UNODC
UNCHS
UNIDROIT
UNDESCO
UNCHC
Browse by classification
Community resources
courage is contagious
Viewing cable 09ROME395, ITALY DODGES FINANCIAL MELT DOWN, BUT GLOBAL
If you are new to these pages, please read an introduction on the structure of a cable as well as how to discuss them with others. See also the FAQs
Understanding cables
Every cable message consists of three parts:
- The top box shows each cables unique reference number, when and by whom it originally was sent, and what its initial classification was.
- The middle box contains the header information that is associated with the cable. It includes information about the receiver(s) as well as a general subject.
- The bottom box presents the body of the cable. The opening can contain a more specific subject, references to other cables (browse by origin to find them) or additional comment. This is followed by the main contents of the cable: a summary, a collection of specific topics and a comment section.
Discussing cables
If you find meaningful or important information in a cable, please link directly to its unique reference number. Linking to a specific paragraph in the body of a cable is also possible by copying the appropriate link (to be found at theparagraph symbol). Please mark messages for social networking services like Twitter with the hash tags #cablegate and a hash containing the reference ID e.g. #09ROME395.
Reference ID | Created | Released | Classification | Origin |
---|---|---|---|---|
09ROME395 | 2009-04-06 14:50 | 2011-02-28 11:00 | CONFIDENTIAL | Embassy Rome |
VZCZCXRO0626
RR RUEHFL RUEHNP
DE RUEHRO #0395/01 0961450
ZNY CCCCC ZZH
R 061450Z APR 09
FM AMEMBASSY ROME
TO RUEHC/SECSTATE WASHDC 1883
RUEATRS/DEPT OF TREASURY WASHDC
INFO RUEHBJ/AMEMBASSY BEIJING 1346
RUEHRL/AMEMBASSY BERLIN 1922
RUEHLO/AMEMBASSY LONDON 1588
RUEHMO/AMEMBASSY MOSCOW 4532
RUEHOT/AMEMBASSY OTTAWA 1892
RUEHFR/AMEMBASSY PARIS 2552
RUEHKO/AMEMBASSY TOKYO 1996
RUEHFL/AMCONSUL FLORENCE 3561
RUEHFT/AMCONSUL FRANKFURT 7509
RUEHMIL/AMCONSUL MILAN 9948
RUEHNP/AMCONSUL NAPLES 3738
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEHBS/USEU BRUSSELS 4784
RUCPDOC/USDOC WASHDC
RUCNDT/USMISSION USUN NEW YORK 0982
C O N F I D E N T I A L SECTION 01 OF 03 ROME 000395
SIPDIS
DEPT PLEASE PASS TO USTR
E.O. 12958: DECL: 04/06/2014
TAGS: ECON EFIN ETRD IT
SUBJECT: ITALY DODGES FINANCIAL MELT DOWN, BUT GLOBAL
DOWNTURN HITS HARD
REF: ROME 320
SUBJECT: ITALY DODGES FINANCIAL MELT DOWN, BUT GLOBAL
DOWNTURN HITS HARD
REF: ROME 320
Classified By: Classified By: Economic Minister Counselor Tom Delare fo
r reasons 1.4 (b) and (d)
¶1. (C) Summary: Conservative, risk-averse practices and
tight supervision allowed Italy's banking system to avoid the
worst of the financial melt-down that hit the United States
and other countries. But the worldwide recession sparked by this
financial crisis is now beginning to hit Italy's
export-dependent economy very hard. GDP is expected to drop
by between 2.5 and 4% in 2009, and unemployment to rise to
8%. The government has set up a system to bolster the
capital of Italy's banks, but its ability to give a stronger
fiscal stimulus to the economy is constrained by Italy's
already enormous public sector debt. Looking ahead, exports
to the rest of Europe and the United States will likely pull
Italy out of recession soon after global growth resumes, but
unfortunately Italy will then find itself back in the same
economic mess that it was in before the recession: the sick
man of Europe, condemned by demographics and bad policies to
growth rates significantly lower than its EU partners. END
SUMMARY
ITALIAN BANKS DODGE THE BULLET, BUT WHY?
¶2. (C) Italy's banking system for the most part avoided the
catastrophe that has engulfed financial markets in the U.S.
and elsewhere. Before the current crisis, Italian business,
policymakers and the public criticized the Italian financial
system frequently for its failure to embrace innovative
financial systems and to spur entrepreneurship. The U.S.
Embassy was a leader in this criticism. But it was this
aversion to innovation and Bank of Italy-mandated leverage
limits on derivative instruments that kept the Italians out
of what now appears to be round one of the global economic
crisis.
¶3. (U) The reasons Italian banks dodged the bullet, however,
are not all good. Italian bankers and economic policymakers
say, with some hubris, that banks here avoided trouble by
sticking to their core business and practices of lending to
known, trusted firms and households with adequate security
and high prospects of repayment. This is to some extent
true.
¶4. (C) Caution kept Italian banks out of sub-prime lending
and the market for derivatives built on top of sub-prime
mortgages and exotic credit default swaps. Also keeping
Italian banks out of high-risk, high-return investments was a
high-margin domestic market, where financial institutions
still enjoy loan/deposit margins that are 2 to 3 times those
in other advanced economies. Because there are relatively
few foreign banks operating in Italy, Italian consumers and
businesses were denied the competition dynamic that would
reduce the high cost of banking services. The end result is
a plodding financial sector in an already plodding economy.
BUT RECESSION NOW HITTING HARD
¶5. (U) Banks, avoidance of toxic assets notwithstanding,
Italy's export-dependent economy will not escape the global
recession sparked by the financial crisis. The effects of
that recession are now being felt here as export orders dry
up, unemployment increases and new business investment
screeches to a halt. As per ref A and newer data, estimates
of GDP contraction in 2009 range from 2 percent to over 4
(OECD). (Italy's worst post-war economic performance came in
1993, when the economy shrunk by 2.5 percent.) Rising
unemployment concerns policymakers, who fear unemployment
will top 8 percent by end of 2009. Curiously, consumer
confidence surveys in the first two months of 2009 revealed
that consumers expect things to worsen in general, while
indicating that their own personal economic situation remains
favorable. Businesses, on the other hand, remain quite
pessimistic - this is likely the result of dramatic declines
in industrial production (-4.3% in 2008) and exports (down
26% in January 2009). Business confidence surveys remain at
all-time lows, explaining a drop of 1.9 percent in gross
fixed investment during the third quarter of 2008.
BANKS BOLSTERED...
¶6. (U) Italian government policy makers remain focused on
ensuring that bank capital is adequate, seeking to bolster it
through the issuance of hybrid capital instruments informally
named after Economics and Finance Minister Giulio Tremonti.
The government has pointed to the banking system's financial
health as key to economic recovery and suggested that an
insufficiency of capital is holding back banks from
lubricating the economy adequately. More recently,
policymakers and bankers are claiming that the hybrid bond
scheme is meant to address level playing field, concerns
with respect to state aid provided by other EU governments to
their financial sectors. The plan to beef up capital
unveiled in early March is technically sound, but
controversial in that banks wishing to participate in it must
sign on to as yet vague conditions constraining compensation
for executives and ""traders"", and to agree to additional,
unusual oversight of their lending practices and portfolios.
This last sparked a tiff between Minister Tremonti and the
Bank of Italy's governor Mario Draghi, who has asserted
firmly and publicly his institution's primacy in supervising
banks.
¶7. (C) Under the scheme, participating banks (applications so
far total about 8.5 billion euros) will issue convertible
instruments to which the GOI will subscribe fully. The
convertible instruments pay interest, but only if the bank
distributes dividends to all its shareholders. The interest
rate and the premium for converting the instruments from
bonds, to common shares (thus repaying the taxpayers) grow
over time. In neither form (debt or equity) do the
instruments confer voting rights to the government.
¶8. (C) Tremonti may see in his namesake instruments a vehicle
to impose his eclectic economic world view to the benefit of
economic actors he claims have been left behind by
globalization, i.e., small businesses. Unfortunately, many of
these firms appear to be unable or unwilling to change to
meet the demands of a more dynamic market and global
competition. A former Socialist, like many in the ruling
People of Liberty party, Tremonti does not have his own
political constituency, but rather
draws his power from his relationship with PM Berlusconi and
support from the junior coalition partner, the Northern
League. A strong constituency of the latter are small family
businesses, which claim to have suffered from the break-down
of relationships with their local banks as these were
absorbed by larger competitors during a recent consolidation
wave. Tremonti can emerge as their champion by spurring
banks to lend more generously to them. Also in play could be
Tremonti,s desire to be seen abroad and at home as
successfully balancing free market principles and social
responsibility.
...BUT NO MONEY FOR STIMULUS
¶9. (U) Tremonti,s activism notwithstanding, the GOI has very
little leeway to use fiscal policy to stimulate the economy,
given the already high debt-to-GDP ratio (107% currently and
projected to rise to 110% or more this year) - well above the
Maastricht treaty guideline of 60% max) and an onerous tax
burden (at 43% the corporate tax rate is the highest in the
developed world).
¶10. (U) Eleven percent of Italy's central government revenue
already goes to service debt, while
the lion's share of the budget consists of entitlement
spending that is not easily reduced. On the revenue side,
the government has little ability to further squeeze more
from taxpayers, given already high rates and rampant tax
evasion. Were the GOI predisposed to cut taxes to stimulate
private investment or spending (of which we have not heard a
whisper), it might find it difficult, if not
impossible, to finance its still growing deficit in the
short-term. All this results in a very modest Italian
stimulus package (the smallest among Europe's major
economies) that as yet continues to dribble out piecemeal as
specific sectors succeed in their government lobbying
efforts.
LOOKING AHEAD
¶11. (U) Italy has built a strong export platform in niche
products and a solid reputation for design and top
craftsmanship among their EU customers. Over forty percent
of its exports go to wealthy markets in Germany, France, the
UK and the US. As those economies recover, they will pull
Italy along. Likewise, energy and commodity producers, who
are also among Italy's export targets, should also help boost
an Italian recovery as global demand for energy and raw
materials recovers. A larger question mark in the short run
is the performance of markets in central and eastern Europe
that Italy also pegged for export growth and foreign
investment. Meanwhile, Italy's penetration of the monster
emerging economies such as China and India remains weak. One
bank executive told us that Italian firms are not, for the
most part, able (or interested?) to fill orders at the scale
the new giants require.
AFTER RECOVERY: SICK MAN OF EUROPE ONCE AGAIN
¶12. (C) However long the global downturn lasts, at the end of
it Italy will remain hamstrung by an oversized public sector,
an over-regulated economy, insufficient competition in key
sectors such as financial services, inflexible labor laws,
corruption and an aging, shrinking population. All translate
into a job-poor economy that will continue to drive its
dwindling youth to emigrate.
¶13. (C) COMMENT: For the moment, Italian globalization
skeptics and defenders of The Italian Way, may feel smug
about having avoided the global financial catastrophe.
Government policymakers certainly seem to be doing a good job
of monitoring and bolstering banks, capital and consumer
confidence. On fiscal stimulus, however, Italy hasn't gone
nearly as far as we are asking our partners to go, because
policymakers know there is little they can do in the shadow
of their massive government deficit. The deficit is
emblematic (and the result) of the long term structural
policy errors pursued by Italian
governments of all stripes. Unfortunately, the current
crisis will embolden those calling for Italy to stay its
failing economic course. And they far outnumber those among
the policy makers, such as Minister for Administrative Reform
Brunetta, who have called for using the current crisis as an
opportunity to make Italy more competitive. At crisis-end,
we unfortunately predict that Italians will face the same
underlying problems with little appetite for serious (and
painful) reform. Italy will almost certainly
find itself back in its pre-crisis malaise.
DIBBLE
"