Italian Prime Minister Silvio Berlusconi’s surprise nomination of Ignazio Visco to run the Bank of Italy sets up a possible clash with French President Nicolas Sarkozy over the composition of the European Central Bank’s Executive Board.
Berlusconi chose Visco, a 30-year veteran of the Bank of Italy, to succeed Mario Draghi, who is to become president of the ECB when Jean-Claude Trichet’s term ends this month. The Italian premier had indicated he might choose ECB Executive Board member Lorenzo Bini Smaghi for the post, which would free up a seat on the ECB’s decision-making board for a Frenchman.
Sarkozy had made removing Bini Smaghi from the board a condition of his support for Draghi’s ECB candidacy, which was key to convincing German Chancellor Angela Merkel to back the Italian for the top ECB post. Bini Smaghi had refused to resign from the Executive Board before the end of his term in 2013. Berlusconi will have the chance to explain his decision to Sarkozy at a European Union summit in Brussels on Oct. 23.
“You wonder how in these musical chairs they’re going to make room for Bini Smaghi,” said Riccardo Barbieri, chief European economist at Mizuho International Plc in London. “There must have been conversations with the people involved in the process that would lead to the rebalancing that France was looking for on the ECB board.”
A French government official declined to comment on Visco’s nomination.
Visco’s nomination to a six-year term ends a four-month deadlock over Draghi’s successor that reflected divisions in the government at a time when Berlusconi is struggling to convince investors that he can act to tame the euro-region’s second-biggest debt after Greece. Berlusconi is under pressure to maintain good relations with Draghi as the ECB has been backstopping Italian bonds since August after yields rose to euro-era records on concern Italy would be engulfed by the region’s debt crisis.
The nomination of Visco, 61, comes with the yield on Italy’s 10-year bond at as high 6.02 percent today, the most since the before the ECB started buying Italian debt on Aug. 8. Berlusconi’s inability to decide on a Bank of Italy governor, four months after Draghi secured the ECB nomination, highlighted the political gridlock that has hampered Italy’s response to the spread of the debt crisis and fueled the jump in borrowing costs.
Berlusconi and Finance Minister Giulio Tremonti clashed over the appointment, with the premier initially backing Bank of Italy Director General Fabrizio Saccomanni, the candidate favored by Draghi, and Tremonti preferring Treasury Director General Vittorio Grilli, newspaper Il Sole 24 Ore reported on Sept. 28.
Grilli, who is from Milan, was also supported by Umberto Bossi, leader of the Northern League, which holds the key to Berlusconi’s parliamentary majority, who said he preferred Grilli because he was a “Milanese.”
Choosing Visco allows Berlusconi to appease Draghi and Italian President Giorgio Napolitano, who had pushed for an internal candidate, rather than a political appointee. He also can partially satisfy Tremonti by denying the post to Saccomanni, Draghi’s favored choice for the position, newspapers including La Repubblica reported today. The choice leaves the issue of Bini Smaghi unresolved.
Members of the government, the opposition and business leaders praised the decision. Even if “the way that we arrived at the decision wasn’t the best,” Emma Marcegaglia, head of Italy’s employers lobby, said she was satisfied with the choice of Visco.
“He is a person of great professionalism,” she said in Balzano, Italy today. “And he is someone from in the Bank of Italy, who is able to guaranty its autonomy and independence.”
Berlusconi on Oct. 18 said that Bini Smaghi was on his “shortlist,” the only Bank of Italy candidate he cited by name that day. Berlusconi decided that he would nominate Bini Smaghi for the position yesterday, a deputy minister in his government said on condition of anonymity. The premier appears to have changed his mind after meetings with top members of his Cabinet, including Tremonti and Bossi, last night in Rome.
“You have the whole Bini Smaghi thing coming back to the fore,” Marc Ostwald, a fixed-income strategist at Monument Securities Ltd. in London, said in an e-mail. “The French obviously feel they should have a French member” on the board, “and this nomination doesn’t solve the problem.”
Amid pressure from France and Italy to step down, Bini Smaghi said in a speech at the Vatican on June 16 that ECB officials must have “personal independence, which ensures the security of tenure of the members of the decision-making bodies for the whole term of office.” An ECB spokesman, asking not to be identified in line with policy, declined to comment last night on Bini Smaghi.
When EU leaders confirmed Draghi, 64, to succeed Trichet on June 24, Berlusconi pledged to nominate his successor the following week. Visco, a former chief economist at the Paris-based Organization for Economic Cooperation and Development, wasn’t among the three candidates he cited by name: Bini Smaghi, Saccomanni and Grilli.
Visco hails from Naples, a southern city often criticized by the Northern League for its organized crime and chronic garbage problems. Still, Roberto Calderoli, one of the Northern League’s Cabinet members, praised Visco last night as a solid economist with the “pragmatic” qualities of a northern Italian, Ansa newswire reported.
Calls for Reform
Visco is one of three deputy directors-general at the Bank of Italy. He started his career at the central bank in 1972 and holds a degree in economics from the University of Rome and a doctorate from the University of Pennsylvania.
In his most recent public comments before the Senate in Rome on Aug. 30, Visco called for structural moves to overhaul Italy’s economy, whose growth has lagged behind the euro-area average for the past decade, after the government approved 54 billion euros ($74 billion) in austerity measures to help tame debt of about 120 percent of gross domestic product.
The spending cuts and tax increases “will have inevitable restrictive effects on the economy,” Visco said. “The growth in international commerce is unlikely to return quickly to the high levels of before the crisis. We therefore risk a period of stagnation, which will slow the reduction of the debt.”
The Bank of Italy’s Board of Directors is set to meet Oct. 24 to give a non-binding opinion on Visco’s candidacy to Italian President Giorgio Napolitano, who must give final approval before Visco gets the job.