Photographer: Alessia Pierdomenico/Bloomberg

Leadership Race Heats Up at Bank of Italy Draghi Once Headed

  • Candidates may include Finance Minister Padoan, ECB’s Angeloni
  • Governor Visco could still get a second term despite criticism

The euro area’s third-largest economy is seeking someone to help oversee its struggling recovery -- and review the European Central Bank stimulus the country relies upon.

Competition for the top job at the Bank of Italy, which comes with a seat on the ECB’s Governing Council, is heating up. The position has a high-profile history -- ECB President Mario Draghi led the Rome-based central bank from the end of 2005 until 2011, and earlier governors Luigi Einaudi and Carlo Azeglio Ciampi went on to be national presidents.

Although Draghi’s successor Ignazio Visco could be reappointed when his term ends this fall, the field is filled with credible potential candidates such as Finance Minister Pier Carlo Padoan, according to Italian media. Other names in the frame include ECB Supervisory Board member Ignazio Angeloni and -- in what would be a break with tradition -- economist Lucrezia Reichlin.

The changeover comes at a sensitive time for the ECB, which is about to consider whether the euro area’s robust recovery warrants winding down its quantitative-easing program. The difficulty for Italy is that it is probably the region’s biggest weak spot, with slow growth and an acute problem of non-performing loans.

The 67-year-old Visco, who started his six-year term on Nov. 1, 2011, has run into criticism over his handling of the country’s banking predicament, leading to speculation he may be a one-term governor.

The central-bank chief must be “able to successfully deal with Italy’s banking crisis, which isn’t over yet,” said Luigi Zingales, a professor at the University of Chicago Booth School of Business, who himself has been mentioned as a possible choice by Rome’s la Repubblica newspaper.

Visco’s challengers may include two close colleagues at the central bank, Senior Deputy Governor Salvatore Rossi and Deputy Governor Fabio Panetta, according to news reports. Like Angeloni, Panetta is a member of the board of the ECB’s Single Supervisory Mechanism, which oversees the region’s largest lenders.

Another possible pick is said to be Andrea Enria, chairman of the European Banking Authority.

Gender might play a role, giving an edge to candidates such as Reichlin, currently a professor at London Business School. If chosen, she would become the central bank’s first female governor in its more than 120-year history.

Reichlin was a schoolmate of Italian Premier Paolo Gentiloni in the early 1970s in Rome and has long-standing associations with central banks in Europe and the U.S. A former head of economic research at the Frankfurt-based ECB, she was reportedly considered in 2014 for a deputy governor position at the Bank of England. Her disadvantage may be that she has mostly lived abroad for the last three decades.

Two Women

Draghi has expressed his concerns about the limited female representation in the Frankfurt-based ECB and in the currency bloc’s national central banks. Among the 25 policy makers on the Governing Council, only two are female -- Executive Board member Sabine Lautenschlaeger and Cypriot central-bank Governor Chrystalla Georghadji.

Premier Gentiloni is expected to make his choice for the Bank of Italy by mid-October and submit the name to the country’s president for the official appointment.

The winner will aid the government in piloting the 1.7 trillion-euro ($2 trillion) Italian economy toward stability after a recession that reduced output by about 9 percent. The wobbly banking system is a prime challenge as lenders attempt to dig out from under a mountain of soured loans -- 313 billion euros as of the end of 2016.

In June the government committed as much as 17 billion euros to wind down Banca Popolare di Vicenza SpA and Veneto Banca SpA and earlier this month it got EU approval to give 5.4 billion euros of aid to recapitalize Banca Monte dei Paschi di Siena SpA.

Renzi’s Mistake

Even former Prime Minister Matteo Renzi has gotten in a word or two against Visco.

“We will have the chance to study the behavior of all the competent authorities,” Renzi said in a May 13 interview with Il Foglio newspaper when asked what he made of a parliamentary investigation into Italian banks’ recent history. “Competent... so to speak,” he added in what was interpreted by political commentators as an attack on the Bank of Italy’s supervision.

Renzi has also stated that he made a mistake while in power by relying too much on the central bank’s views of the country’s financial system. The main opposition party, Five Star Movement, has also been critical of Visco and repeatedly asked for his resignation.

The current governor, who was unexpectedly chosen in 2011 to head the central bank by then-President Giorgio Napolitano, hasn’t said publicly whether he wants a second term. If he does, he can’t be ruled out.

“Visco can certainly be up to the challenges that the central bank will face in coming years,” said Francesco Boccia, head of the budget committee in the lower house, while adding that “I wouldn’t be surprised by a different choice.”

— With assistance by Hayley Warren, Alessandra Migliaccio, Dan Liefgreen, Alessandro Speciale, Giovanni Salzano, and Sonia Sirletti

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