Bloomberg News

Draghi ECB Succession Deal Pressures Bini Smaghi to Resign

June 17, 2011

(Updates with ECB comment in sixth paragraph.)

June 17 (Bloomberg) -- European Central Bank Executive Board member Lorenzo Bini Smaghi faced mounting pressure from the leaders of Italy and France to quit as part of their deal to allow fellow Italian Mario Draghi to become ECB president.

“To obtain the support of France for our candidate Mario Draghi, we need to have a French member on the board and we are working on that,” Italian Prime Minister Silvio Berlusconi told journalists yesterday before he asked Bini Smaghi to resign. French President Nicolas Sarkozy said today in Berlin that Italy had given “its word” on the matter.

While euro-area nations have found consensus on Draghi’s succession to replace Jean-Claude Trichet as chief of the Frankfurt-based ECB in November, that would leave Italy with two seats on the six-member Executive Board. Berlusconi agreed with Sarkozy in April to seek Bini Smaghi’s resignation and make room for a French appointee in return for support for Draghi, currently Bank of Italy governor.

“There is an unwritten rule that everyone knows well, which is that among the six members of the ECB board, it’s in the ECB’s interest that all big countries are represented,” Sarkozy said today. “Two Italians on the six-member board is not a very European solution.”

Berlusconi received Bini Smaghi for a 10-minute discussion yesterday at Palazzo Chigi, the government’s headquarters in Rome, and Bini Smaghi left without commenting on the meeting. The premier asked Bini Smaghi to resign “in the name of European solidarity” and as “an act of responsibility to the European institutions and his country,” according to a statement from Berlusconi’s office afterwards.

“Full Independence”

ECB executive board members are appointed for eight years and take decisions in full independence, a spokeswoman for the central bank said today, responding to questions about Bini Smaghi’s future. The independence of Europe’s central banks is guaranteed by the Maastricht Treaty, Bini Smaghi told Corriere della Sera in an interview published today.

The eight-year term of Bini Smaghi, who spoke today in Stockholm at a conference entitled “Monetary Policy in an Era of Fiscal Stress,” isn’t set to end until May 2013. Draghi’s candidacy is due for ratification by European Union leaders next week in Brussels. Bini Smaghi declined to comment on his position in questions after his speech today.

France warned Berlusconi that it would delay the appointment of Draghi unless Bini Smaghi, 54, resigns, the Financial Times reported on its website yesterday, citing an unnamed official. France would be left without representation on the ECB’s management board if Bini Smaghi remains when Draghi replaces Trichet, a Frenchman.

‘Entirely Inappropriate’

“It’s entirely inappropriate for France to raise the issue in that way,” said Daniel Gros, director of the Brussels-based Center for European Policy Studies. “This is a specific case, but it illustrates the way politicians think about this appointment and the functions of the central bank.”

The terms of board members at the central bank is a “matter of legality” as they are appointed “for a certain period,” ECB Vice President Vitor Constancio said June 6 to reporters, when asked whether Bini Smaghi should step down.

In a speech earlier yesterday at the Vatican in Rome, Bini Smaghi said ECB members must have “personal independence, which ensures the security of tenure of the members of the decision- making bodies for the whole term of office.”

Thomas More

After declining to comment to reporters on the details of yesterday’s meeting with Berlusconi, Bini Smaghi said, “I have been to the Vatican this morning and I spoke of Thomas More.”

“It is no coincidence that central bankers have adopted Saint Thomas More as their patron saint,” he had said in the speech. More was a scholar and statesman who was sentenced to death in 1535 for opposing Henry VIII’s break with the Roman Catholic Church.

Bini Smaghi is a potential candidate to replace Draghi at the Bank of Italy, along with Treasury Director General Vittorio Grilli, who enjoys the support of Finance Minister Giulio Tremonti, and Bank of Italy Director General Fabrizio Saccomanni. The nomination is up to Berlusconi, although Italian President Giorgio Napolitano will play a key role and officially appoint the new governor.

Thomas More “followed his conscience, even at the cost of displeasing the sovereign,” Bini Smaghi cited Pope Benedict XVI as saying in a September speech in London. “It may seem bold to compare a central bank to the Church, but that is precisely what Heinrich Mussinghoff, bishop of Aachen, did two weeks ago in his address on the occasion of the awarding of the Charlemagne Prize to Jean-Claude Trichet.”

--With assistance from Christian Vits in Frankfurt, Kim McLaughlin and Johan Carlstrom in Stockholm, Helene Fouquet in Berlin and Andrew Davis in Rome. Editors: Craig Stirling, Fergal O’Brien

To contact the reporter on this story: Lorenzo Totaro in Rome at ltotaro@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net


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