Bloomberg News

Bini Smaghi Frontrunner to Head Bank of Italy, Official Says

October 20, 2011

(Updates with meeting on nomination in fifth paragraph, click {EXT4 <GO>})

Oct. 20 (Bloomberg) -- Prime Minister Silvio Berlusconi probably will nominate European Central Bank Executive Board member Lorenzo Bini Smaghi as governor of the Bank of Italy, ending months of wrangling over Mario Draghi’s successor, a member of the government said.

The prime minister plans to nominate Bini Smaghi to the central bank’s Board of Directors, said a deputy minister who was informed of Berlusconi’s decision and declined to be identified. The announcement comes less than two weeks before Draghi succeeds Jean-Claude Trichet as ECB president and four months after he was first nominated for the post.

Berlusconi began a meeting in Rome with his top ministers to discuss the nomination at about 4 p.m., news agency Ansa reporter.

Naming Bini Smaghi would ease tensions with France. French President Nicolas Sarkozy originally agreed to support Draghi’s candidacy for the ECB in return for Berlusconi getting Bini Smaghi to resign from the ECB’s Executive Board to make way for a French member. Bini Smaghi has refused to step down before his term ends in 2013.

The squabbling over the nomination reflects the political gridlock that has tripped up Berlusconi at a time when the 75- year-old premier is struggling to convince investors that he can tame the euro area’s second-biggest debt. Italy’s 10-year bonds fell for a third day, with the yield reaching 5.934 percent, this highest since before the ECB began backstopping the nation’s debt on Aug. 8.

‘Internal Crisis’

The failure to pick a governor is the latest sign of “the government’s internal crisis,” said Robert Leonardi, senior lecturer in European politics at Luiss University in Rome. “It also shows the lack of leadership of Berlusconi.”

Berlusconi was also considering Bank of Italy Director General Fabrizio Saccomanni and Vittorio Grilli, the director general of the Italian Treasury.

Berlusconi was initially prepared to nominate Saccomanni, though the process bogged down as Finance Minister Giulio Tremonti pushed for Grilli to limit Draghi’s influence over the Bank of Italy, Italian newspaper Il Sole 24-Ore reported on Sept. 28. Tremonti was backed by Umberto Bossi, leader of Berlusconi’s key coalition ally, the Northern League, who said the same day that he also wanted Grilli because he’s from Milan, his party’s power base.

Berlusconi’s Shortlist

Tremonti released a statement yesterday denying a report in newspaper Corriere della Sera that he had been calling the directors of the central bank to pressure them to back Grilli.

Berlusconi said on Oct. 18 that Bini Smaghi was on his “short list,” the only candidate he mentioned by name. While Italian newspapers had reported that Draghi favored Saccomanni, the incoming ECB president, who currently serves on the ECB’s Governing Council, has worked closely with Bini Smaghi in setting monetary policy for the euro region.

“If you look at it from a European perspective, it looks like a no brainer,” said Riccardo Barbieri, chief European economist at Mizuho International Plc in London. Italy needs “to find a good job for Bini Smaghi, that’s the story, and Bini Smaghi is a very competent guy,” he said.

Bini Smaghi, a Florence native with a doctorate from the University of Chicago, began his career as an economist at the Bank of Italy’s research department. He also served a stint at the Finance Ministry under Carlo Azeglio Ciampi, who later went on to become premier.

Once Berlusconi makes the nomination, the central bank’s Board of Directors will issue an opinion on the candidate to Italian President Giorgio Napolitano, who has to give final approval the appointment.

--Editors: Andrew Davis, Jeffrey Donovan

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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