Italian banking. Please go, Mr Fazio

Antonio Fazio, the governor of Italy's central bank, should resign or be sacked

CENTRAL bankers have a difficult job. Their effectiveness depends on integrity and discretion, notably on monetary policy but also on issues of banking supervision. Most are sober and careful. The few that have cast doubt on their integrity by stumbling have resigned quickly. What to do, then, when a central banker behaves with such wilful disregard for ethical standards that he ought to resign, but shows no sign of doing so, or even of feeling a smidgen of embarrassment?

That is the dilemma facing Italy. The Bank of Italy, its central bank, has enjoyed some respect at home and abroad - until recently. Along with the Treasury, it oversaw Italy's entry into the euro. Several banking messes were effectively dealt with, so that Italy can now point to some well-capitalised and well-run banks that are beginning to modernise the country's old-fashioned financial industry. For that, Antonio Fazio, the central bank's governor, deserves credit. Appointed for life on a fat salary in 1993, he showed a streak of independence that largely freed his bank from suspicions that it could be influenced by politicians. That made it something of a rarity among Italian public institutions.

Lately, however, Mr Fazio has undone his good work. First there was his disappointing response to the Parmalat scandal, in which domestic and international banks were directly implicated. After the dairy firm collapsed in late 2003 in Europe's biggest case of corporate fraud, sensible regulatory reforms were suggested by Italy's finance minister. But some of these involved narrowing the Bank of Italy's broad powers. So Mr Fazio used all his influence to brush these useful reforms away or to water them down. This was an ominous sign.

Much worse was to come. When two foreign banks, one Dutch, the other Spanish, launched contested takeover bids this year for a couple of Italy's smaller banks, Mr Fazio pretended that normal scruples would govern the outcome. He publicly denied the accusation that he had a “fortress Italy” mentality. Behind the scenes, however, he intervened blatantly again and again to favour rival Italian bids.

This was especially the case in the battle between the poorly capitalised Banca Popolare Italiana (BPI) and ABN Amro to win control of Banca Antonveneta, Italy's ninth-biggest bank. And it is his conduct in this deal that makes him unfit to remain in his job. Despite serious doubts among his own officials, Mr Fazio seems to have been determined to engineer a reverse takeover of Antonveneta by BPI and to thwart the Dutch bid. But this was possible only by ignoring allegedly illegal and underhand manoeuvres by BPI that led recently to the suspension of its boss, Gianpiero Fiorani, and of the bid. Mr Fiorani is a close friend of Mr Fazio's - so close, in fact, that the central banker personally telephoned Mr Fiorani late at night last month to tell him that he had approved BPI's bid. That phone call, along with many others, was tapped by magistrates who suspected that BPI was systematically breaking the rules and had placed Mr Fiorani under surveillance.

Details of how BPI twisted and inveigled its way to control of Antonveneta make disturbing reading. So does evidence that a group of businessmen linked to BPI might be trying to wrest control of politically sensitive assets that include Corriere della Sera, one of Italy's most respected newspapers. But perhaps most disturbing is that Mr Fazio seems to believe that he has done nothing wrong. The Bank of Italy has issued a statement claiming that its managers have acted properly and legally.

Ciampi's task

It is not yet clear whether or not Mr Fazio has broken the law - in his position the rules allow him a great deal of latitude. But it is already clear that he has not acted prudently or ethically and has, in fact, damaged the Bank of Italy badly. Despite this, Silvio Berlusconi's government has done nothing, and is apparently willing to see the Bank's authority wither. This is a grievous lapse that is not in the country's interest. There is one hope. Carlo Ciampi, Italy's president, was himself once governor of the Bank of Italy and understands the institution's importance. He has the moral and political authority to force Mr Fazio out. He should use it.

Editorial says that Antonio Fazio, the governor of Italy's central bank, should resign or be sacked.