Fazio’s folly

Date: 26/11/05

Secure in his job

A central banker too independent for comfort

IT USED to be an article of faith among Italy-watchers that, however incompetent the country's other institutions might be, at least the Bank of Italy could be relied upon. In the 1990s it even supplied two prime ministers, Carlo Azeglio Ciampi (now the country's president) and Lamberto Dini. But the central bank's credibility has been shot to pieces by the intransigent behaviour of its governor since 1993, Antonio Fazio.

Mr Fazio has long opposed foreign takeovers of Italian banks. Even so, earlier this year, a Spanish bank, BBVA, and a Dutch one, ABN Amro, made bids for two Italian banks. Mr Fazio promoted rival domestic bids for their targets, leading the European Commission to ask whether Italy was discriminating against other EU countries. Central banks in other European countries may have their own ways of discouraging foreign bidders, but none is as explicit about it as Mr Fazio.

As it happens, Mr Fazio has pursued some perfectly sensible policies, promoting privatisation and mergers among Italian banks. Yet his response to the bid by ABN Amro for Banca Antonveneta was outlandish. He overruled his advisers by endorsing a rival bid by Banca Popolare Italiana, a shaky institution run by a close friend, Gianpiero Fiorani. Wiretaps leaked by prosecutors recorded Mr Fazio phoning Mr Fiorani after midnight to say he had just approved the bid. But when it became clear just how rocky BPI's finances were, its bid fell apart and ABN Amro won the day.

For Mr Fazio, the story is by no means over. His intervention was attacked from all sides. His friends were quick to detect an anti-Catholic, masonic or even Jewish conspiracy against him (Mr Fazio is an ardent Catholic who goes to mass every day). Exasperated members of the government, including the finance minister, Domenico Siniscalco, called for his resignation. When Mr Siniscalco failed to win the cabinet's backing, he quit (although not solely over the Fazio affair: problems with the 2006 budget also played a part). Following Mr Siniscalco's departure, even the prime minister, Silvio Berlusconi, called for Mr Fazio to go, and suggested that the European Central Bank might boot him out.

The trouble is that, in the mid-1990s, the Italian government, in its eagerness to join the euro, made its central bank more independent than any other in Europe. Mr Fazio's appointment is for life. He thinks he has done nothing wrong and is reluctant to sacrifice his job as the best-paid central banker in Europe. He can be removed only by the board of directors of the Bank of Italy, which is technically a private institution - and he chose most of the board members himself.

The government has drafted a new law to renationalise the Bank and make its governor subject to a term limit, but it is languishing in parliament. A defiant Mr Fazio has shown that he has friends in high places, not only in the Vatican but in the Northern League, the National Alliance and even in some opposition parties. The odds are that, whatever the pressures on him, he will stay until the next election - and he might not quit even then. After all, at 69, he is two weeks younger than Mr Berlusconi. Why should he give up any sooner than Il Cavaliere?

Article forms part of a survey of Italy, and looks at the Bank of Italy and its Governor, Antonio Fazio.