Italy reforms central bank, but Fazio untouched

Italy's government yesterday approved a reform of the Bank of Italy but said the shake-up would not apply to the sitting central bank governor, Antonio Fazio, who is at the centre of a scandal over bank takeovers.

The decision means Fazio, whose reputation has been battered by allegations he discriminated against foreign banks bidding for Italian lenders, could remain at his post for years to come.

Opposition politicians and some leading Italian economists lambasted the package as weak, misguided and insufficient.

Mr Fazio, who has headed the central bank since 1993, has an open-ended mandate and absolute power to decide on takeovers in Italy's financial sector. The government reform, which must be approved by Parliament before it can come into force, envisages a fixed, seven-year term for the next governor and the introduction of decision-making by committee once that governor takes office.

It gives no indication of when Mr Fazio should go.

Prime Minister Silvio Berlusconi told reporters the reform would restore credibility to the Bank of Italy. But he declined to say whether he thought Mr Fazio should resign.

"This is not a question you should put to me," Mr Berlusconi told reporters. "I don't think people should make decisions based on media pressure," he added.

One of Mr Berlusconi's closest advisers has suggested that Mr Fazio will stand down once the reform is enacted, but some ministers insisted that Mr Fazio, who is 68, could stay in his job for as long as he liked.

"Fazio will do as he wishes, but I don't see any need for him to resign," said Labour Minister Roberto Maroni, a member of the Northern League coalition party that has proved Mr Fazio's most fervent supporter.

Critics have accused Mr Fazio of favouring Banca Popolare Italiana in its fight with Dutch Bank ABN AMRO for control of Italian lender Banca Antonveneta.

Mr Fazio overruled the Bank of Italy's own experts in allowing the Pop Italiana bid, while wiretaps ordered by magistrates showed both he and his wife, Maria Cristina, advised the bank's chief executive about how to proceed with the offer. The leading spokesman on economic affairs in the opposition centre-left bloc accused the government yesterday of trying to shield Mr Fazio. "This reform is totally insufficient," said Enrico Letta. "Worse than this one couldn't get."

Economist Luigi Spaventa, the former head of bourse watchdog Consob, was equally outspoken. "The Bank of Italy reform as it was approved today by the Cabinet is the minimum of the minimum. A mountain has given birth to a mouse."

The reforms will be attached to a savings Bill currently before Parliament.

The law was drawn up after a fraud scandal at food group Parmalat in 2003 and was aimed at quelling market fears about the risks of investing in Italy. The Bill has since idled in parliamentary commissions, a victim of political infighting, and there is no guarantee that the new, enlarged package will be approved before May 2006, when general elections fall due.

As part of the reform, the government proposed re-nationalising the Bank of Italy, which is largely owned by Italy's premier banks.

Mr Maroni told reporters that Italian banks would have time to sell their stakes but that the market value was close to zero.

The Fazio scandal broke in July with the leaking of wiretaps that revealed the governor's close relationship with Pop Italiana's chief executive.

The saga has dominated the Italian media ever since, refusing to die during the August holidays.

Mr Berlusconi and allies, who at times have trained their fire more against the use of wiretaps than alleged improprieties at the Bank of Italy, plan to tighten limits on the use of wiretaps at separate meeting next week.