Italy risks institutional crisis as Fazio resists

Italy risked an institutional crisis yesterday as the central bank governor, Antonio Fazio, defied calls for his resignation over a takeover scandal even after his last government allies withdrew their support.

The embattled Bank of Italy head lost his last bastions of support on Monday when both Prime Minister Silvio Berlusconi and the leader of the coalition party closest to the governor withheld their backing.

But Mr Fazio, who has an open-ended mandate and does not respond directly to the government, refused to budge.

"He has no intention of resigning," a central bank spokesman said late on Monday, adding that Mr Fazio planned to attend a meeting of European Union Finance Ministers in England later this week despite the uproar in Italy.

Mr Berlusconi, who had refused to move against the powerful central bank governor, on Monday switched tack and lent his tacit support to Economy Minister Domenico Siniscalco, who has threatened to launch a procedure to try to oust Mr Fazio.

Such a move would provoke an unprecedented institutional clash and could put Italy on a collision course with the European Central Bank, which has said that any rush to replace Mr Fazio could compromise the independence of the central bank.

"We are in an unprecedented situation," lawmaker Luigi Grillo, one of Mr Fazio's closest allies, said.

"We face something that has never happened in the history of Italy. Never has a governor been sacked by the government."

Mr Fazio stood all but alone after ministers from all four government parties lined up against the central banker, who has denied accusations he favoured local bidders in a cross-border takeover battle in which he should have been an impartial referee. The 68-year governor has repeatedly defended his behaviour in the takeover battle involving Dutch ABN AMRO, but the scandal surrounding Mr Fazio's decision to approve a local bidder has tarnished the central bank and Italy's image. The confrontation between Mr Fazio and the government could spill onto the international stage this week if the central banker attends a European Union Finance Ministers' meeting in Manchester, England starting on Friday.

Both he and Mr Siniscalco would normally attend the meeting. Opposition politicians and Italian newspapers have said Mr Fazio must go for Italy to salvage its credibility. "There is no more time for half measures. Fazio must leave the scene, or the Prime Minister must make it happen," left-leaning La Repubblica wrote in an editorial yesterday.

Mr Berlusconi's options were limited. He could rely on moral suasion. Or he could set in motion a little-used institutional procedure that could lead to the Bank of Italy revoking the governor's mandate.

A government request for Mr Fazio to resign would trigger consultations by the Bank of Italy's superior council - composed of 13 members from business, economics, law and academia - that would consider revoking his mandate.

However, there was no guarantee that the council would fire Mr Fazio. Moreover, a government move against Mr Fazio could face problems with the European Central Bank. In a legal opinion issued in 2004, the ECB said cutting Mr Fazio's term could impinge on the central bank's independence if there were no transition period to a new governor. It did not say how long a transition should be.