Last updated: June 24, 2011 6:53 pm

Draghi confirmed as next ECB chief

Mario Draghi, head of the Bank of Italy, was formally approved as the next head of the European Central Bank on Friday, but only after European leaders put pressure on the bank’s other Italian board member to promise to leave his position to make way for a Frenchman.

In a stark illustration of the delicate balance of relationships within the eurozone and its impact on decision-making, Mr Draghi’s appointment was almost derailed when Nicolas Sarkozy, French president, threatened to block the nomination because it would allow two Italians to sit on the ECB’s six-person executive board. Following the October retirement of Jean-Claude Trichet, the bank’s departing president, the board will be without a French representative.

According to people briefed on the events, Herman Van Rompuy, who chairs the summit as president of the European Council, was forced to pause the meeting around midday and telephone Lorenzo Bini Smaghi, the board’s Italian member, to plead with him to resolve the standoff.

Citing the ECB’s statutory independence from political pressure, Mr Bini Smaghi has refused for weeks to stand down, despite calls for his resignation by Silvio Berlusconi, the Italian prime minister who promised Mr Sarkozy in April that the Italian economist would step aside for a Frenchman.

Mr Bini Smaghi is said to have become concerned about the impact that a delay in Mr Draghi’s appointment would have on financial markets. According to people briefed on the phone call, Mr Van Rompuy informed Mr Bini Smaghi of the impasse and said Mr Sarkozy had angrily vowed to delay Mr Draghi’s appointment unless the standoff was resolved. The atmosphere at the summit had become bad tempered, with the French president questioning Mr Berlusconi’s assurances that Mr Bini Smaghi would resign.

In response, Mr Bini Smaghi said he believed a solution could be found by the end of the year that would resolve the problem without calling into question the ECB’s independence. Mr Bini Smaghi is known to covet Mr Draghi’s job at the Bank of Italy, and Mr Berlusconi said after the summit that he was one of three candidates being considered.

Mr Bini Smaghi stopped short of giving an explicit assurance that he would resign, leaving the initiative with the Italian government.

ECB officials have warned that putting pressure on Mr Bini Smaghi to leave his post would threaten the bank’s independence.

Angela Merkel, the German chancellor, insisted that she was not aware of any pressure placed on the Italian board member. She said: “The independence of the European Central Bank as regards its operations and its activities is completely ensured and maintained.”

The ECB added that Mr Bini Smaghi would “take any future decision in full independence”.

Mr Sarkozy said he talked to Mr Bini Smaghi during the summit, who told him “he would be called to other duties” before the end of the year. “I in no way want to get involved in or meddle in the complexities of Italian political life,” Mr Sarkozy said. “We just had to make sure things are entirely clear.”

French officials said a leading candidate to replace Mr Bini Smaghi was Benoit Coeuré, former head of the French debt agency and specialist in monetary issues who is now a senior official in the French finance ministry.

Ramon Fernandez, the top civil servant at the treasury, was considered a leading candidate but French officials said he was not going to be selected.

Additional reporting by Peggy Hollinger in Paris and Joshua Chaffin in Brussels

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