August 18, 2022

Europe’s Leaders Endorse Draghi as E.C.B. Chief

BRUSSELS — European leaders Friday endorsed Mario Draghi as the next president of the European Central Bank after resolving a dispute between France and Italy over representation on the bank’s executive board.

In the communiqué of their two-day summit meeting, which ends Friday, the 27 member states formally named the 63-year-old governor of the Bank of Italy to succeed Jean-Claude Trichet as Europe’s most powerful central banker.

The agreement had been delayed because of concerns in Paris that it would lose its most powerful voice in Frankfurt when Mr. Trichet leaves this autumn unless another Frenchman could be appointed to the E.C.B.’s executive board. To do so, a vacancy had to be created, and since Mr. Draghi is Italian, the obvious candidate to go, in France’s view, was Lorenzo Bini Smaghi, an Italian who is currently on the six-member board.

Since board members cannot be fired, Mr. Bini Smaghi had to be persuaded to leave voluntarily before his term expires in 2013. But the Italian prime minister, Silvio Berlusconi, has refused so far to provide one possible incentive: giving Mr. Bini Smaghi the job at the Bank of Italy currently occupied by Mr. Draghi.

But after speaking Friday with Herman Van Rompuy, who chaired the summit meeting as president of the European Council, Mr. Bini Smaghi called the French President Nicolas Sarkozy to say that he would step down. This would happen by the end of the year, Mr. Berlusconi added.

Aside from straining relations between Rome and Paris, the dispute had also been seen by some as a test of the independence of the E.C.B. At one point, Mr. Bini Smaghi had appeared to compare his predicament to that of Thomas More, who was sentenced to death in 1535 in Britain for defying King Henry VIII.

Mr. Draghi has not signaled plans to make any major policy shifts in the job, which he is set to assume on Nov. 1.

On the contrary, Mr. Draghi has kept a low profile since he emerged as the default candidate earlier this year. In an interview in February he stuck to the E.C.B. hymn sheet, refusing to talk about himself and emphasizing his credentials as a crusader against inflation.

Monetary policy should “first and foremost be geared toward price stability,” Mr. Draghi said.

Mr. Draghi is already an influential member of the E.C.B.’s broader governing council, and is well known in international policymaking circles as chairman of the Financial Stability Board, a European Union panel that is formulating new banking rules designed to prevent future financial crises. He is expected to retain that post.

He will take over the E.C.B. as it navigates the worst crisis since the euro was introduced in 1999. Because the now 17-nation euro area lacks a strong central government, the E.C.B. has been forced to act as crisis manager, providing emergency funds to stricken banks, buying government bonds to try to stabilize markets, and often clashing with political leaders on policy.

So far, Mr. Draghi seems to have many of the same qualities as Mr. Trichet, including discretion born of years of government service and an ability to stand up to political pressure.

Once in office he could forge his own path, but it would be a surprise if he made any striking changes. At the Bank of Italy, Mr. Draghi has been known for being cautious and deliberate, to the point where some said he was too slow to make decisions.

Germany had been expected to name the next E.C.B. president, but the selection process was thrown open in February after Axel Weber, the president of the Bundesbank, unexpectedly announced he would resign and took himself out of the running.

Unlike Mr. Weber, who now teaches at the University of Chicago, Mr. Draghi has not dissented publicly from other members of the E.C.B. governing council on the banks’ response to the sovereign debt crisis. Analysts regard Mr. Draghi as a hard-liner on inflation, though less so than Mr. Weber would have been.

Mr. Draghi, who holds a doctorate in economics from the Massachusetts Institute of Technology, was the consensus choice of economists for the job but had to overcome political resistance because he is from a country that, in countries like Germany, is associated with fiscal irresponsibility.

Mr. Draghi also overcame questions from the European Parliament about his stint from 2002 to 2005 as vice chairman and managing director of Goldman Sachs. The U.S. investment bank was the lead manager for a 2001 derivatives transaction that allowed Greece to dress up its books in a way that brought it into the euro club.

“I joined Goldman after these operations had been undertaken, and that’s it,” Mr. Draghi said in February. “I was never involved in this.”

Prior to joining Goldman, Mr. Draghi spent a decade as the top bureaucrat in the Italian treasury, where he was known for deftly navigating the minefield of Italian power politics. He became governor of the Bank of Italy at the end of 2005, and since then has sometimes annoyed Italian leaders by pushing them to do more to make the economy competitive and reduce public debt.

Jack Ewing reported from Frankfurt. Matthew Saltmarsh contributed reporting from Paris.

Article source: http://feeds.nytimes.com/click.phdo?i=88a17a7cf40c67dce02e6f372b8373c7

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