September 19, 2020

Sarkozy Supports Italian Official to Lead Central Bank

But in the political brinksmanship that tends to decide the fate of appointments at top European institutions, Mr. Sarkozy’s unexpected announcement, at a joint news conference in Rome with Prime Minister Silvio Berlusconi of Italy, may have made it harder for Chancellor Angela Merkel of Germany to endorse Mr. Draghi.

While Germany’s finance ministry, led by Wolfgang Schäuble, has recently warmed to the idea that Mr. Draghi is the best-qualified person for the job, Mrs. Merkel faces a delicate task in preparing German voters for the prospect of a Italian having the responsibility for keeping European inflation under control and managing the fate of the euro.

“France will be very happy to support an Italian for the presidency of the E.C.B.” Mr. Sarkozy said. “I know Draghi well. We support him not because he is an Italian but because he is a man of quality.”

But Mr. Sarkozy’s announcement was made without consultation with Mrs. Merkel,  a German official said, requesting anonymity because the issue was so political.  

The central bank’s role in fighting inflation is a major preoccupation for Germany and Mrs. Merkel retains an effective veto over the appointment, which is scheduled to be decided at a European summit in June.

Mrs. Merkel had been hoping that an inflation-fighting German, or a banker from a North European country, would take the helm from Mr. Trichet, who is retiring in October. But her main candidate, Axel A. Weber, the former president of the German central bank, took himself out of the running earlier this year.  Mr. Weber resigned from the Bundesbank in February.

The exit of Mr. Weber pushed Mr. Draghi’s candidacy to the forefront, despite widespread perceptions, particularly in Germany, that people from Mediterranean countries are not as prudent and responsible with money as those from northern nations.

In the corridors of finance, Mr. Draghi is widely respected as an experienced economic policy maker with sterling credentials and a knack for navigating turbulent political waters.

But Mr. Sarkozy’s move, by appearing to pre-empt Mrs. Merkel, could seriously complicate the process of selecting the next central bank president.

Mr. Sarkozy’s remarks were all the more surprising because both leaders have sought to forge a closer relationship to keep the euro from unraveling amid an unprecedented debt crisis. They have also worked to overcome differences in their approach to the central bank, which Germany wants to keep free from politics, while France, according to German officials, is more interested in influencing it.

Mr. Draghi already has a reputation as a consensus builder — an important skill when running a central bank. Mr. Weber of Germany dropped out of the running in part because he was out of step with other members of the central bank’s policy-making committee.

Serious and direct, Mr. Draghi is also acutely sensitive to Germany’s preoccupation with fighting the specter of inflation, and has spent the last few months underscoring his inflation-fighting credentials.

In a rare interview in February, he emphasized that the bank’s most important task was to ward off any threat of inflation at an early stage.

Monetary policy should “first and foremost be geared toward price stability,” he said during the interview. The central bank recently raised interest rates by a quarter percentage point, a move Mr. Draghi supported. Analysts expect the bank to lift rates perhaps twice more this year.

That policy has come under fire from some experts who warn that higher rates will choke off a faltering recovery in countries like Portugal, Greece and Ireland, where home mortgage default rates are expected to rise in the wake of the central bank’s decision.

But Mr. Draghi’s firm position on inflation has helped endear him to Mr. Schäuble, who sees Mr. Draghi as someone who can guide a strict fiscal and monetary policy while keeping meddling politicians at bay, according to a German finance official, who spoke on condition of anonymity because he is not authorized to speak on the record.

Choosing a central banker from a southern European country would also send a good signal to its troubled neighbors, Mr. Schäuble believes, according to the official. It would show that the politics and economics of the 17-member euro zone is not driven by northern countries alone.

If he gets the job, Mr. Draghi will have to navigate the tricky financial and political imperatives of bailouts for the most stricken European countries, and weigh how much support the bank can and will continue to give to troubled banks in countries like Ireland and Spain.

Mr. Draghi seems to have managed to overcome reservations about his role at Goldman Sachs from 2002 to 2005. The 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, but Mr. Draghi has made clear that he was not directly involved.

On another monetary policy issue, Mr. Draghi has discreetly voiced concern about the central bank’s continuing intervention in markets for European government bonds. He emphasized that intervention was justified only to make sure that the central bank maintained its influence over interest rates, and not as a form of economic stimulus or stealth financing for overindebted governments.

Mr. Draghi is also the chairman of an influential panel rewriting the rules for global banks. Despite pressure, he appears willing to take on American and European bankers who would prefer to see him ease up on requirements for too-big-to-fail banks to hold extra capital in reserve.

Judy Dempsey reported from Berlin and Liz Alderman from Paris.

Article source: http://www.nytimes.com/2011/04/27/business/global/27draghi.html?partner=rss&emc=rss

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