Bank of Italy prize near for Visco eyes second career feat

Bloomberg

Ignazio Visco might be just days away from pulling off the second coup of his unexpected tenure at the helm of Italy’s
central bank — by staying on.
The Bank of Italy governor, selected out of the blue by then-premier Silvio Berlusconi in 2011 after weeks of speculation that hadn’t mentioned him, may be about to benefit from a bid by Paolo Gentiloni’s government for stability before a fraught election in 2018. That would represent a surprise reversal following a year of media chatter featuring alternative candidates and colored by persisting criticism of Visco’s oversight of the country’s sickly banking system.
With his governorship expiring at the end of the month, the decision will resolve one of a number of pending appointments in global finance, not least with Janet Yellen’s future as US Federal Reserve chair in the balance. The Bank of Italy role, with a salary of 450,000 euros a year, carries with it seats at the Group of Seven table and the European Central Bank’s Governing Council, and the prestige of leading a linchpin of the country’s political furniture in a coveted role that has changed hands only seven times since 1948.

Political Message
“His likely reappointment is mainly a political message to maintain stability ahead of elections next year,” Nicola Nobile, an economist at Oxford Economics in Milan, said in a phone interview. “No one dares to shake up the public institutions.”
Prime Minister Gentiloni, who will make a formal recommendation to appoint, and President Sergio Mattarella, who then has the final word, both want to name Visco, 67, for another term of six years before the current one expires, according to a state official who asked not to be named discussing a confidential matter. They worry that any new candidate would be seen as a rupture or a vote of no confidence in the central bank at a time when Italy’s banks and economy are slowly recovering from a long crisis.
Along with Stefan Ingves, who last month won a third term leading Sweden’s Riksbank, opting for the status quo would contrast with prospects for change elsewhere in the Group of 20. Yellen may not be reappointed by President Donald Trump, Chinese central bank chief Zhou Xiaochuan may also soon be replaced, and ECB President Mario Draghi’s non-renewable term ends in 2019.
Continuity at the Bank of Italy would also be consistent with its history as an institution representing stability in a democracy known for its political churn. The Neapolitan Visco is only the eighth governor since the war, during which time more than 60 governments have ruled. The role has also been a springboard for higher office: two of his predecessors became presidents of the Italian republic, and another of them, Draghi, went on to lead the ECB.
Confidence Shattered
Under Visco’s leadership, the Bank of Italy has stood accused of not supervising the country’s banks properly before a series of bailouts which shattered market confidence in its financial system. Parliament recently began a probe of Italy’s financial industry, focusing on irregularities at Monte dei Paschi di Siena — the world’s oldest bank — and other small regional lenders. Prosecutors have opened an investigation into the central bank’s handling of Veneto Banca, one of the two failed lenders in the northern Veneto region.
Visco delivered an impassioned defense of his tenure during his annual speech in May at the Bank of Italy, in a six-minute digression from his prepared text. Visibly moved, he told a full house of bankers and officials that the institution had been wrongly accused and that critics had used “very harsh tones” and “serious inaccuracies.” In the audience was Draghi, whose presence perhaps signaled implicit support.
“The roots of Italy’s banking crisis date well before Visco’s appointment and banking supervision is now in the hands of the European Central Bank, so the Bank of Italy has limited power,” said Vincenzo Longo, an analyst at IG markets in Milan.
Renzi Relents
Former Prime Minister Matteo Renzi had been among the strongest opponents of a second term. He wrote in a book published in June that he had made a “mistake” in putting too much trust in the Bank of Italy. Renzi favored an outsider like economists Lucrezia Reichlin or Marco Fortis to take the helm instead, but eventually came to accept the idea of reconfirming Visco, according to the state official.
Italy’s opposition Five Star Movement, which is neck-and-neck with the ruling PD party in public opinion polls, have also opposed Visco’s reappointment. Their candidate for the premiership, Luigi Di Maio, said his lack of oversight robbed hundreds of thousands of Italians of their savings.
“For Five Star, it’s a defeat,” said Sergio Fabbrini, director of the school of government at Luiss University in Rome. “Renzi isn’t likely to pay a political price for agreeing to a second term. It shows he was willing to listen to others — Gentiloni and Forza Italia lawmakers among others — and shows he’s positioning himself for a possible coalition after the next election.”