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Troubling Times at the Bank of Italy

Ferdinando Giugliano

(Bloomberg Opinion) -- Italy’s populist government has its eye on the country’s financial regulators. Rome has suffered a long series of banking scandals, so it’s only fair to ask for more accountability. But the way the ruling League and Five Star Movement are proceeding should worry anybody who cares about the independence of these institutions.

The coalition has nominated Paolo Savona, European Affairs minister, as the new chairman of Consob, the financial market regulator. It’s hard to see how an appointee who comes directly from the government could be seen as independent. At the same time, Rome has blocked a decision on renewing the term of Luigi Federico Signorini, deputy director general at the Bank of Italy. That’s another disturbing intervention into what should be the decision of the country’s president.

It could be worse. Matteo Salvini, the League’s leader and deputy prime minister, had said previously that the leadership at the Bank of Italy and Consob “should be reduced to zero.” He then relented a little, but still said it would be up to the finance minister and the prime minister (who are admittedly more moderate) to decide who runs the Bank.

There’s nothing especially wrong with elected politicians having some say over the country’s top financial technocrats when these positions are up for renewal, as far as the law allows it. The independence of central bankers and other regulators is crucial, but not absolute. They must be accountable to voters, to prevent them abusing their powers.

And, in fairness, the Bank of Italy and Consob have presided over a major banking crisis, which forced the Italian government to step in and rescue a string of lenders such as Monte dei Paschi di Siena. The central bank insists it did nothing wrong, as the crisis was a byproduct of Italy’s long recession. But questions remain over whether regulators should have imposed tougher supervision, or done more to stop retail investors from taking unwarranted risks when purchasing bank shares or subordinated debt. There have been very few changes subsequently in the top management at the Bank, which has also refused to open an internal inquiry to investigate whether anything went wrong.

Still, the populists are pushing things too far. Take Consob: The previous center-left government had appointed Mario Nava, a respected official at the European Commission, to breathe some life into the regulator after its failings during the banking crisis. But the League and Five Star pressured him to resign over his ties to the Commission, which was still his ultimate employer even though he was working on secondment in Italy. Now, they’ve nominated Savona, a serving government minister, whom they’d wanted as finance minister at one point before accepting the less contentious technocrat Giovanni Tria.

The situation at the Bank of Italy is just as worrisome. Italy’s law says it is up to the Bank’s board of directors to propose candidates for the role of director general and deputy director general, such as Signorini. The Italian president makes the appointment, while the government is only meant to express an opinion – not bring the whole process to a halt if it displeases the populists. It’s hardly reassuring that the League and Five Star are, at the same time, making strange noises about seizing control of the Bank’s gold reserves. This raises profound questions over what exactly the government wants to do with the central bank, which is meant to be independent according to European Treaties.

If they were really smart, the populists would copy the playbook of U.S. President Donald Trump, one of their role models. Trump likes to rail against the U.S. Federal Reserve, but he has made respectable hires whenever he’s had to. Not reappointing Janet Yellen was regrettable, but Jerome Powell has proven to be his own man, at least for most of his first year.

The League and Five Star’s attacks on officials would be more credible if they had competent and truly independent candidates ready to replace them. So long as they insist on loyalists and bizarre policies, they’ll only damage their own reputations – and that of the country.

To contact the author of this story: Ferdinando Giugliano at fgiugliano@bloomberg.net

To contact the editor responsible for this story: James Boxell at jboxell@bloomberg.net

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Ferdinando Giugliano writes columns and editorials on European economics for Bloomberg Opinion. He is also an economics columnist for La Repubblica and was a member of the editorial board of the Financial Times.

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