The Italian Candidate: the Appointment of Mario Draghi to the Presidency of the ECB

6 The ITalIan CandIdaTe: The appoInTmenT of marIo draghI To The presIdenCy of The eCB Kenneth Dyson and Lucia Quaglia After prolonged negotiations, on 24 June 2011, the governor of the Bank of Italy, Mario Draghi, was appointed president of the European Central Bank (ECB) as successor to Jean-Claude Trichet. His mandate runs from 1 November 2011 to 31 October 2019. Draghi’s appointment was consistent with a long-standing practice of Italian politicians and officials seeking to engage with the process of European integration by ensuring that they were “sitting at the European top table.” In the context of the euro area, sitting at the top table for Italy was initially about gaining euro entry as a founding member state in 1999 and, subsequently, about having strong Italian representation in the governing structures of the euro area, particularly the ECB.1 Once the sovereign debt crisis became contagious in 2010–2011, it meant ensuring that financial markets drew a clear distinction between Italy and periphery member states such as Greece and Portugal that suffered from sovereign debt distress. However, retaining a seat at the European high table did not prove easy. First, Italy qualified late for euro entry, with little safety margin and the help of some last-minute and somewhat controversial fiscal measures and in the face of much German skepticism. Second, the cir- cumstances surrounding the resignation in 2005 of the Bank of Italy’s governor, Antonio Fazio, damaged Italy’s reputation. Third, by the Italian Politics: From Berlusconi to Monti 27 (2012): 155–171 © Berghahn Books doi:10.3167/ip.2012.270109 156 Kenneth Dyson and Lucia Quaglia summer of 2011, Silvio Berlusconi’s government was battling against a loss of financial market credibility. The view took root that the government lacked the political will and capability to push through the fiscal and economic reforms required to enhance Italy’s growth capacity and competitiveness and to reduce its heavy public debt burden. On 5 August 2011, following a Governing Council meeting, Draghi and Trichet dispatched a joint letter to Berlusconi, stressing the need for urgent reforms to strengthen competitiveness, growth, and fiscal consolidation and detailing specific reforms in order to regain investor confidence.2 The problem was that the Italian political class lacked the necessary domestic capacity for collective action to make credible the claim to a seat at Europe’s high table. Paradoxically, against this inhospitable background, the appointment of Draghi as ECB president demonstrated Italy’s ability to occupy the top seat at the top table of the euro area. This chapter argues that Draghi’s appointment was the outcome of various factors, each of which is examined in turn. The first section dis- cusses the “intangible” assets of the Bank of Italy, which have shielded it from strong political interference domestically, and examines the long-term process of pro-active, cross-national central bank networking in which the Bank excelled. Through networking, Bank officials have sought to strengthen, regularize, and formalize their relations with other central bankers; to foster long-term patterns of face-to-face relationships with their counterparts; and thereby to participate—and seek out leadership roles—in the diffusion of best practice among central bankers and to increase trust in the Bank’s professional capacity to deliver.3 The next section examines the opportunity created by the withdrawal of the president of the German Bundesbank, Axel Weber, as a candidate for the ECB presidency, thus creating the opportunity for Draghi’s appointment. The chapter then highlights the personal qualities of Draghi as a highly respected economist and technocrat. Finally, it analyzes the short-term effects of the international economic and financial crisis in distancing the Bank of Italy from the domestic political class that had failed to deliver reforms. The Intangible Assets of the Bank of Italy and Central Bank Networking The opportunity structure that made possible Draghi’s successful candidature for the ECB presidency was provided by the strong and respected institutional position that the Bank of Italy held domestically and the priority that the Bank had given to central bank networking The Italian Candidate 157 since the governorship of Luigi Einaudi in the 1950s. Domestically, the Bank of Italy has been one of the most respected and trusted institutions in Italy. Its role as the powerhouse of economic knowledge was augmented by the very limited expertise available to political authorities. With the exception of the Treasury, whose capabilities were upgraded in the 1990s (in particular under Draghi), no govern- mental agencies in Italy could compete in the mastery of economic knowledge. This monopoly of expertise and the reputation of the Bank meant that international organizations and financial markets regarded it as their best or only Italian resource for economic and financial data and policy analysis. Furthermore, continuous contacts between the Bank and major universities, research centers, and high-quality jour- nalism placed it at the center of major intellectual networks, magnify- ing its influence in policy-making.4 The Bank of Italy’s distinctive and cohesive organizational culture has been associated with its promotion of an image as a professional and depoliticized bureaucracy and as an island of excellence in a state in which politicization, factionalism, and rent-seeking are widespread at all levels. Its reputation as an arbiter of excellence is reflected in the number of its officials who have achieved important positions in other areas of policy in Italy and abroad. The positions that former senior Bank of Italy officials have held include president of the Repub- lic, prime minister, treasury minister, foreign minister, president and director general of Confindustria (the Confederation of Italian Indus- try, representing employers), and director general of the European Commission. Lorenzo Bini Smaghi’s move to the Ministry of Finance and then to the executive board of the ECB reflected this tradition. Notably, the manpower “flow” has generally been from Italy’s central bank to other policy locations: the Bank of Italy is the “exporting” institution. The appointment of Draghi in 2005 as the Bank’s governor reversed this trend to a certain extent, although he had earlier been an economic adviser to the Bank. The image of the Bank of Italy as an efficient, apolitical technoc- racy contrasts starkly with the somewhat colorful—and sometimes unflattering—image of Italian ministers and prime ministers. With the exception of technocratic governments, such as that led by Mario Monti, this latter image was prevalent among European economic policy elites. By contrast, the Bank of Italy had an external credibility that most of the Italian political elite lacked. Hence, Italian governments “banked” on the Bank, which performed the function of a highly regarded interface with the outside world. During the 2011 sovereign debt crisis, the Bank was a major point of reference and an authorita- tive interlocutor for foreign counterparts. 158 Kenneth Dyson and Lucia Quaglia Central bank networking helped the Bank to adapt to the fast- changing realities of monetary and financial market integration in Europe and of international banking supervision and to secure its professional reputation as a “quality” central bank that enjoyed the respect of its peers. It involved participation in a supportive, cross- national policy community of shared values, frameworks of analysis and explanation, and projects that focused on professional and central bank independence to safeguard sound money and to promote shared understandings of the causes of inflation and financial instability. Central bank networking enabled the Bank of Italy to place itself at the apex of an Italian technocratic class, by whose efforts Italy could best seek to remain at the European top table, and to become central to the process of sustaining external discipline on Italian policy-makers.5 However, the logics of central bank networking and Italian political networking were radically different. Although central bank networking is largely hidden from public view, its most tangible forms are the quality of Italian central bank officials, their presence in international and European financial and monetary institutions, and the value and reliability of their data and policy documents. Cross-national professional networking assumed an increasing importance over time with the progressive Europeanization of monetary and financial policies. In short, this networking was the outward manifestation of inward Europeanization of the Bank of Italy. It also assumed a new significance after 2007–2008 as the international financial and economic crisis deepened and revealed the limita- tions of the Italian political class. Through cross-national networking, the Bank of Italy gained more power over policy process than policy content. The creation of the euro provided continuity in policy-making for the Bank of Italy. As with the European Exchange Rate Mechanism (ERM), the Maastricht “monetary constitution” of the Economic and Monetary Union (EMU) was founded on German ideas of “stability culture.”6 Hence, cross-national networking meant adapting to and, as opportunities presented them- selves, reshaping German-centric policy paradigms. At the same time, the euro offered a new incentive for a step change in networking.

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