September 23, 2005

Italy in standoff as Fazio defies prime minister

By Nelson Graves

ROME (Reuters) - Italy faced an institutional crisis on
Friday when the central bank governor spurned a demand from the
prime minister to quit over a takeover scandal.

The standoff over the Bank of Italy confronted Prime
Minister Silvio Berlusconi with a major challenge to his
authority after his economy minister resigned having failed to
drive defiant central bank chief Antonio Fazio from office.

Berlusconi's problems were compounded by an open challenge
to his leadership from one of his governing partners, prompting
the opposition to call for a snap general election which polls
show the centre-right ruling coalition would lose.

"Time's up," read the headline to a front-page editorial in
the Corriere della Sera newspaper, calling on Berlusconi to
resign the day after Domenico Siniscalco abruptly quit as
economy minister.

"The resignation of Economy Minster Siniscalco has dealt
the final blow to Berlusconi's government's remaining

Berlusconi sought to limit the political damage by swiftly
replacing Siniscalco with Giulio Tremonti, who was ousted as
economy minister by coalition infighting just 14 months ago.

He also finally turned his guns on Fazio, telling the
central banker he should step down over accusations he unfairly
favoured a local bank in a cross-border takeover fight.

"We ask Fazio ... if it might perhaps be opportune for him
to resign in view of international markets and ratings
agencies," Berlusconi said on Thursday.

But Fazio flew to Washington for meetings of the Group of
Seven and the International Monetary Fund, ignoring the prime
minister's plea. "Good night," Fazio curtly told journalists as
he arrived at a Washington hotel.


Fazio has resisted intense pressure to resign since July,
when leaked police phone taps fueled accusations he had
favoured Banca Popolare Italiana in a battle with Dutch lender
ABN AMRO for control of Banca Antonveneta.

The 68-year-old Fazio, who has a open-ended mandate and
does not report to the government, has said he did nothing

In comments on a late night TV talk show on Thursday,
Berlusconi, for the second time this month, said only the ECB
could dismiss Fazio -- "if it believes he has broken the law."

But a senior European Central Bank official rejected the
prime minister's contention that the ECB could fire Fazio.

"The procedures for the dismissal of Fazio are very clear
and they involve concerted action between the BOI's Superior
Council, Italy's prime minister and Italy's president," the
official told Reuters.

The ECB official said that if Italy wanted to remove Fazio,
Berlusconi would have to ask the BOI's superior council to call
an extraordinary meeting with Fazio's dismissal on the agenda.

Only the superior council, made up of prominent figures
from business and academia considered close to Fazio, could
revoke his mandate by a two-thirds majority of its 13 members.


Fazio faces an awkward time in Washington, with Tremonti
heading out to join him in the Italian delegation. The feisty
new economy minister is a longstanding critic of the central
bank governor and treats Fazio with barely concealed scorn.

"I'm going to completely ignore him," Tremonti was quoted
as saying by Corriere della Sera newspaper on Friday, adding:
"I really want to see his face when he sees me."

Tremonti, like his predecessor Siniscalco, has called on
the central banker to step down, but Fazio retains support from
the prime minister's most loyal ruling partner, the Northern

The crisis over the central bank coincided with growing
restlessness in Berlusconi's coalition, which is struggling to
draft a budget due to be presented in just a week.

For the first time on Thursday Berlusconi put his
leadership into question, offering to debate with restless
coalition allies whether he should lead the centre-right bloc
into elections.

The centrist Union of Christian Democrats (UDC), one of
four coalition partners and for months a thorn in Berlusconi's
side, quickly took up the challenge and snubbed Berlusconi.

"There are those who think that the best candidate in 2006
would be Silvio Berlusconi," said UDC leader Marco Follini.
"There are those who, like myself and the UDC, think it isn't
like that."