September 23, 2005

Standoff in Italy as Fazio defies prime minister

By Nelson Graves

ROME (Reuters) - Italy's central bank governor on Friday
spurned a demand from Prime Minister Silvio Berlusconi to quit
over a takeover scandal, posing a fresh challenge to his
authority after the abrupt resignation of his economy minister.

Bank of Italy Governor Antonio Fazio is in Washington for
meetings of the Group of Seven and the International Monetary
Fund, defying Berlusconi's call for the central banker to step
down to save the country's international credibility.

The standoff over the Bank of Italy compounded problems for
Berlusconi after Domenico Siniscalco resigned as economy
minister on Thursday, complaining about the government's
failure to drive Fazio from office.

Berlusconi sought to limit the political fallout 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
favored a local bank in a cross-border takeover fight.

But Berlusconi in turn faced an open challenge to his own
leadership credentials from inside the coalition, prompting the
opposition to call for a snap general election which polls show
the center-right ruling alliance would lose.

"Time's up," read the headline to an editorial in the
Corriere della Sera newspaper, calling on Berlusconi to resign.

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


The government's inability to oust Fazio, who has helped
prompt the resignation of two of Berlusconi's economy
ministers, underscored deep divisions that have hobbled the
government and tarnished Italy's credibility overseas.

"Roman Circus," read a headline over an editorial in the
Wall Street Journal Europe. "Fazio claims a scalp, but the
coalition that has failed to oust him is left limping," wrote
the Financial Times in an editorial.

Fazio has resisted intense pressure to resign since July,
when leaked police phone taps fueled accusations he had favored
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,
saying only the BOI's superior council could revoke his mandate
by a two-thirds majority of its 13 members.

Berlusconi's divided government has not taken the
unprecedented step of urging the superior council to oust
Fazio. His cabinet met on Friday but did not discuss Fazio.

Although Fazio has been able to resist pressure to resign,
he faces the uncomfortable prospect of being questioned by
Roman magistrates investigating possible crimes in the
Antonveneta takeover, judicial and legal sources have told

The questioning, which would not imply Fazio is guilty but
which could lead to charges, is expected in coming days.


Fazio also faces an awkward time in Washington, with
Tremonti heading to join him in the Italian delegation. The 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.

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 center-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."