Leading Italian economists call for Fazio to resign

The position of Bank of Italy governor Antonio Fazio is untenable and he should resign, two leading Italian economists said yesterday, adding their voice to calls for a major shake-up at the tarnished central bank.

Luigi Spaventa, former head of bourse watchdog Consob, and Francesco Giavazzi, a former head of research at the Italian Treasury, said the government did not have the power to sack Fazio, who has an open-ended mandate, but should move quickly to clip his wings.

"We, and with us many of our colleagues, believe that the position of Mr Fazio as governor of the Bank of Italy has become untenable," the respected duo wrote in a letter due to be published in today's Financial Times.

"His behaviour has impaired both the outside credibility and the internal cohesion of the Bank," the letter says, adding that the European Central Bank (ECB) should consider whether Mr Fazio had adhered to its code of ethics.

The Fazio scandal focuses on bids by Dutch bank ABN Amro and Italy's Banca Popolare Italiana (BPI) for control of the northern Italian lender Banca Antonveneta. Mr Fazio's many critics say he openly favoured BPI's bid, ignoring the advice of his own technical department and undermining his role as supreme arbiter of takeover and mergers in Italy's financial sector.

The autocratic governor defended himself from accusations of bias when he went before a government committee last Friday, arguing that he had always applied Italian and European Union laws in the contested takeover battle.

He declined to discuss telephone wiretaps that showed both him and his wife advising BPI's chief executive over the Antonveneta bid.

His self-defence failed to quieten his critics and Prime Minister Silvio Berlusconi's cabinet is due to decide at a meeting on Friday what to do next.

Besides serving as head of the Bank of Italy, Mr Fazio also sits on the ECB's governing council. Its code of conduct calls on members to "observe the highest standard of ethical conduct" and to protect the bank's integrity and reputation. The ECB has made no comment so far on the Italian affair.