Italy eyes ECB board seat gamble

FRANKFURT — The European Central Bank’s six-member strong executive board may welcome a new face later this year in a reshuffle that could see power shift from old, large member states to newer, smaller ones.

Italian executive board member Fabio Panetta has been on the ECB’s executive board since 2020 but is thought by many to be sitting on packed bags, awaiting a move back to Rome to become the Governor of the Bank of Italy when Ignazio Visco retires in November.

“It has been signaled for a long time that he would most likely follow Visco,” a former Eurosystem official said.

The trouble is that the move could jeopardize Italy’s claim to one of the six top jobs in Frankfurt, reducing its influence over devising policies and robbing it of an extra vote on the policy-setting Governing Council.

Officially, the ECB’s board is selected strictly on merit, irrespective of nationality. However, historically, the six-member strong executive board has always included representatives of the four biggest economies in the union — Germany, France, Italy and Spain — an insurance policy to protect national interests in an institution that is obliged to pursue common, region-wide goals.

But every expansion of the currency union — Croatia’s accession this year takes the total membership up to 20 from 11 back in 1999 — makes that oligopoly harder to justify.

“There are now so many countries who are members that it will be increasingly difficult for Germany, France, Italy and Spain to insist on always having a board member — that leaves 16 smaller countries to compete for 2 slots,” said one former member of the Eurosystem’s top brass.

Smaller member states, in particular, are growing frustrated. At a time when the Ukraine war has highlighted the strategic importance of the eurozone’s eastern flank, its newer members from the Baltic States, central and south-eastern Europe may leap at the chance to bolster their presence at the ECB’s top levels. It’s been a common complaint over the years from the so-called accession countries that too much power in EU institutions is concentrated in officials from the bloc’s old core in Western Europe.

“I think a larger representation of smaller countries would be very much welcome," said a central bank governor of one of the smaller eurozone countries. He added, however, that he considers Panetta personally an asset to the ECB, and that the problem is common to all EU institutions.

The only time that the bloc of four major powers on the board was broken was in 2012, when Spain’s Jose Manuel Gonzalez Paramo’s term expired in the middle of the eurozone sovereign debt crisis.

Germany, concerned that successive bailouts were undermining the successor to the Deutsche mark, lobbied hard to have Luxembourger Yves Mersch appointed in his place, limiting Spain’s influence in Frankfurt just as it was subjected to some serious Troika-therapy.

It’s one of the many ironies of ECB history that the man who couldn’t defend Spain’s board seat while implementing the terms of the Spanish bailout — Finance Minister Luis de Guindos — is now himself the ECB’s vice-president.

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Today’s Italy doesn’t face the acute political weakness that Spain did in 2012. But Rome doesn’t want to risk forfeiting its voice at the ECB as Spain once did, and Meloni will have to be certain that the other members of the board — particularly the French and Germans — don’t stonewall the nomination of another Italian. The country "cannot afford to lose its place at the ECB," a former Italian minister said. "This is very, very important for Italy."

Alessandro Merli, a fellow at the Johns Hopkins University in Bologna and long-term ECB watcher, doubts that the current government has the political acumen to achieve that.

“If Mario Draghi had still been prime minister, it would have been a non-event, because of his authority, of his relationship and weight in the European discussion,” Merli said.

Today, however, the relationship is “adversarial” and there “already is a lot of irritation” between Italy and the European partners, he said, citing Italy’s lone holdout position in ratifying ESM reform as one example.

Another former rate-setter also sees Germany and France increasingly "pissed off" about Italy’s failure to support the reform of Europe’s bailout fund, putting the region at risk in case another crisis hits. "Meloni has no experience of how European horse-trading works," he added.

If she does bring Panetta back to Rome, Meloni could make life easier for herself by doing what de Guindos failed to do for Gonzalez-Paramo in 2012 — find a convincing female replacement. That would bring the ECB’s board up to perfect gender parity, which would be welcome given its uneven progress on that score.

But it isn’t clear whom Italy might send to Frankfurt if Panetta leaves. While there is a wealth of top-notch Italian economists, the star appeal is missing, the former policymaker said. "Visco has appointed people who are not very glamorous and simply lack the CV," he said.

One candidate who ticks most of all the boxes and whose name was mentioned repeatedly in researching this article is Lucrezia Reichlin. Currently a Professor of Economics at the London Business School, Reichlin was Director General of Research at the ECB for three years. However, her father was a former member of the Italian Communist Party, something that might make her candidacy hard to swallow for Meloni and her allies at the other end of the political spectrum. Reichlin herself declined to comment.

One factor that plays into Italy’s hands, another former Eurosystem official said, is that Germany and France may back Italy simply to guard against the risks of anyone laying claim on ‘their’ board seats further down the road. While they were willing to sacrifice Spain just over a decade ago, Italy may be one step too close for comfort.

Another fortunate coincidence for Italy is that the term of the ECB’s top supervisor —currently also occupied by an Italian — also ends at the end of this year. Decision-makers may feel — and Meloni will certainly argue — that it’s too much to take two key European posts away from Italy at the same time.

— Additional reporting by Hannah Roberts