Draghi to Replace Trichet as ECB Chief

Trichet will step down in October

The European Central Bank (ECB) announced on Friday that it had appointed Mario Draghi of Italy as its new president. He will assume his new post in October when he takes over from outgoing President Jean-Claude Trichet. Perhaps as a sign of the times, the announcement went out over Twitter.

Reuters reported that the news came after formal endorsement on Thursday by the European Parliament of Draghi. Officials from France were uneasy over the prospect of two Italians on the ECB's executive board once Draghi takes office. Lorenzo Bini Smaghi already occupies a position on the six-member board.

In a political faux pas, Italy's prime minister Silvio Berlusconi had promised French President Nicolas Sarkozy in April that, in exchange for French support for Draghi, Bini Smaghi would be induced to step down from his board position. However, Berlusconi had not consulted Bini Smaghi first, and the latter refused to resign. A week ago Berlusconi took the risky step of asking Bini Smaghi to resign, and was refused.

Not only did Bini Smaghi stand firm, he railed against the use of political pressure to undermine the personal independence of board members at the ECB only hours before Berlusconi himself said to the press that Draghi's appointment was contingent on Bini Smaghi's removal.

"To get France's agreement for our candidate for the ECB Mario Draghi, there needs to be the presence of a French director on the ECB board which would have to come about through Bini Smaghi's resignation," he was quoted saying.

Vitor Constancio, vice president of the ECB, had said earlier in June that there should be no political pressure on a board member to resign; central bank sources have indicated that the ECB would mount a legal challenge to any attempt to force Bini Smaghi out.

However, there are other ways. Also on Friday, Berlusconi announced that Bini Smaghi was one of the three candidates being considered to replace Draghi as head of the Bank of Italy. An announcement on the decision is to be made next week.

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