Super Mario Europe's Next Top Banker May Be Italian

Axel Weber has taken himself out of the running, and the candidate from Finland has also withdrawn: That leaves an Italian, Mario Draghi, in line to succeed Jean-Claude Trichet as head of the European Central Bank. A man from a deeply indebted EU nation may now be tasked with saving the euro.
Mario Draghi, governor of the Bank of Italy.

Mario Draghi, governor of the Bank of Italy.

Foto: ? Stefan Wermuth / Reuters/ REUTERS

What was Mario Draghi supposed to become, if not a central banker? When he was born in 1947, his father was busy in Rome, trying to organize the printing of post-war Italian money. Now the son is in charge in the same building -- the Palazzo Koch on the Via Nazionale -- as governor of the Banca d'Italia.

The reputation of Italy's central bank has historically been somewhat dubious. Speculative bubbles, bursts of inflation, and currency crises all have had their origins in the Palazzo Koch, and many of the bank chiefs -- named to life-long positions, like popes -- have meddled in both national politics and engaged in back-room deals. They're not held in the highest esteem. Draghi's predecessor at the bank, Antonio Fazio, was driven from office in 2005 by a massive scandal involving corruption, insider trading and abuse of office.

So will the new "Mr. Euro" be recruited from this shady institution? Quite possibly. Draghi's is the name most frequently heard among candidates to succeed Jean-Claude Trichet as president of the European Central Bank -- after Axel Weber, the head of the German Central Bank, annouced that he had decided to quit  this April and also turned down the European job.

'This Italian'

The question is: Should he be responsible for the stability of the continent's currency? Should the future head of the ECB, a conservative institution modelled on Germany's inflation-battling Bundesbank, come from a nation with a distinct culture of inflation and the second-highest level of sovereign debt in the euro zone?

Leading German politicians have rejected the idea in private. They see no way of explaining it to German voters. Meanwhile the mass-circulation Bild blares: "No way" will "this Italian" become president of the ECB, which "oversees the legacy of the good, stable German mark."

Given that Chancellor Angela Merkel rarely goes against Bild, and French President Nicolas Sarkozy has also criticized the Italian, the matter already seems settled. EU leaders will make a final decision at a summit in June, and it's hard to imagine them voting against the will of their two most powerful members. It seems likely that the Italian candidate will be rejected.

Draghi's only chance would be if the EU leaders actually decide to search for the best-qualified candidate for the job. In that case, the Italian would find himself near the top of any shortlist.

'The Best Europe Has to Offer'

Prominent economists around the world, including the American Nouriel Roubini, believe in Draghi. Finance Ministers like Luc Frieden, from Luxembourg, describe him as "impressive and intelligent." Former German Finance Minister Peer Steinbrück says that Draghi "is always very independent, very quiet and technically excellent" at international financial summits like the G-8 or the G-20. In the banking headquarters in the City of London -- where he served for a few years as European head of the American investment bank Goldman Sachs -- he's known as "Super Mario."

The Financial News, a British trade journal, named him second on a list of the most influential people in European finance, behind Deutsche Bank investment chief Anshu Jain. (The head of Deutsche Bank, Josef Ackermann, hovers at slot six, while Axel Weber from the Bundesbank and Jean-Claude Trichet languish far below.) "The entire international financial establishment supports Draghi," says a Brussels insider quoted in the Financial Times Deutschland. He's supposedly "the best man Europe has to offer."

Draghi is very different from Italy's prime minister, Silvio Berlusconi. He's quiet and polite. He's friendly but shy of the public, though he can be hard-headed when it comes to work. He believes there's no reason to "spend time talking and making compromises when there's only one solution," he said in a recent rare interview. He doesn't go to glamorous parties. When he finds the time, he might go hiking or mountain climbing. He's married, with two children, but little is known about his private life. He embodies a national alternative to Berlusconi, who embarrasses many Italians.

Draghi studied first in Rome before earning a PhD from the Massachusetts Institute of Technology (MIT), the prestigous American university near Boston, and then taught in Florence as a professor of economics. He went to Washington as the Italian executive director of the World Bank in 1984, and in 1990 he returned home to serve as the top official in Italy's Finance Ministry. Five ministers came and went, but he remained, as a quiet but strong figure. He privatized ailing public enterprises; now they bring some €60 billion ($82 billion) into state coffers. Under Treasury Minister Carlo Azeglio Ciampi, he set out to reform the highly-indebted state budget, which was a prerequisite for Italy's accession to the euro zone in 1999.

Draghi left government when Berlusconi took office in 2001. He took a year off to study at the Kennedy School of Government at Harvard before switching to a career in the private sector. Then he took the job at Goldman Sachs. French President Sarkozy considers this move a black mark on Draghi's resume. For Peer Steinbrück it seems "more of an advantage than a disadvantage" for a continental banker "to understand the Anglo-American world." When the Banca d'Italia threatened to sink near the end of 2005, the Berlusconi government called him home. He was meant to serve as both savior and figurehead, but also -- though it wasn't clear to his bosses yet -- as a high-level admonisher.

'We Should All Follow the German Example'

Since then the top banker in Italy regularly reads the riot act to his fellow Italians. He demands reforms, debt reduction, more productivity, less state bureaucracy, often in stark contrast to Finance Minister Giulio Tremonti. His opinions on the European crisis are not Mediterranean so much as Prussian. In a currency union it is "unacceptable that individual states should use the others," he said in an interview with the Frankfurter Allgemeine Zeitung. The euro zone therefore needs quasi-automatic rules to force member nations onto a frugal and stable financial course.

He wants more rules for the euro zone to encourage its members to follow growth-friendly reforms. He finds it unconscionable for citizens in one country to retire at 57 while citizens in another work until 67. That leads, he says, to imbalances in competition, which is expensive for everyone. Germany has raised its retirement age to 67 and improved its competitive power. "We should all follow the German example," says Draghi.

His only failing for the job of ECB president, it seems, is the wrong passport. So it's still possible that "this Italian" will be passed over in June, at the EU summit. There was some speculation that the next president could be the Finn, Erkki Liikanen, or the Luxembourger, Yves Mersch. They both come from orderly nations.

But Finland, meanwhile, has removed Liikanen from the running, and Mersch's chances are seen as distant because another Luxembourger, Jean-Claude Juncker, will probably remain as president of the Euro Group, the euro zone's policy coordination forum -- and having two citizens of the same small country in top EU positions is seen as unlikely.

In other words: Draghi's chances are not bad at all.