THE BANK OF ITALY has long been seen as one of a handful of efficient and incorruptible institutions that curb Italy’s anarchic tendencies. But on February 9th this august establishment came under fire from the two deputy prime ministers who call the shots in the populist government that is nominally led by Giuseppe Conte, the prime minister. Matteo Salvini, who leads the hard-right Northern League, said he wanted to “reboot” the senior management at both the central bank and the stockmarket regulator, Consob. Luigi Di Maio of the Five Star Movement (M5S) demanded “discontinuity”. Both alleged the Bank had failed to protect investors and deposit-holders. Two days earlier, the cabinet had refused to approve a further six-year term for Luigi Federico Signorini, the deputy director-general primarily responsible for banking supervision.
The attack sent ripples of apprehension through the euro zone amid media stories that the populist coalition wanted to get its hands on the Bank’s gold reserves, the third-largest of any country, to fund its expansionary fiscal policies. The president of the Eurogroup of finance ministers, Mario Centeno, and the EU commissioner for economic affairs, Pierre Moscovici, both pointedly stressed the need to preserve the independence of central banks in the single currency area.
On an optimistic interpretation, the threats were perhaps not meant to be taken too seriously. The coalition leaders’ remarks were addressed to a very specific audience: an assembly of stakeholders who lost money when two banks in the Veneto region were liquidated in 2017. The government has promised partially to reimburse them. But EU rules on state aid could yet prevent that. Inveighing against the central bank enabled the party leaders to win plaudits from an unhappy audience.
It also gave them something to agree on. The League and M5S have clashed on numerous other issues. And the outcome of a regional election in Abruzzo on February 10th loaded yet more pressure on their already shaky partnership. The candidate for governor from the M5S, nominally the senior coalition partner, scraped barely 20% (at last year’s general election, the party won nearly 40% of the vote there). The League ran in Abruzzo as part of a conservative alliance that won almost half the vote, increasing the temptation for Mr Salvini to ditch the anti-establishment M5S for his party’s traditional allies on the right.
His and Mr Di Maio’s rhetoric may have been exaggerated, but their concerns are real. Italy has experienced more than its fair share of banking scandals in recent years. The causes include successive recessions, mismanagement and even criminality. But this is not the first time a finger has been pointed at the central bank. In 2017 the then governing centre-left Democratic Party tried to block the re-appointment of the governor, Ignazio Visco.
Marcello Messori, of LUISS University in Rome, notes that the loan-to-deposit ratio of Italian banks before the euro-zone crisis was 1.4, against a euro-area average of below 1.1. He suggests the regulator “should have rung alarm bells on this excessive funding.” To bridge the gap, some banks made loans conditional on borrowers agreeing to buy the banks’ own risky subordinated bonds. Claudio Borghi, the League deputy who chairs the lower house budget committee, is a former managing director of Deutsche Bank in Italy. “If my bank’s analysts knew what was going on, how come the Bank of Italy did not?” he asks.
Because of how the Bank’s top executives are chosen, with the role of the Italian cabinet being merely consultative, it is doubtful whether the government can block Mr Signorini’s reappointment for long. Just two days after delivering his harangue, Mr Salvini adroitly shifted his position. Which official took which job did not interest him, he maintained, “but it is clear something needs to be changed.”