Exit Siniscalco, scandalised

Sep 22nd 2005
From The Economist Global Agenda

In a serious blow to Silvio Berlusconi, Italy’s prime minister, his finance minister, Domenico Siniscalco—one of the most impressive members of an otherwise shambolic government—has resigned. The main reason for his departure is the ruling coalition’s failure to force the resignation of the central-bank chief, Antonio Fazio, over a bank-takeover scandal

HE WAS a badge of respectability for Silvio Berlusconi’s idiosyncratic administration, and a guarantee for investors in both Italian securities and the euro. Domenico Siniscalco, a former senior bureaucrat, ran Italy’s finance ministry with skill and vigour, dissuading the prime minister from his more perilous adventures in the field of public finances.

But on Wednesday September 21st, barely a year after entering the government, Mr Siniscalco resigned. One newspaper quoted him as saying: “I couldn’t take it any more.” His departure propelled Mr Berlusconi’s conservative government into a renewed crisis, reviving demands from the opposition for a snap election, and calls from within the governing coalition for a change of leader.

Lagging in the opinion polls, Mr Berlusconi will no doubt try to persuade his allies to resist an early poll. Unless they decide otherwise, elections for a new parliament will not take place until next spring. But the prime minister’s personal credibility (what is left of it) and his reputation for leadership (ditto) have been dealt a painful blow by Mr Siniscalco’s resignation; and his coalition partners are bound to be tempted by the promise of a clean break that offers them at least some prospect of salvaging the next election.

Mr Siniscalco had two motives for his departure. The first was the government’s handling of the bizarre affair of Italy’s central-bank governor, Antonio Fazio, who is accused of favouring a takeover bid by Banca Popolare Italiana (BPI) for Antonveneta, a larger Italian bank, over a rival bid from a Dutch bank, ABN Amro.

Despite an ongoing criminal investigation into BPI and worries about the strength of its balance sheet, Mr Fazio gave the bank his approval to proceed with the bid. Most worryingly, wiretapped conversations published in the Italian press suggested the governor had a close relationship with BPI and its boss (until recently), Gianpiero Fiorani. Mr Fazio rang Mr Fiorani shortly after midnight, one night in July, to tell him he had just signed a document approving BPI’s plan to take a majority stake in Antonveneta, thereby (it seemed at the time) scuppering the rival, foreign bid. While Mr Fiorani has resigned, after being suspended from his job by a judge investigating the takeover bid, Mr Fazio has steadfastly denied any wrongdoing and repeatedly declined Mr Siniscalco’s entreaties to step down.

The trial of strength between the finance minister and the central-bank chief was becoming increasingly embarrassing, as both prepared to depart on Thursday for Washington to attend a meeting of the International Monetary Fund. The thought of having Mr Fazio alongside him in the Italian delegation seems to have been too much for Mr Siniscalco to bear.

However, said Mr Siniscalco, the real problem for him had been the cabinet’s reluctance to put pressure on Mr Fazio to go. About that, “I’m not embittered—I'm scandalised”, he was reported as saying. The nuance is important. One reason why the government held back was because the Northern League, one of the parties in the ruling coalition, took Mr Fazio’s side. There have also been claims—vigorously denied by Mr Berlusconi—that besides the central-bank chief’s alleged backing, BPI also had the prime minister’s support. Only on Thursday night, a day after Mr Siniscalco's resignation, did the prime minister finally call on Mr Fazio to quit.

The other reason behind Mr Siniscalco’s farewell—and the one that will concern the financial markets even more, given the government’s already sky-high debts of 120% of GDP—was the finance minister’s difficulty in getting his 2006 budget approved within the government. His draft, calling for deficit-cutting measures worth more than €21 billion ($26 billion), was rejected by one of the coalition partners, the Union of Christian Democrats, and many in government are known to feel that such an austere budget would scupper their remaining chances of re-election.

The 2006 budget has to be approved by the government by September 30th, so time is pressing. The danger raised by Mr Siniscalco’s resignation is that, with their eyes fixed firmly on polling day, the spenders will get the upper hand. On Thursday evening the prime minister announced that Mr Siniscalco's successor will be none other than Giulio Tremonti, who has already served twice as Mr Berlusconi's finance minister. Last time Mr Tremonti left the job, in 2004, he was forced out at the insistence of the far-right National Alliance, another coalition member, which was seeking more influence over government spending—in particular, for there to be more of it in Italy's poor south, from which the party draws its support.

Mr Tremonti, like Mr Siniscalco, has been a fierce critic of Mr Fazio, and it seems possible that he may have insisted on Mr Berlusconi making his belated call for the central-bank chief's resignation as a condition for him to return to his old job.

As a postscript to the finance minister's departure, Antonveneta now looks set to be taken over by ABN Amro, despite all the apparent efforts of Mr Fazio to prevent this. On Thursday BPI's board met and instructed its lawyers to press on with selling the Italian bank's nearly 30% stake in Antonveneta to its Dutch rival, having decided to sell up last week. The Dutch bank’s victory, now seemingly assured, will be the first foreign takeover of a big Italian bank. That it is, after all, possible to overcome political resistance to a foreign takeover of a big Italian financial institution will provide some small cheer to investors. But overall, Italy will come out of this sorry affair with its reputation badly tarnished. Its prime minister has lost credibility and may struggle to survive in office. The rapid turnover in finance ministers bodes ill for the government's attempts to solve its deep financial malaise. What is more, Mr Fazio’s behaviour has wrecked the reputation of the central bank, hitherto one of the country’s few internationally respected institutions.

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