Thursday, August 25, 2005

Plus ça change, plus c'est la même chose

Two of the economists I mentioned here, joined by Guido Tabellini, have made another, more detailed case for reforming the Italian Central Bank, which appeared prominently on the first page (pdf) of today's European edition of the Financial Times:
The Bank of Italy's ownership structure is coming under increasing criticism as the centre-right Italian government considers ways to reform financial market regulation in the wake of the Fazio affair.
Three prominent economists on Wednesday urged far-reaching changes at the central bank so that it would not be majority-owned by the private sector banks that it regulates. Their recommendations come ahead of a meeting of a government financial committee on Friday at which Antonio Fazio, the central bank governor, is expected to defend his actions in the foreign takeover bids for Italian banks.
The central bank governor became embroiled in controversy last month when phone-tap transcripts - revealing a close relationship between Mr Fazio and the head of Banca Popolare Italiana - were leaked to the Italian media. Critics claimed the transcripts showed Mr Fazio favouring BPI's bid for Italian lender Banca Antonveneta over that of ABN AMRO, the Dutch bank.
The economists, who published their recommendation in Il Sole 24 Ore, Italy's business newspaper, were Alberto Alesina of Harvard University, Guido Tabellini of Milan's Bocconi University, and Luigi Zingales of the University of Chicago.
They said the real lesson from the takeover battles was that reform at the Bank of Italy needed to be more far-reaching.
"All regulatory authorities risk being captured and managed in the interests of those who are regulated. The risk is still greater for an organism, such as the Bank of Italy, which today is owned by those it regulates - the banks," the economists said.
They support an argument raised at the weekend by Mario Monti, Italy's former European Union commissioner for competition and the internal market.
Mr Monti said the Bank of Italy needed four reforms: a change in the ownership structure, more collegial management, a fixed term of office for the governor, and changes in the regulatory responsibilities of the Bank of Italy, the stock market watchdog and the antitrust authority.
The original article, in Italian, can be found here. While their arguments are very persuasive these economists have a very international and pragmatic perspective (they have spent significant time outside of Italy), while any actual changes will have to be wrought by the people in Italy's political class, which is incredibly provincial and narrow-minded (unsurprisingly, as this at least partially mirrors the general population). As a result I am not at all sanguine about any satisfactory outcome to result from this scandal. At this point I wonder: what does the central bank governor need to do to be forced to resign, shoot someone?

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