Thursday, January 12, 2006

Our savior?

Having gotten rather exercised about Antonio Fazio's disgraceful antics over the past months, I must now express satisfaction at the recent nomination of Mario Draghi to serve as the first post-reform Italian central bank governor. This week's The Business has an outstanding profile of him:
Draghi is more worldly wise. His experience ranges from the Italian treasury, European Union (EU) institutions, G7 negotiations, consultancy for the World Bank and as a partner at investment bank Goldman Sachs. He feels as much at home on Wall Street and in the City of London as he does in Rome – or most other European capitals for that matter. So do the rest of his close family. Wife, Serena, is an English literature expert; his daughter, a biologist who studied in New York, has biotech ambitions while his son, a graduate from Milan’s business school, Bocconi, has been a trader at Morgan Stanley. But the offspring will have their work cut out if they are to emulate papa. He was born in Rome on 3 September 1947. After graduating from Rome University with a degree in economics he did a PhD at the Massachusetts Institute of Technology. That led him to a 10-year stint as an academic at Florence University from 1981, although he also found time to work for the World Bank and the Italian government during that period.
It was all preparation for the role that made him, for a while at least, the most powerful man in the Italian economy. He was appointed director-general at the Italian treasury in 1991. A year later he was made head of the privatisation committee that had been set up shortly before.
The enthusiasm with which Italian president Azeglio Ciampi, greeted the appointment of Draghi is a sign of the success of their working relationship. As prime minister, and later finance minister, Ciampi played a crucial role in guiding Italy into the European single currency. The director-general of the treasury probably played an even more important part. Draghi was entrusted with planning and executing privatisation. He needed to raise huge amounts of money so Italy could reduce its debt and meet the European budgetary requirements; it was also intended to show the markets that Italy was not an economic basket case.
A meeting with foreign bankers on the British royal yacht, Britannia, was organised. Draghi made such a convincing case for the treasury’s privatisation plans that the event has become an historic one from which Italy’s rehabilitation started. Large state-owned companies, such as Telecom Italia, energy group ENI, insurer INA and electricity generator Enel were transformed into joint stock companies. There followed a succession of sales of public assets.
In the financial sector, the privatisations may have indirectly led to the takeover battles this year. BNL’s share offer brought in Banca Bilbao Vizcaya as a shareholder with a 10% stake. ABN Amro also exploited the privatisation sales to build a stake in Capitalia. Both foreign banks set their sights firmly on becoming significant forces in the Italian market. Not all the privatisation sales were successful but the scale of the achievement was enough in itself. State assets worth nearly E91bn ($110bn, £62bn) were sold while Draghi worked at the treasury. Italy is said to have accounted for more than 10% of all privatisation sales in the world during the 1990s. Involving international investors and banks was crucial to the plan working – even if it meant uncomfortable breaks with the past. Political barons suddenly found themselves without a source of patronage, former communist leaders inexplicably started embracing free market principles and privileged Italian bankers – except Fazio of course – had to accept that the country was opening up to international financial institutions.
Do read the whole thing. Hopefully he will diplomatically bang heads together and ensure the further liberalisation of the Italian banking market, and of the economy in general, as the central banker holds some sway on the general direction that should be taken by the government in economic policy.

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