Italy could soon find itself excluded from the heart of euro-area monetary policy for the first time in the currency’s two-decade history.
European Central Bank President Mario Draghi’s eight-year term ends in October 2019 and his country has no automatic path to a seat on the Executive Board after that. Instead, its populist leaders must negotiate with the same European governments that they’ve antagonized on issues including spending limits and immigration since coming to power in June.
The risk is that excluding the currency’s third-largest economy, and a founding member of the European Union, from the body that originates monetary policy, would be seen as a snub by Italians. Some officials have already flirted with euro-skepticism and investors remain concerned that the administration might yet consider leaving the bloc, causing a full-blown financial crisis.
“It would make it easier for populists to construct a narrative where they have no voice, the ECB is far away in Frankfurt,” said Nick Kounis, an economist at ABN Amro Bank NV in Amsterdam. “It would be all about perception.”
While the ECB’s 25-member Governing Council, including Italian Governor Ignazio Visco, ultimately decides on monetary policy, the six-member Executive Board makes proposals and sets the agenda. Bank of Italy officials privately admit that they are concerned by the prospect of an absence from that panel.
Draghi’s presidency since 2011 means it’s unlikely another Italian would replace him when his non-renewable term finishes. The neatest solution might be for Germany to get the presidency for the first time, German board member Sabine Lautenschlaeger to quit, and an Italian to take her place.
But Chancellor Angela Merkel is reportedly focusing on a senior EU political post for her country rather than pushing Bundesbank President Jens Weidmann for the ECB. Moreover, Italy might wince at Weidmann, a critic of the loose monetary policy relied upon by weaker economies.
Two other board positions become vacant next year, but each requires concessions from euro-area finance ministers, who make the appointments.
Belgium’s Peter Praet steps down as chief economist in May. To win his seat, Italy would have to convince peers to allow two Italians on the board simultaneously for five months until Draghi leaves. That has only happened once before, for two months in 2011, when Draghi became president before Lorenzo Bini Smaghi succumbed to pressure to quit.
The next opportunity would be when France’s Benoit Coeure leaves on Dec. 31, 2019. But unless France clinches the presidency for an unprecedented second time, it would probably have a stronger claim.
Italy could otherwise be without a board seat for more than a year until Luxembourg’s Yves Mersch goes in December 2020.
The government could choose accept that situation but push to lead the ECB’s bank-supervision arm instead when France’s Daniele Nouy leaves on Dec. 31.
Unlike board posts though, the Single Supervisory Mechanism chair is nominated by the ECB, and it’s leaning toward a woman for the role. Irish Deputy Governor Sharon Donnery has applied and is widely considered the frontrunner. Italy’s Andrea Enria, chairman of the European Banking Authority, is said to be a candidate.
Large nations have gone without a board place before. Spain did so for more than five years until Luis de Guindos became vice president, and France had a 17-month hiatus before Jean-Claude Trichet became president. But Germany and Italy have never been absent.
“If there’s a chance to drag the ECB seat into the Italian political debate, politicians will,” said Giovanni Orsina, professor of political history at Luiss University in Rome. “There is a constant search for reasons to accuse the government, or excuses to absolve its failures.”
By Alessandro Speciale