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EU leaders clear way for Italy's Draghi to be new ECB chief

Jun 24, 2011, 14:05 GMT

Brussels - European Union leaders on Friday endorsed Mario Draghi as the new president of the European Central Bank, ensuring that the Italian will succeed France's Jean-Claude Trichet in November.

'We are all confident that Mr Draghi will exercise a strong and independent leadership of the ECB,' EU President Van Rompuy told reporters at the conclusion of a two-day summit in Brussels. 'This is essential in normal times and indispensable in difficult times.'

After steering the eurozone economy through the 2008 financial crisis, the fiercely independent ECB has found itself at the centre of the debt crisis that has so far claimed three peripheral euro members as victims: Greece, Ireland and Portugal.

Despite already receiving the backing of the ECB and the European Parliament, Draghi's appointment had appeared in doubt after France threatened to block the decision at the summit because it would have left the country with no representative on the ECB's six-member executive board - while Italy would have two.

'Mr Draghi is a man of great quality. France trusts him completely,' President Nicolas Sarkozy said in Brussels. 'But everyone recognized that there can't be, among six members of the European Central Bank, two members of the same nationality.'

The second Italian board member, Lorenzo Bini Smaghi, had initially refused to resign. Bini Smaghi, whose term ends in 2013, had argued that the ECB's independence would be threatened if he were to bow to political pressure.

But on Friday, the Italian relented amid concern that any hesitation on Draghi's appointment would further spook markets already on high alert over the Greek debt crisis.

'I spoke to Mr Bini Smaghi this morning by phone and he did tell me personally that he would not finish his mandate as a member of the executive board,' Van Rompuy said.

Sarkozy said he too had a phone conversation with Bini Smaghi, who told him that 'before the end of the year, he would be called upon to take up new duties.'

Italian Prime Minister Silvio Berlusconi said Bini Smaghi is one of three candidates in the running to replace Draghi at the helm of Italy's central bank, along with Draghi's deputy, Fabrizio Saccomanni, and the director general of the Italian treasury, Vittorio Grilli.

'It doesn't put into question the independence of anybody,' Sarkozy said of Bini Smaghi's decision to leave the ECB executive board. 'Everybody knows that there was a problem of geographical balance and that problem has been settled.'

But some analysts argued that France shouldn't have meddled in the ECB's affairs. ING Bank economist Carsten Brzeski described the pressure from Paris to reshape the executive board as 'unprecedented and uncalled for.'

However, Brzeski did not see the move to edge Bini Smaghi out as compromising the ECB's fiercely guarded independence.

'I think that the independence of the ECB is fully guaranteed,' Chancellor Angela Merkel also said in Brussels.

The appointment of the 63-year-old Draghi to an eight-year term as ECB president is part of a series of changes in leadership at the Frankfurt-based bank.

Other than Bini Smaghi's replacement on the six-member executive board - about which Sarkozy declined to speculate - the bank's 23-member governing council is also undergoing changes.

The Dutch government is expected to announce shortly the replacement for Nout Wellink, who is due to step down this month as head of that nation's central bank.

Germany's Jens Weidmann has just taken up his seat on the governing council, which sets interest rates for the eurozone, after his appointment to head up his country's influential Bundesbank.

Draghi's appointment has been welcomed by financial analysts, who see him as a good communicator. They also think his move to the ECB's top job is unlikely to result in any dramatic change in the institution, which is in its 12th year.

But the appointment does raise questions about whether the ECB will follow up an April rate rise with further increases, as expected, since it is unclear if Trichet would want to mark his departure or if Draghi should launch his presidency with a rate hike, analysts said.

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