Berlusconi Screws Over The Wrong Person: ECB Shake Up Imminent Following Big French-Italian Relations SNAFU?

Tyler Durden's picture

Just when one thought the Italian PM could not possibly come up with yet another massive SNAFU, he does it once again. This time however he may have screwed over the wrong (non-underage) person. Last night, after the FT had previously leaked (incorrectly once again) that the Italian head would pick ECB executive Lorenzo Bini Smaghi to head the Bank of Italy following Mario Draghi's departure to head the ECB, Berlusconi instead chose a relatively unknown Ignazio Visco to head the Italian Central Bank. The move, while largely symbolic as it hardly matters who is in charge of the Italian bank but is of great import from a "national pride" perspective, managed to infuriate French leader Nicholas Sarkozy, who had previously made it clear he would advance his support of incoming ECB head, former Goldmanite and current Bank of Italy head, Mario Draghi, only if Bini Smaghi would be pulled and his seat would be vacated to allow a Frenchman to enter the ECB. That did not happen. So with the latest faux pas out of Berlusconi, he is now poised to destabilize not only Italian-French relations, but the percevied stability of the ECB if the Frenchman decides to make it an issue vis-a-vis his support of the incoming President. All in all, this is yet another reminder of the total and utter chaos that dominates Europe every single day. And somehow the broad public is supposed to believe that Europe can come up with a solution to an insolvable math problem...

The Telegraph explains in detail:

Silvio Berlusconi can expect an awkward encounter with Nicholas Sarkozy, the French president, on Sunday after snubbing him with a surprise choice over who will be the next head of the Bank of Italy.

 

The looming spat will only heighten tensions between eurozone leaders as they meet in Brussels for a crucial summit on the debt crisis.

 

Italy's embattled prime minister had been expected to nominate Lorenzo Bini Smaghi, an Italian who sits on the executive board of the European Central Bank, as the next head of the Bank of Italy.

 

Mr Smaghi's appointment would have freed up a place on the ECB board and made way for a Frenchman to take the post.

 

Mr Sarkozy had made that a key condition of his support for Mario Draghi, the former head of the Bank of Italy, to replace Jean-Claude Trichet as president of the ECB at the end of this month.

But instead Mr Berlusconi on Thursday night unexpectedly chose Ignazio Visco, a 30-year veteran of the Bank of Italy, to lead the institution, to the fury of the French. 

 

That means that Italy will have two members on the ECB's board but France will have none. Mr Bini Smaghi's refusal to resign from the board of the ECB until the end of
his term in 2013 leaves almost no wriggle room on the issue for Mr
Berlusconi.

This also means that we can now expect a firestorm of media-based outrage in France which will now perceive itself as snubbed by a country that it is risking its sarcosanct AAA rating to bail out. Alternatively, the Italian is also stuck:

While Mr Berlusconi's decision will anger president Sarkozy, in Italy it was broadly welcomed by the media, the banking sector and employers' federations, who had said that appointing Mr Bini Smaghi would have been a humiliating concession to France.

 

With his approval rating at a record low and daily predictions that his government will not see out its term to 2013, Mr Berlusconi seems to have calculated that keeping domestic critics sweet was more important than fostering good relations with Paris.

Alas only a complete idiot would make that conclusion at a time when it is of paramount importance to at least retain the perception that things in Europe are calm, cool and collected. Instead, we get... this.

The fall out of this comedy, as Europe's two biggest drama queen engage head on will be one for the ages.