Draghi bid to head ECB winning powerful allies

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The Independent Online

President Nicolas Sarkozy is backing the governor of the Italian central bank, Mario Draghi, as the leading candidate to succeed Jean-Claude Trichet at the helm of the European Central Bank, a person familiar with the matter has told Bloomberg.

Given that France has already had "its turn" with Mr Trichet, that the leading German contender, Axel Weber, unexpectedly resigned from the ECB recently, and that Spain is one of the peripheral countries that may have to turn to the ECB for further financial support, Mr Draghi is the sole candidate from among the eurozone's "Big Four" to be able to make a credible case for himself.

But Mr Draghi's claim goes well beyond that. He is extremely well-regarded by central bankers all over the world, and, as chair of the powerful Financial Stability Board, the central banking counterpart of the G20, has a claim to be the leading central banker of his time. Support from President Sarkozy would follow signals from German officials that the Italian is their preferred banker, adding momentum to his campaign. Indeed, Mr Draghi's only disqualification for high office would appear to be his Italian background, viewed with some suspicion in certain German circles who see Italy as synonymous with inflation – though Italy has so far escaped the "contagion" and crises suffered by Greece, Ireland, and Portugal.

The French leader may make his views public as early as this week at a summit in Rome with Italian Prime Minister Silvio Berlusconi, a Sarkozy aide has told reporters. With a late-June deadline to make the appointment, Draghi's career and the ECB's fate are caught up in Chancellor Angela Merkel's political calculus.

The unspoken central task of the next head of the ECB is to continue to extricate the central bank from its informal support for the beleaguered peripheral economies, presently being supported "by the back door" by the ECB, which has agreed to take near-junk-status government bonds as collateral when lending to their private banking systems. Mr Trichet has made little secret of his impatience with the way commercial banks are being used as mere conduits to fund governments locked out of financial markets, and his successor will be under pressure to continue to find a long-term solution to the eurozone's economic and financial imbalances.

Portugal's looming rescue will probably push the cost of the rescues past €250bn (£220bn). Recent elections in Finland and Germany have highlighted political tensions within the eurozone as the likelihood of a Greek default grows; tough bank stress tests in June will also pressure the system further.

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