Fazio under threat from disgraced banker's gifts

Allegations that Italy's central bank chief Antonio Fazio received lavish gifts from disgraced banker Gianpiero Fiorani have given new ammunition to his critics and may prove the biggest threat yet to Mr Fazio keeping his job.

Mr Fiorani, the former head of Banca Popolare Italiana who was arrested on Tuesday, gave Mr Fazio and his family jewellery, a watch and other gifts worth tens of thousands of dollars, according to media reports citing documents from prosecutors.

"The latest events make Mr Fazio's position look increasingly untenable, I think a forced resignation is more likely than ever," said Deutsche Bank economist Susana Garcia.

Mr Fazio's job had appeared more secure in recent weeks after he weathered calls to quit over accusations he had unfairly favoured Mr Fiorani, a personal friend, in a battle with Dutch lender ABN AMRO for control of Banca Antonveneta.

Mr Fiorani's sudden arrest for crimes including suspected embezzlement and money laundering have made the central banker look vulnerable again and, strangely to some Italian eyes, it is the issue of the gifts which could prove most damaging.

Mr Fazio's supporters have played down the question, saying lavish gift-giving is commonplace in Italy, especially at Christmas, and is certainly no proof of any wrongdoing.

Mr Fazio himself was quoted as dismissing the affair in the daily La Stampa on Thursday.

"Presents are exchanged in all Italian families ...I don't think it's either a crime or a sin," he reportedly said, adding that the Cartier watch which has attracted much media attention "wasn't even gold, and in any case I passed it on to someone else".

The European Central Bank on which Mr Fazio, 69, serves as a governing council member, may not see it like that. The ECB's code of conduct for governing council members reads as follows:

"Respect of the principle of independence is incompatible with applying for, receiving or accepting from any source... any benefits, rewards, remuneration of gifts in excess of a customary or negligible amount, whether financial or non-financial, which are connected in any way whatsoever with the function as a member of the Governing Council."

The ECB has set a ceiling of €100 on gifts for its six-member executive board, while an acceptable limit is left at the discretion of national central banks for the other 12 governing council members.

The bank may take a dim view of one of its members accepting a cashmere sweater, Cartier watch, Pomellato bracelets and Dom Perignon champagne worth thousands of dollars from a man whom it was Mr Fazio's job to regulate and who is now accused of being a criminal.

The Bank of Italy has made no comment on the allegations. The ECB, after a two-month "informal dialogue" with the Bank of Italy over the Antonveneta case, in November criticised Italy's legal framework for bank mergers but stopped short of criticising Mr Fazio himself.

There are some signs that after the latest allegations eurozone central bankers may be ready to break the silence they have observed so far over Mr Fazio.

When the Netherlands' central bank chief Nout Wellink was asked by reporters if Mr Fazio should stand down he replied: "I have my own ideas about that".

He also invited journalists to ask ECB President Jean-Claude Trichet at his next news conference whether the ECB would reopen its examination of Mr Fazio's conduct.

Former Bundesbank chief Ernst Welteke was far from reticent when asked whether he had heard about Mr Fiorani's arrest. "Who? The one who gave the presents to Mr Fazio?" he replied.

Mr Welteke was forced to stand down as Bundesbank chief two years ago because he accepted a weekend for himself and his family at a luxury hotel at the expense of Dresdner Bank.

The ECB, which has no direct responsibility for bank supervision, had little power to act on Mr Fazio's handling of the bank takeover. The gifts issue, while arguably less serious, is more clear-cut and may contravene the ECB's code of conduct.

There is still wiggle room for Mr Fazio. He could argue the gifts had nothing to do with his "function as a member of the Governing Council", as the code sets out, and in any case infringement of the code carries no automatic sanction.

The ECB cannot fire Mr Fazio but, with the Italian banker's name again emblazoned over the international press for all the wrong reasons, it may feel its own reputation is at risk and it is time to begin putting some explicit pressure on him to leave.