Italian government, ECB close in on Fazio

Pressure on Bank of Italy head Antonio Fazio grew sharply yesterday as the government threatened to oust him, and the European Central Bank voiced concern at reports he took gifts from a disgraced banker.

Mr Fazio has withstood calls to resign over a bank merger scandal since July but his position weakened after news emerged yesterday that he was under criminal investigation for insider trading in the affair.

Economy Minister Giulio Tremonti said the central banker, being investigated for allegedly unfairly favouring Banca Popolare Italiana against Dutch rival ABN AMRO in a takeover fight, must stand down or face government action.

"Either the governor takes a step backwards or the government, along with parliament, will take a step forward," Mr Tremonti told Repubblica Radio.

He did not say how he might try to force Mr Fazio out. The only body that has the power to fire Mr Fazio is the Bank of Italy's superior council by a two-thirds majority of its 13 members. In September the council expressed its confidence in the governor.

Prime Minister Silvio Berlusconi also urged Mr Fazio to quit, even though he has repeatedly said the government has no power to dismiss him because the central bank is independent.

Asked whether Mr Fazio should go, Mr Berlusconi said: "That is what I would say as prime minister."

Mr Fazio still shows no inclination to resign of his own accord and the Bank of Italy dismissed as "nonsense" reported rumours that Mr Fazio would step down this weekend.

"I know I have worked within the law and I am not worried," Mr Fazio was quoted as saying by his lawyer Franco Coppi.

The European Central Bank's chief said if it were proven Mr Fazio took inappropriate gifts from Pop Italiana's ex-CEO Gianpiero Fiorani, who has been arrested in the affair, this would be a breach of the central bankers' code of conduct.

"As regards the information that has been made public by the press on gifts, if this information were proved to be true, it would be in contravention of the code of conduct of members of the Governing Council," ECB President Jean-Claude Trichet said.

News of the insider trading investigation came at the end of a dramatic week for Mr Fazio during which his personal friend Mr Fiorani was put in jail to await questioning for alleged crimes including conspiracy to embezzle and market-rigging.

A wiretap in July recorded Mr Fazio calling Mr Fiorani to tell him that he had approved Pop Italiana's bid for Banca Antonveneta. In the phone call, Mr Fiorani called Mr Fazio by the nickname "Tonino" and said he wished he could thank him with a kiss on the forehead.

A judicial source said the insider trading allegation did not imply Mr Fazio had made a financial gain in the affair, but referred to that now infamous late-night phone call.

Milan prosecutors are investigating if Mr Fazio broke a new law on abuse of privileged information by speaking to Mr Fiorani's team before a public announcement, the source told Reuters.

Abuse of privileged information carries a possible jail term of one to six years, with a fine of up to €3 million. Abuse of office, which is being investigated in Rome, can lead to a sentence of between six months and three years.

Mr Fazio has not been charged with any crimes and the Bank of Italy says he has always acted correctly.

The BOI superior council's senior member, Paolo Emilio Ferreri, told Reuters that Mr Fazio's possible dismissal was not on the agenda of the council's next meeting, on Tuesday.

He said rumours that Mr Fazio was poised to resign "have no common sense".

The ECB cannot fire Mr Fazio but if it says that he broke the code of conduct by accepting expensive gifts including jewellery from Mr Fiorani, that would be a huge moral blow for the banker who is on the Frankfurt institution's Governing Council.

The ECB last month criticised Italy's legal framework for bank mergers but stopped short of criticising Mr Fazio himself.