Italy's populists covet central bank and its gold

Section:

By Giovanni Legorano
The Wall Street Journal
Wednesday, April 3, 2019

https://www.wsj.com/articles/italys-populists-covet-central-bank-and-its...

ROME -- Italy’s ruling populists pushed ahead this week with efforts to seize control of the central bank and its gold reserves, stepping up their confrontation with a symbol of the country’s establishment.

With two laws targeting the Bank of Italy under debate in parliament, the campaign is the latest attack on Italy’s independent institutions by leaders of the governing coalition, which is led by the antiestablishment 5 Star Movement and the nativist League.

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The parties depict the central bank as a symbol of a technocratic elite aloof from the needs of ordinary Italians. Hundreds of thousands of small individual investors lost billions of dollars after several Italian banks failed in recent years, causing widespread anger against the Bank of Italy and previous governments.

"We need a change of course at the Bank of Italy if we think about what happened in the last years," Deputy Prime Minister Luigi Di Maio, leader of the 5 Star Movement, said in February.

Lawmakers from 5 Star are asking Parliament to pass two draft laws that have ignited a national controversy over the independence of the Bank of Italy. While the fate of the bills is uncertain, the prolonged scrutiny is testing an institution whose credibility is crucial for the stability of the Italian economy.

One law would instruct the central bank’s owners, most of them private banks, to sell their shares to the Italian Treasury at prices from the 1930s.

The other law would declare the Italian people to be the owners of the Bank of Italy’s reserve of 2451.8 metric tons of gold, worth around $102 billion at current prices. Such a move could in theory widen the scope for selling the gold and reduce the bank’s reserves, which help underpin the financial system.

"The gold belongs to the Italians, not to the bankers," said Giorgia Meloni, leader of the Brothers of Italy, a far-right opposition party that supports both bills. "We are ready to battle everywhere in Italy and to bring Italians to the streets if necessary."

The 5 Star Movement and the League support public ownership of the gold reserves, and with backing from parties comprising 60% of lawmakers, the draft law has enough support to pass. Lawmakers from 5 Star also support nationalizing the central bank, while the League hasn’t decided yet, leaving the bill short of a majority with around 40% support.

Central banks, such as the U.S. Federal Reserve, the Bank of England and Bank of Japan , have become independent branches of governments in most advanced economies in recent decades, regardless of whether their formal ownership is in the public or private sector.

The Bank of Italy is a member of the European Central Bank, which sets monetary policy for the 19-country euro currency zone and supervises its banking sector. If the Italian government were to become the owner of the Bank of Italy, its independence would still be granted by Italian and European laws.

Independent institutions, however, are a bugbear of populist politicians who say that all government should be a direct expression of the popular will, which they claim they themselves represent. Italy’s leaders have consistently accused independent institutions, from the civil service and the media to supervisory authorities such as the stock-market regulator, of trying to frustrate the popular will.

Five Star and the League have repeatedly attacked the Bank of Italy for not preventing the banking crises, and blamed it for the losses suffered by mom-and-pop savers who had bought bank shares and bonds.

"If you are here with your current account in the red, it’s because the people who were supposed to control things didn’t do so," League’s leader, Interior Minister Matteo Salvini, told a group of former investors in Banca Popolare di Vicenza, which was liquidated in 2017, in February.

That month, Messrs. Salvini and Di Maio said the central bank’s top brass should be replaced because it had failed to effectively supervise the crisis. Since then, they created an institutional standoff by withholding approval for the appointment of one of the bank’s top executives.

As of last week they had forced the creation of a parliamentary commission to look into the failure of Italian banks, launching what could be months of tense scrutiny.

President Sergio Mattarella, who as head of state is positioned above the political fray, asked leaders to make sure the commission doesn’t interfere with the activity of independent authorities, including the Bank of Italy. Central banks, he warned on Friday, can’t accept instructions from governments.

Promoters of the two draft laws argue that having private-sector banks as shareholders creates a conflict of interest for the Bank of Italy, since it is involved in supervising banks.

Critics see an attempt to undermine the Bank of Italy’s independence, and to spend the nation’s gold reserves on populist policies.

"Gold is part of the assets of the Bank of Italy and can’t be used for monetary financing of the Treasury," said Bank of Italy Governor Ignazio Visco.

The proposals have sparked outrage among the Bank of Italy’s shareholders. The proposed nationalization would value the central bank at just €156,000—the euro equivalent of the price that fascist dictator Benito Mussolini made banks, insurers and other institutions pay for their stakes in the 1930s, when the Bank of Italy was recapitalized.

A 2014 law revalued the Bank of Italy’s share capital at E7.5 billion. Shareholders, including Italy’s biggest lenders, UniCredit SpA and Intesa Sanpaolo SpA, paid a hefty capital-gains tax after the revaluation of their stakes. Now the banks would get only the fascist-era price in compensation.

"This looks like revolutionary expropriation," said Gianluca Garbi, chief executive of Banca Sistema SpA, which bought its central-bank stake at the new, revalued price and would see its investment wiped out.

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