EU leaders appoint Draghi as next ECB president

By Gabriele Steinhauser

Associated Press

Published: Friday, June 24 2011 9:05 a.m. MDT

BRUSSELS — European Union leaders appointed Italy's Mario Draghi as the next president of the European Central Bank on Friday — a move that gives investors much-needed certainty over who will lead the institution in its pivotal role in the fight against the crippling debt crisis.

The head of Italy's central bank, Draghi is expected to adopt his predecessor's tough stand on inflation when he takes over the helm of the ECB on Nov. 1, a day after the term of President Jean-Claude Trichet expires.

"Mr. Draghi will exercise a strong and independent leadership of the ECB," said EU President Herman Van Rompuy. "This is essential in normal times, and indispensable in difficult times."

The timing of Draghi's appointment had come under doubt as fellow Italian executive board member Lorenzo Bini Smaghi had until Friday refused to leave his post.

With Bini Smaghi staying on the executive board, France would not have a representative on the six-person board once Trichet departs on Oct. 31. The French had previously implied they would only support Draghi if a French man or woman takes Bini Smaghi's spot.

On Friday, French President Nicolas Sarkozy said Bini Smaghi had informed him and EU President Van Rompuy that he would step down by the end of the year. He did not say what French candidate would take Bini Smaghi's spot.

German Chancellor Angela Merkel, meanwhile, rejected the claim that pressure applied on Bini Smaghi to resign his post by the Italian government had endangered the independence of the ECB.

"I believe that the independence of the European Central Bank, as regards its ability to perform its tasks, has been preserved entirely," she told reporters.

No resignation was announced Friday by the ECB, and a bank spokesman said that since board members are appointed for eight years under the EU treaty, "Mr. Bini Smaghi will take any future decision in full independence."

The European Parliament and the ECB board had already given their approve to Draghi's appointment.

Delaying his appointment until their next summit in September would have underlined divisions among EU leaders, who have already struggled to find a common line on debt-stricken Greece and the best way of containing the financial crisis that has also pushed Ireland and Portugal into needing massive bailouts.

The ECB has played a central role during the debt crisis that has afflicted the 17-country eurozone over the past 18 months or so. For example, Trichet overrode criticism from some of the more hawkish officials at the bank when he backed a multibillion euro (dollar) bond-buying program intended to ease the pressure on the more indebted countries.

More recently, the ECB has found itself in the difficult position of raising interest rates to keep a lid on above-target inflation levels even though the weaker eurozone economies are still struggling.

The 63-year-old Draghi will start his eight-year term at the ECB on Nov. 1. The former managing director at U.S. investment bank Goldman Sachs also runs the Financial Stability Board, an international organization that seeks to head off risks for the global financial system.

The decision on Draghi came a day after EU leaders gave their clearest sign yet that Greece will get a second bailout in the coming weeks, on top of last year's €110 billion ($156 billion).

"We agreed that there will be a new program for Greece," said German Chancellor Angela Merkel.

The stronger language on aid for Greece was also made possible after debt inspectors from the EU and the International Monetary Fund reached a final deal Thursday with the government in Athens on €28 billion worth of new austerity measures.

The measures have to be passed by the Greek Parliament next week for the bailout funds to be released. If lawmakers fail to back the package, then Greece will likely be staring at a default on its debts.

Even if it gets a second bailout, many economists think that Greece will have to restructure its debts in some shape or form in the coming years, especially if the economy shrinks further.

However, Greek Prime Minister George Papandreou once again ruled out default as an option.

"In case of default the health sector will collapse, ... the pension system will collapse by 80 percent and we won't be able to pay salaries in the public sector," he said after the summit, adding that the new bailout package being negotiated will give Greece the time necessary to get its economy back on track.

"What we are doing is changing Greece," Papandreou said. "We're not asking for money to stay the same."

David McHugh in Frankfurt and Raf Casert and Angela Charlton contributed to this story.

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