Scandal shows decline in bank's reputation

Only three things worked in Italy, it used to be said: the Catholic Church, the Mafia and the Bank of Italy. The bank was expert, internationalist and meritocratic. Over the past two decades it has served as a talent pool for governments, making up for the inadequacies of the politicians.

Carlo Ciampi, the President of Italy, was governor of the central bank between 1979 and 1993. His deputy at the bank, Lamberto Dini, later served as prime minister and foreign minister for a combined seven years, and is now a member of the Senate.

The decline in the bank's reputation may be measured in the difference between Mr Fazio's handling of the Banca Antonveneto affair and the Bank of Italy's performance in the country's last great banking scandal, spanning the 1970s and early 1980s, involving first the Sicilian financier Michele Sindona, and then Roberto Calvi's Banco Ambrosiano.

The current affair has some parallels with the Calvi affair. Once again, control of Italy's most important newspaper, the Corriere della Sera, is indirectly involved. Both have laid bare the eternal division between the two Italys, the outward looking "lay" one, and old Catholic Italy, closely aligned with the Vatican. But there the similarities end. The Sindona/Calvi scandal was the Bank's finest hour. It pursued those malefactors relentlessly - too relentlessly perhaps. A Bank of Italy-appointed liquidator of the collapsed Sindona empire was shot dead by gangland assassins in 1979. The same year, Mario Sarcinelli, the central bank's director general, was briefly imprisoned on trumped-up charges, while Paolo Baffi, the universally respected governor, resigned. But ultimately, the bank, as champion of the "lay" Italy, prevailed. Their alliances with the Vatican could not save either Sindona or Calvi.

This time, the roles have been reversed. The story now is of a governor who will not resign, and who has taken a "Little Italy", not an internationalist, approach. Mr Fazio is a devout Catholic, and in the present imbroglio his staunchest defender in the press has been L'Osservatore Romano, the Vatican newspaper.