Bini Smaghi goes back to Frankfurt

It's hard to think of a more natural candidate for the executive board of the European Central Bank thanLorenzo Bini Smaghi. So hard, in fact, that European Union finance ministers unanimously endorsed his appointment without a contest last month.

The Italian civil servant gained an interest in European institutions in his youth, when his father served a stint with the European Commission. After getting an economics degree at the Catholic University of Louvain, just outside Brussels, Bini Smaghi earned a doctorate from the University of Chicago, where his adviser was Jacob Frankel, onetime chairman of Merrill Lynch International and a former governor of the Bank of Israel. In 1994, after spending more than a decade in the research department of the Bank of Italy, Bini Smaghi went to the newly created European Monetary Institute, the ECB's forerunner, to oversee the creation of a payments and settlement system for the future central bank. "At the start there were 80 people. It was really very small," he recalls of the upstart Frankfurt institute.

The 48-year-old Bini Smaghi is looking forward to taking up his post at the much-larger ECB, which boasts a staff of 1,300, at a time when the bank faces numerous challenges -- among them, how to raise interest rates without stifling Europe's growth and how to integrate new EU members into the euro zone. "It's a very exciting job," he says.

Bini Smaghi's appointment to replace fellow Italian Tommaso Padoa-Schioppa, whose term expires at the end of May, appears to strengthen the control of the Big Four euro states over the ECB. France, Germany, Italy and Spain each have a representative on the ECB's six-person executive board, and their respective central bank governors sit on the 18-member governing council. Spain set a precedent last year by getting José Manuel González-Páramo appointed to the board to replace the retiring Eugenio Domingo Solans, overcoming a rival candidate from Belgium, which had lobbied unsuccessfully for a bigger voice for small states on the board.

Bini Smaghi may have to make some adjustments at the ECB. For the past seven years, he has served as the head of international affairs at the Italian Finance Ministry, and lately he has argued Rome's case for an easing of the Stability and Growth Pact, which limits the budget deficits of euro countries. The ECB, by contrast, is adamantly opposed to loosening the deficit rules.

Though Bini Smaghi declines to discuss policy before starting his new job, he says he doesn't anticipate any problems in making the transition from government to central banking. After all, he notes, ECB president Jean-Claude Trichet and former Bundesbank president Hans Tietmeyer spent most of their careers as Finance Ministry officials before becoming central bankers. "They managed," he says. "I hope I can manage too."