UPDATE 3-Merkel backs Draghi, deciding ECB presidency race

By Brian Rohan and Giselda Vagnoni

BERLIN/ROME, May 11 (Reuters) - German Chancellor Angela Merkel backed Mario Draghi on Wednesday to be the next European Central Bank president, clearing the way for the Italian to succeed France's Jean-Claude Trichet from November.

Merkel's spokesman said she stood ready to support Draghi after a source close to the matter told Reuters that Italy was expected to propose him formally at a meeting of euro zone finance ministers on Monday.

'If this candidacy is put forward, the government will support it,' said German government spokesman Christoph Steegmans.

No other candidate has been formally proposed for the job.

Winning Merkel's support was all that stood between 63-year-old Draghi and the coveted ECB post after French President Nicolas Sarkozy threw his weight behind the Bank of Italy chief late last month.

Draghi shot into pole position to succeed Trichet after the previous frontrunner, Germany's Axel Weber, said in February he was quitting as Bundesbank chief and would not seek the ECB job.

Trichet's eight-year term expires at the end of October.

He will leave his successor a legacy of monetary stability but also the challenge of tailoring ECB policy to address growing divergence in the 17-country euro zone, with core economies recovering but others mired in a debt crisis.

The fact that Draghi comes from a country with a history of high inflation and fiscal ill discipline has been seen as problematic by some in Germany, and his background at investment bank Goldman Sachs could also have counted against him.

But his experience and impressive credentials have made it hard to look past him. In comments to a German weekly, Merkel said Draghi shared Berlin's economic values.

'I know Mario Draghi. He is a very interesting and experienced individual,' Merkel told Die Zeit newspaper.

'Germany could support a candidacy from him for the office of the ECB president,' she added. 'He stands very close to our agenda of stability and solid economics.'

Euro zone leaders are expected to decide finally on who succeeds Trichet in June. In addition to gaining Sarkozy's support, Draghi has also won backing from the chairman of euro zone finance ministers, Luxembourg's Jean-Claude Juncker and Spain.











MUSICAL CHAIRS

An EU diplomat said a deal had been made that if Draghi gets the top post, Italian Lorenzo Bini Smaghi would leave the ECB's Executive Board and his seat would go to a Frenchman, keeping in place the current balance of nationalities.

'Some countries in the euro zone are concerned about the fact that you'll basically have one German on a board dominated by Mediterranean countries whose monetary predicament and past policies are quite fragile and loose,' the diplomat said.

If he is confirmed as Trichet's successor, Draghi will take the helm of the ECB at a time when its role has shifted from focusing purely on monetary policy to playing a broader role in responding to the euro zone's sovereign debt crisis.

Weber's misgivings about this broader role, highlighted by his public opposition to the ECB's programme to buy bonds issued by euro zone sovereign states, put him at odds with many other policymakers at the bank and ultimately led to his departure.

Draghi is more diplomatic than Weber and over a long career he has established for himself a position as the most respected Italian in international economic and political circles, belying the country's poor reputation for financial management.

A former economics professor who has taught at Harvard and worked at the World Bank as well as with Goldman Sachs, Draghi is also at the centre of efforts to overhaul the global banking system as head of the Financial Stability Board.

Draghi rarely comments publicly on monetary policy, making his stance hard to pigeonhole but he has recently taken a fairly hawkish stance -- perhaps eager to impress in Germany.

In an interview with a German newspaper earlier this year, he praised Germany's economic discipline and cast himself as a devoted European.

'We all have to follow Germany's example,' he said.

(Additional reporting by Andreas Rinke and Sam Cage in Berlin and by Philip Pullella in Rome; writing by Paul Carrel, editing by Patrick Graham, John Stonestreet) Keywords: GERMANY DRAGHI/ ([e-mail]; [phone]; Reuters Messaging: [e-mail]) COPYRIGHT Copyright Thomson Reuters 2011. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.