"The cabinet ... has approved the nomination of Professor Mario Draghi as governor," the government of Silvio Berlusconi, the prime minister, said in a statement on Thursday.

Carlo Azeglio Ciampi, the Italian president, was expected to formalise the appointment as soon as Thursday.

News that Draghi will lead the central bank was welcomed by politicians in Berlusconi's centre-right ruling coalition, eager to close the Fazio saga before it became a major problem before April general elections, as well as by the opposition.

Romano Prodim the opposition leader, said Draghi would restore dignity to the Bank of Italy, "tested by the dramatic events that have shaken Italy's financial system".

Draghi, 58, has a wealth of international experience but faces arduous challenges following the bank takeover scandal which brought down Fazio, including rebuilding morale at what was once one of Italy's most revered institutions.

"It's a very good choice. The boost he will give to the country's credibility is more than any budget could do. We had touched the bottom in terms of credibility," said Francesco Giavazzi, economics professor at Milan's Bocconi University.

International experience

As Treasury director-general between 1991 and 2001, Draghi spearheaded sweeping privatisations in the energy, banking and telecommunications sectors and was in the front-line of Italy's successful bid to join the European monetary union.

"We had touched the bottom in terms of credibility"

Francesco Giavazzi,
Economics Professor,
Bocconi University, Milan

Currently a London-based vice chairman at investment bank Goldman Sachs, Draghi is considered less autocratic than Fazio and was expected to show less hostility to any attempts by foreign firms to enter Italy's lucrative bank market.

The new governor was expected to start his job in February, with Vincenzo Desario, the acting governor, remaining until then.

Fazio quit last week, finally succumbing to months of pressure over his role in a bank takeover scandal that has thrown a spotlight on Italy's protected banking sector.

The former governor, under investigation for insider trading and abuse of office, denies accusations that he unfairly favoured Banca Popolare Italiana over Dutch rival ABN Amro, which eventually won the fight for Banca Antonveneta.