The changing of the guard at the ECB
The Financial Times reported this morning that ECB President Christine Lagarde will leave her post before her term expires in October 2027. The reported reason is that she wants to exit before the French presidential election in April of next year, which would allow French President Macron - together with German Chancellor Merz - to be in the driver’s seat when it comes to selecting a new ECB President. The ECB did not fully deny the story, but responded by saying that Lagarde had ‘not taken any decision’.
An early departure for the ECB President would add to the changing of the guard at the central bank over the coming quarters. Croatia’s Governor, Boris Vujcic, is set to become the next ECB Vice President, replacing Luis de Guindos whose term ends on 31 May. ECB chief economist Philip Lane’s term ends in May of next year, while Executive Board member Isabel Schnabel’s term finishes at the end of next year. This means that four of the six Executive Board members are moving on by the end of next year. Meanwhile, we have also seen Francois Villeroy, Governor of the Banque de France, stepping down early, by the end of May, while his term was set to end in October 2027.
Of course, this news is likely to trigger more intense speculation about who will succeed Lagarde. Speculation has centred around a number of possible candidates:
- Pablo Hernandez de Cos – Currently leads the Bank for International Settlements and was formerly Governor of the central bank of Spain
- Klaas Knot – Professor at the University of Amsterdam and former Governor of the Dutch central bank and former Chair of the Financial Stability Board
- Joachim Nagel – President of the Bundesbank
- Isabel Schnabel – Executive Board member with responsibility market operations
A Bloomberg poll of economists suggested that de Cos and Knot are the front runners. Looking at the candidates that are currently on the radar, it seems that there might be some reservations about where their views sit (or sat in the past) in terms of the spectrum of the Governing Council. For instance, de Cos might be seen by some member states as being too dovish, while Nagel and Schnabel might be seen by others as being too hawkish.
This could leave the door open to Knot, who although was a clear hawk in his early years at the Governing Council, mellowed towards a more pragmatic and centrist position in more recent years. He could be the ‘centrist with a hawkish twist’ that many finance ministers could coalesce around. The earlier than planned appointment could also favour Knot, whose term on the Council ended last year. Though we do note that Germany and Spain are the only two large eurozone member states not to have a national as President, it is not clear to us if that really will be a swing factor in discussions.
Having said that, it is really too early in the process to have strong convictions on the identity of the next President. There may well be some politics in the decision, which opens the door to new candidates. For instance, Lagarde herself was not among the early favourites before her appointment. It reportedly involved a deal between France and Germany, with the quid pro quo being Ursula von der Leyen’s appointment as President of the European Commission.