By Francesco Canepa
FRANKFURT, Feb 18 (Reuters) – The former governors of the Spanish and Dutch central banks are seen as the front-runners to replace Christine Lagarde at the helm of the European Central Bank, likely in a broader political deal that could see both of them end up with a major job.
Lagarde plans to leave her position before the end of her term to give outgoing French President Emmanuel Macron a say in picking her successor before elections that could be won by the eurosceptic far-right, the Financial Times said on Wednesday.
Economists said an early Lagarde exit boosted the chances of European leaders agreeing to fill in a package all three ECB Executive Board seats that are set to come up for grabs next year: Lagarde’s own, that of chief economist Philip Lane in May 2027 and Isabel Schnabel’s at the end of 2027.
Former Dutch governor Klaas Knot and his Spanish colleague Pablo Hernandez de Cos were seen by economists as the leading candidates for two of those seats, meaning whoever did not get the top job could get another.
Both are perceived as experienced central bankers who would guard the ECB from political pressure – a hot topic after U.S. President Donald Trump’s vocal demands on the Federal Reserve – and not deliver major surprises when setting interest rates, which have now been on hold for eight months.
“It’s certain that these decisions will be linked to each other and put in some compromise deal,” Piet Haines Christiansen, chief strategist at Danske Bank, said. “They’re close in time and it’s the same pool of candidates.”
HAWKS AND DOVES
As national central bank governors, the two men sat on the ECB’s rate-setting Governing Council.
Knot was a policy hawk who often dissented with the ECB’s brand of easy-money policy under former chief Mario Draghi but mellowed towards the end of his term, which ran out last June.
De Cos, a dove who showed he was able to change his mind when inflation surged in 2022, took a job as the head of the Bank for International Settlements only last summer.
That could give Knot an advantage if Lagarde’s job were to come up very soon.
“It could boost Knot’s chances, which is a good outcome because he has credibility and a good reputation as a pragmatic hawk,” Frederik Ducrozet, head of macroeconomic research at Pictet Wealth Management, said.
He added De Cos may come across as “a little too dovish”, referring to lower interest rates that favour indebted southern European countries such as Italy and Greece over those with lower debt in the north, such as Germany and the Netherlands.
On the other hand, Nomura’s economist Andrzej Szczepaniak noted Spain had never provided an ECB President, unlike the Netherlands, and that EU leaders have just chosen Croatia’s central banker Boris Vujcic, a policy hawk, as the central bank’s vice-president – both factors that would help de Cos.
GERMAN CENTRAL BANKERS ALSO WANT TOP JOB
For Germany, Bundesbank head Joachim Nagel has shown interest in becoming the euro zone’s top central banker, as has existing ECB board member Schnabel who may, however, face legal hurdles remaining on the Executive Board as its terms are not renewable.
Europe’s biggest economy, which hosts the ECB headquarters in Frankfurt, has never held the presidency.
Economists agreed that all the candidates were competent and would ensure continuity at an institution which prides itself on being impermeable to government pressure when it sets rates.
This brand of central bank independence is coming under threat in the United States, where President Trump is trying to exert greater control over the Fed, and potentially in Britain, where the right-wing Reform UK party has floated changes to the Bank of England and budget office.
“Everyone wants to keep the ECB in stable hands and they want the person who is ECB president to have strong market credibility,” Rebecca Christie, a senior fellow at Bruegel, said. “All the top candidates right now have that”
Only last week, French central bank governor Francois Villeroy de Galhau resigned, meaning Macron will get to appoint his successor too before the spring 2027 presidential election.
WILDCARD CANDIDATES
Equally, all observers cautioned that euro zone governments, which choose the ECB’s president before European Parliament ratifies it, could come up with a surprise name – as Lagarde herself was at the time of her nomination.
The appointment is normally part of a broader negotiation that also involves the job of President of the European Commission. Last time, this went to Germany’s Ursula von der Leyen, freeing up France to secure the top ECB job.
An early Lagarde departure might, however, decouple the positions, according to Spyros Andreoupoulos, founder of the Thin Ice Macroeconomics consultancy, given that von der Leyen’s term runs until 2029.
“It is really too early in the process to have strong convictions on the identity of the next President,” Dutch bank ABN-Amro said in a note to clients. “There may well be some politics in the decision, which opens the door to new candidates.”
(Reporting by Francesco Canepa; Editing by Toby Chopra)
Comments