The EU’s central banker drama

Two weeks ago, European Central Bank (ECB) boss Christine Lagarde confirmed months of rumours: she’s stepping down in Feb, ahead of her October finish line.

Why? Not to spend more time with family or scarves, but because she fears that sticking it out until late 2027 could leave the bank, aka Europe’s monetary guardian, in a sticky situation.

That’s because 2027 will see high-stakes elections right across Europe, including in Estonia, France, Finland, Greece, Slovakia, Poland, and Italy.

So with euro-sceptics polling strongly across the bloc, Lagarde and her institutional guard are basically now pulling a pre-emptive strike: lock in a strong and technocratic bank leadership before (say) France’s next euro-sceptic president gets the reins, whether that’s the left’s Mélenchon or the right’s Le Pen.

Or to put it in US political terms, Lagarde is doing whatever it takes to avoid pulling an RBG.

Now of course, Lagarde can really leave whenever she wants, but critics are calling this a stealthy and undemocratic shenanigan to stack a key European institution.

Lagarde’s supporters, however, point out that the ECB’s only real role is to a) maintain its own independence, so that it can b) keep Europe’s inflation anchored.

And if you’re wondering what that actually means, France’s Le Pen (now a clear favourite to be France’s next president) just gave the perfect example last month: she called on the ECB to buy up French debt and ease her country’s borrowing costs.

Maybe that sounds okay, sweet Intriguer, but EU law bans the ECB from directly financing national governments! Otherwise, you risk your central bank just becoming an ATM for high-debt capitals like Paris, shifting risk onto others (cue fury in Berlin), eroding trust in the euro, and fuelling inflation across the bloc, all without actually fixing the problem, which is that Paris spends more than it earns.

So that’s what Lagarde wants to avoid. She’s also flagged an interest in getting her voice back (ECB presidents must stay neutral), plus there are rumours she’ll run the World Economic Forum (WEF), thus completing her global economic governance trophy cabinet after leading a G20 finance ministry, the IMF, and now the ECB.

But then… who’ll replace her?

With the runway now shortened, the deadline for nominations just closed last week, presenting a neat two-horse race:

First, there’s Spain’s Pablo Hernández de Cos, former Bank of Spain governor (2018 to 2024) and now boss of the Bank for International Settlements (BIS) in Basel, a sort of central bank for central banks.

Second, there’s Klaas Knot, who likewise ran the Dutch central bank (2011-2025) alongside board stints with the IMF, ECB, and BIS!

Either would satisfy Lagarde’s save-the-union criteria, as they’re both essentially the same person: ultra-credentialed, ultra-experienced centrist technocrats who know how to build consensus in these kinds of cross-border supra-national banks.

Sure, Knot is slightly more hawkish (tougher on inflation) and has a slightly funnier name (haha Klaas Knot), but the fact Europe just nominated two economic doppelgangers for the top role is itself an interesting signal that Europe’s member states share a desire for boring, steady-handed continuity at their central bank.

But… who’s tipped to win? 

The final decision rests with EU leaders, acting by a reinforced qualified majority (72% of countries covering 65% of the euro-area population). They’re hoping to wrap this thing up by Christmas for a smooth Feb handover.

A January survey of economists named Knot as the frontrunner, but lots can change in 11 months, and it really comes down to rank horse-trading: tough to win without the blessing of France and Germany, who’ll want (say) a seat on the board.

Plus whoever wins, the poisoned chalice remains the same: inflation from the Iran war, soaring debt levels (looking at you, France), punitive bond markets, and a war roaring just over the border.

Sound even smarter:

• Christine Lagarde was seen as an unorthodox choice back in 2019 due to her lack of experience as a central banker.

• Plot twist: five-time Olympic medallist Teddy Riner has announced he’s running for the French presidency on a centrist, unifying platform. He’s genuinely popular but his lack of party machinery means his odds are low.