• The race is on for the position of next ECB president after reports that Lagarde will depart early from the role. There’s a hawkish tilt to the quartet of candidates currently in the frame to replace her, but also various political or institutional obstacles. Given these, the most neutral candidate, Hernandez de Cos, looks to be the most straightforward pick to us at this stage. But as ever it will be a murky, political process with various other key ECB positions also up for grabs. A compromise candidate could emerge later, just as Lagarde herself did in the race to succeed Draghi.
• In terms of policy, Lagarde’s successor looks set to inherit policy in a ‘good place’, in the absence of shocks. We doubt he or she would rock the boat initially. Further ahead, however, a new president may be more willing than Lagarde to fine tune policy from the current setting. We continue to see risks skewed towards more easing.

The starting gun has been fired in the race to succeed Lagarde

There is a hawkish slant to the list of frontrunners

Soon after Trump nominated Kevin Warsh as his Fed chair pick (see here), focus has turned to central bank succession across the Atlantic with reports that Christine Lagarde will step down from her role as ECB president before her eight-year term ends in October 2027.

The logic, it seems, is that by stepping down early it would allow French president Macron to hold some influence in the decision over her replacement before the next presidential election in April next year. Polling suggests that there is a real chance of a hard right National Rally victory.

The fact that this consideration could be relevant to choosing the ECB president highlights that it will be a pretty murky, political process. The ECB president is appointed by the European Council of member states (by qualified majority). There will be a lot of behind-the-scenes horse trading with several other ECB roles also up for grabs. Four out of the six positions on the ECB’s Executive Board are set to expire before the end of 2027. Vice President Luis de Guindos will be replaced in June, and both chief economist Philip Lane and influential hawk Isabel Schnabel next year.

Schnabel herself is one of the leading candidates to succeed Lagarde as president. Here is a snapshot of the most-frequently cited names:

• Klaas Knot: Long-serving president of the Dutch central bank (2011-2025). Known as a hawkish voice when on the ECB Governing Council.
• Pablo Hernandez de Cos: Previous Governor of the Bank of Spain (2018-2024), now general manager of the Bank for International Settlements. Technocrat with a more neutral/pragmatic monetary policy stance.
• Joachim Nagel: Bundesbank president since 2022. Well-liked, hawkish (but more moderate than many Bundesbankers).
• Isabel Schnabel: Current ECB Executive Board member. German, influential, strong hawkish voice.

Musical chairs and deal-making ahead

While there is a quartet of current favourites, we stress that it is still early days, even if the process is fast-tracked. Front-runners haven’t always done well in the past – Lagarde herself did not feature in most initial discussions around Draghi’s replacement. The political nature of the process means that a compromise candidate could emerge later in the piece.

We also see various obstacles to the names in the frame currently. Firstly, there are two German candidates. The euro area’s largest economy has never held the ECB presidency and there may be a sense that Germany, after waiting patiently, is next in line. But the timing is certainly hindered by Von der Leyen’s European Commission presidency, which will end in 2029. It would be hugely difficult, politically, for Germany to hold two of the top European jobs simultaneously. For Schnabel there may also be some legal obstacles involved in assuming the presidency while on the Executive Board.

Knot’s hawkish reputation may hinder him, as could the fact that there is already Dutch representation on the Executive Board with Frank Elderson holding a position until 2028.

That leaves Pablo Hernandez de Cos as arguably the most straightforward appointment on the list. The sustained outperformance of the Spanish economy in recent years could also support his case at the margin, although there may be some desire to keep a European at the helm of the BIS.

That said, it’s important to note that the VP choice will also be tied up with the presidency selection. Six candidates have been put forward to replace de Guindos in June, and there will be a preference to balance north/south representation. It’s certainly hard to see Centeno (from Portugal) combine with a Spanish president.

If the political hurdles for Germany to hold the presidency of both the European Commission and the ECB are too high, as we suspect they will be, then the chief economist position could be seen as a consolation. But there are various well-qualified, female potential candidates from France (e.g. Laurence Boone, previous OECD chief economist) who could pose a challenge to that – all the VP candidates are male and there will certainly be a desire to have some gender balance on the Executive Board.

Lagarde’s successor seems set to inherit a well-balanced policy landscape

Looking past the speculation and upcoming musical chairs, it’s worth noting that the euro area is enjoying a period of monetary policy stability. Rates are in the middle of the ECB’s estimated range of neutral, and headline inflation has been well-behaved for an extended period now. We expect a moderate inflation undershoot this year but, in the absence of shocks, Lagarde’s successor will likely inherit a well-balanced policy landscape. It’s certainly not the worst time to have a succession sideshow.

In terms of policy, we threw in the towel on our rate cut call in December (see here) after the sustained ECB guidance around its intention to stand pat. While our base case is now for unchanged rates, we maintain that risks are tilted towards more easing as the underlying disinflation process continues. Lagarde’s successor will be faced with the same fundamentals (with energy price developments the obvious upside risk).

That said, there is a notably hawkish tilt to the list of possible candidates for president shown above. This may indicate some preference for a firm commitment to anchoring inflation expectations after the 2021-23 inflation shock. More broadly, it would draw a line under the period of ultra-loose crisis policy.

On the other hand, if the timing and motivation of Lagarde’s departure is as reported, then we imagine that Macron will seek to push back against overtly hawkish candidates given the backdrop of weak demand and sub-target inflation in France. Hernandez de Cos is the exception among current frontrunners as a more neutral candidate and hence could benefit from this. That supports our view that, as things stand, he is most likely to succeed Lagarde.

In any case, we would expect broad continuity while a new president finds their feet, with no immediate change to the policy setting. But it’s plausible that there would be more willingness to calibrate policy further ahead. Under Lagarde the ECB has pressed the ‘good place’ mantra since last summer, indicating the bar for rate adjustments (in either direction) is high. A new president might find it harder to sit on his or her hands.

The Good Place (Exhibit 1)

The Good Place (Exhibit 2)