Lagarde May Step Down Early: Countdown Begins for Power Transfer at the ECB

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European Central Bank President Christine Lagarde is expected to step down before her term ends in October 2027. Europe’s top monetary policymaker hopes to complete the handover before France’s presidential election in April next year, giving outgoing French President Macron and German Chancellor Merz the chance to select a new head for one of the EU’s most important institutions.

According to a person familiar with Lagarde’s thinking, Lagarde intends to leave the position before the French election. This move will impact the continuity of eurozone monetary policy and allow a buffer period for the transfer of power at the European Central Bank. The ECB responded that Lagarde is fully focused on her mission and has not yet made any decisions regarding the end of her term.

Lagarde’s plan for early departure comes amidst great uncertainty in France’s political landscape. Far-right National Rally leader Marine Le Pen continues to lead in polls and is expected to make it to the second round of the presidential election. Both Le Pen and her deputy Bardella hold Eurosceptic positions, which may complicate operations for EU institutions such as the European Central Bank.

This personnel change also reflects Macron’s efforts to consolidate key positions before leaving office. Banque de France Governor François Villeroy de Galhau has already announced that he will leave in June, 18 months earlier than his original term. Critics have pointed out that Macron is clearing the way to appoint new candidates.

The competition for successors has already begun

A survey by the Financial Times of European economists last December showed that former Spanish central bank chief Pablo Hernández de Cos and Dutch central bank head Klaas Knot are hot contenders for the next ECB president. Executive board member Isabel Schnabel has already expressed interest in the position. According to sources, German central bank president Joachim Nagel is also interested in competing for the post.

According to sources familiar with discussion in Paris, Macron has wanted for months to have a say in the choice of Lagarde’s successor. Constitutionally, Macron cannot run for a third presidential term.

Lagarde became ECB president in 2019 after leaving the International Monetary Fund, the result of an unexpected deal between Macron and then German Chancellor Angela Merkel. They agreed that Lagarde would take over the ECB, while then-German Defense Minister Ursula von der Leyen would become President of the European Commission.

Monetary policy shifts amid crisis

During Lagarde’s tenure at the ECB, she oversaw a series of crises, including the COVID pandemic, the Russia-Ukraine conflict, and trade disputes with the US. During her term, eurozone inflation surged to almost 11% by the end of 2022, largely due to the energy price spike triggered by the Russia-Ukraine war and pandemic-related supply chain bottlenecks.

Within just over a year, the ECB raised rates from minus 0.5% to 4%. Starting from mid-2024, as inflation returns to the ECB’s 2% medium-term target, the central bank has lowered borrowing costs to 2%.

In a Bloomberg TV interview last month, Lagarde said she initially thought the ECB term was five years when she accepted the position. Observers believe this remark could signal preparations for an early exit. She recalled that after agreeing to become ECB president, she told Macron, "I will work in Frankfurt for five years," to which Macron replied, "No, it’s eight years."

Political considerations drive personnel arrangements

Macron’s moves to consolidate key positions ahead of 2027 also include recently appointing a close ally as head of France’s Audit Office. Banque de France Governor François Villeroy de Galhau announced this month that he will depart in June, 18 months ahead of schedule. Although Villeroy de Galhau said he is leaving to join a charity, critics argue Macron is creating room to appoint new candidates.

Last summer, after Klaus Schwab, former chair of the World Economic Forum, said Lagarde had discussed leaving early to take over leadership of the World Economic Forum, an ECB spokesman emphasized Lagarde’s "determination to complete her eight-year term." Lagarde herself told reporters at the ECB headquarters last June: "I’m sorry to tell you, you can’t get rid of me just yet."

The French presidential election next April is critical for the eurozone’s second-largest economy and the broader EU. Le Pen was convicted last year of misusing European Parliament funds, which could disqualify her as a National Rally candidate, but she said that in such a case, Bardella would step in to run. Le Pen is currently appealing the conviction.

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