Could a German finally run the European Central Bank? Mythology from the institution’s founding 28 years ago suggests there was a gentlemen’s agreement then to prevent this, given the ECB was initially modelled on the Bundesbank and based in Frankfurt.
Those conditions were central to the complex bargain with France and the rest of the European Union to ‘Europeanise’ the Deutsche Mark into the euro. German central bankers and economists had been wary of the idea, but Chancellor Helmut Kohl favoured it – in part to dampen reservations across the Rhine about German reunification.
A seasoned ECB official drily observed to OMFIF that, ‘If there ever was such an agreement, the gentlemen in question are all dead.’
The legal and political horse-trading over the ECB’s management is gearing up because the four best-known figures on the six-person board – President Christine Lagarde, Vice President Luis de Guindos, Isabel Schnabel and Philip Lane, in charge of market operations and economics, respectively – all depart in the next two years.
Germany started mooting candidates for the ECB presidency in the 2010s. Axel Weber and then Jens Weidmann, two Bundesbank presidents, met opposition from other European countries for their hawkishness and, for this reason, were not fully backed by Chancellor Angela Merkel. Weber might now be thought vindicated in the wake of the asset price inflation he warned about, partly driven by cheap money, but in Weidmann’s case the other countries’ forebodings may have been prescient.
Weidmann’s problematic orthodoxy
As one observer predicted in 2019, Weidmann’s orthodoxy would have made future crisis management extremely problematic. By mid-2020 the ECB was using its new pandemic emergency purchasing programme to settle government bond markets rattled by the second-round economic effects of the Covid-19 crisis.
At the time, the German constitutional court was already contesting the legitimacy of the previous iteration of quantitative easing, the public sector purchase programme. Plenty of German observers regarded these QE activities as monetary financing of budget deficits – expressly forbidden by European legislation and a legacy of the economic mess arising from Germany’s excessive money printing to finance the first world war and subsequent post-capitulation obligations.
The current German contenders, Schnabel and Joachim Nagel, Weidmann’s successor, are more nuanced in their central banking orthodoxy. Schnabel gave slightly reluctant but skilful accounts of why ECB asset purchase schemes have been necessary to ‘protect the transmission of monetary policy’ in times of stress. By contrast, Lagarde, describing the same process, had previously got into a tangle about the ECB not being there to ‘close the spreads’ on Italian government debt.
Lagarde is apparently suggesting that a legal impediment preventing a second board term for Schnabel should be reviewed, while also saying there are other good candidates. Schnabel is highly regarded for her work ethic and her broad intellectual output, according to an acquainted German asset manager. But influential non-German officials say she lacks a European support base. ‘She has no chance,’ one says. One well-connected observer believes the legal issue is a face-saver to facilitate withdrawal from the candidate shadow-boxing – and to prepare an entry point for other jobs.
Gender and geographical balance
The six-strong ECB board is two-thirds men. Without Schnabel and Lagarde, it will struggle to pursue gender balance at a time when the phasing of the tenures and the rotation between larger and smaller euro members will already heavily complicate the task (Figure 1).
ECB executive board term expirations (2026–31)
| Name | Role | Term expiration |
| Luis de Guindos | Vice president | May 2026 |
| Philip Lane | Chief economist | May 2027 |
| Christine Lagarde | President | October 2027 |
| Isabel Schnabel | Executive board member | December 2027 |
| Frank Elderson | Executive board member | December 2028 |
| Piero Cipollone | Executive board member | October 2031 |
Source: ECB
The vice presidency will have a bearing. In a series of secret ballots at their 19 January meeting, the Eurogroup of EU finance ministers formally nominated Boris Vujčić, the well-regarded governor of Croatia’s central bank, a member of the euro area since 2023. Vujčić is a trained monetary economist, highly experienced in European affairs and leans hawkish. This disposition and his nationality somewhat define the parameters for the field of presidency candidates, where big-small, north-south, hawk-dove are offset, though these considerations should not be overplayed, several officials have told OMFIF.
Competence is the key. Former finance and economy ministers – like Lagarde, as well as Olli Rehn and Mário Centeno, Finnish and Portuguese unsuccessful candidates for the vice presidency– might be viewed as more able to navigate pressures arising from excessive budget deficits. On the other hand, a monetary technocrat (personified by the three presidency candidates, Klaas Knot of the Netherlands, Spain’s Pablo Hernández de Cos and Nagel) might be regarded as safer counterpoints to attempted politicisation of the US Federal Reserve.
Nagel would be the non-German’s German: steeped in his country’s institutions on the one hand, but a careful reader of the political room on the other. Unusually for his guild he is able to deploy levity and charm as well as engage in central-banking esoterica. An esteemed non-euro area former central banker who regards Nagel as the most suitable successor to Lagarde described him to OMFIF as ‘the most stable person heading the Bundesbank since Karl Otto Pӧhl’ (the legendary 1980s Bundesbank chief). He added: ‘Paris should grab that while they can.’ (Backing up this point, senior French officials regard Nagel with notable sympathy).
Nagel played a key role for the Bundesbank in SofFin, the now-forgotten but effective bail-out vehicle, which rescued the German financial sector from the 2008 crash. He has an instinctive understanding of capital markets’ vicissitudes. He also spent time at the Bank for International Settlements and KfW, the well-regarded German development bank.
Politics of presidency
Nagel’s candidacy faces two major conundrums. He is a member of the Social Democratic Party (SPD), the junior partner to Chancellor Friedrich Merz’s Christian Democratic Union in a typically grumpy coalition, although it is possible that his candidacy might emerge from bargaining on other issues such as pension reform. Merz also has a weather eye for politics to his Right.
The principal German opposition party is Alternative for Germany (AfD), which started as a prickly coterie of anti-euro academics, now topping opinion polls. Its leader, Alice Weidel, a former financial analyst, was a sceptic of the euro before she was a populist. Some have speculated that Merz would sooner support the candidacy of Dutchman Knot, a mellowing hawk, who already harboured presidential ambitions in 2018. If Knot got the job, Germany could acquire a like-minded voice without spending undue political capital at home and abroad.
Nagel’s second, related hurdle is that he will need to balance a reassuring domestic-orientated hawkishness with a potential openness to unorthodox crisis management, such as intervention in a French sovereign debt crisis, which impacted the transmission of monetary policy. The ECB has an unused tool ready for such eventualities in the form of the transmission protection instrument, but it is easy to imagine the German political troublemaking that might accompany its deployment.
France has a stubborn budget deficit at around 5% and a gently rising debt-to-gross domestic product ratio of 115%, well exceeding the Maastricht criteria of 3% and 60% respectively and straining the yield difference between German and French government debt. Germany’s debt-to-GDP ratio is low relative to peers at close to 60% but is also in breach of those criteria and steadily rising after defence spending was moved outside Germany’s debt brake.
The expected economic growth from this fiscal expansion is only just materialising after a period of torpor exacerbated by the effects of the Ukraine war, structural changes in the trading relationship with China and tariffs in the US. The demographic challenge that partly inspired the debt brake shows no sign of remedy.
A seasoned fixed-income head at a German asset manager suggested to OMFIF that his country’s fiscal path might cause the Franco-German spreads to converge from below, with an outside chance that German yields would hit parity to Italy’s – unthinkable in the past.
The case for strategic autonomy
Nagel has a good chance of achieving hawk-dove equilibrium. He carefully moved away from Germany’s traditional role as vanguard for the euro hawks. He told OMFIF after his appointment that Germany paid an undue political cost by always sparing the blushes of the like-minded countries hiding behind the Germans at monetary policy-making meetings. Neither is he a dove. He fastidiously uses artificial intelligence to calibrate the perceived stance of his speeches.
In recent appearances he has passionately espoused the case for European ‘strategic autonomy’, as the US – once regarded by many Germans as an enlightened progenitor of their republic – becomes mercantilist, risky and actively hostile in critical sectors. The Bundesbank is reviewing its use of non-European technology.
Jörg Kukies, Germany’s able former finance minister, without whom Germany would have probably thwarted the EU’s important pandemic joint borrowing initiative, Next Generation EU, might theoretically be considered, but he is likely to announce a new private sector role in the months to come.
A German candidacy might ultimately be disbarred by a consideration away from the central bank: the Commission presidency of compatriot Ursula von der Leyen, reconfirmed at the end of 2024 with lukewarm endorsement from the parliament (401 versus 306 votes).
Yet one French official, unprompted, voiced a weighty (yet still hypothetical) caveat. If von der Leyen were to end her second five-year term early – to succeed Franz-Walter Steinmer as Germany’s first female federal president in February 2027 – then understandable European qualms about Germans simultaneously occupying Europe’s top two jobs would melt away. On the other hand, Merz would be highly reluctant to orchestrate the accession to Germany’s head of state of a politician who is both not popular in Germany and a prime supporter of his erstwhile rival Merkel.
Treating front-runners with scepticism
The current front-runner, according to a Financial Times poll of European economists, is a non-German: Hernández de Cos, although he is only six months into his tenure at the BIS. However, surveys of economists need to be treated with healthy scepticism. The corresponding poll in 2018 favoured Finnish central banker Erkki Liikanen to succeed Mario Draghi. Instead, Lagarde was appointed in a surprise choice, proposed by French President Emmanual Macron with Draghi’s support as part of a political deal bringing von der Leyen to the Commission.
Lacking a finance ministry or unitary government to report to, the ECB benefits from built-in independence. But the process for appointing its chief executive is complex, opaque and in some ways arbitrary – via the committee of European governmental chiefs, the European Council, including non-euro members.
Predicting the jousting at a meeting in summer 2027 – when, after the expiry of his second five-year term, Macron will be replaced by a new French president – appears a fool’s errand. It is far too early for market traders to start placing bets on the consequences for ECB policy. But, especially if storm clouds deepen over Fed politicisation and general Donald Trump aggressiveness, convoluted deal-making over the ECB’s future is likely gradually to move closer to the headlines.
John Orchard is Chairman of OMFIF’s Digital Monetary Institute.
