One person’s authentic piety is another’s scheme to manage the European institutions. It is now clear that the stage-managed 9 February announcement of François Villeroy de Galhau’s early retirement from governing the Banque de France to run a Catholic children’s charity was part of the French state’s effort to orchestrate the future leadership of the European Central Bank, well ahead of a possible win for a populist far-right president in the April 2027 elections.
Betting markets expect Jordan Bardella of the National Rally party to triumph. President Emmanuel Macron is now moving at speed not only to choose a new governor for the Banque de France but also to arrange an early European Central Bank departure for President Christine Lagarde; this speeds up a complicated race for her succession that could still end in a difficult-to-resolve stalemate.
The most likely successor for Villeroy de Galhau is thought to be Emmanuel Moulin, a confidant of Macron as secretary-general of the Élysée Palace, who was director of the French Treasury in 2020-24.
As a key adviser during euro unrest 15 years ago to Nicolas Sarkozy, the then French president who has now moved closer to the National Rally, Moulin combines bipartisan credentials with a classic record of a high-level multi-purpose French financial functionary. Whatever complex manoeuvres lie ahead over the ECB succession, they are likely to bear Moulin’s imprint.
Political turmoil in France
Since 2023, France has experienced political turmoil, underpinned by and interacting with an intractable and unsustainable budget deficit that has preoccupied government officials and advisers for 20 years. Whether the ECB will be obliged eventually to solve a sovereign debt crisis in France with its as-yet-unused and still controversial transmission protection instrument is a frequent topic in policy circles. The debate overshadows considerations for the ECB presidency succession.
Although – or because – France has domestic political challenges, it continues to assert itself at a European level. Macron has renewed a call for joint and several debt, which would benefit and be welcomed by euro-denominated bond markets but was again rejected by the German government. Chancellor Friedrich Merz and his senior officials suspect efforts by Germany’s potentially illiquid neighbour to co-opt its creditworthiness and are concerned about once again seeing its constitutional court obliged to contest European financial collectivisation.
France is also seen to be drawing to Paris the regulatory output of savings and investment union, the latest name for thus-far inadequate attempts to forge a single market for capital and banking services. A well-regarded German asset manager told OMFIF: ‘The French are very good at this, whereas the Germans are children by comparison.’
Who replaces Lagarde?
Lagarde’s future has been part of the puzzle. One well-connected observer suggested to OMFIF that she is moving soon to the World Economic Forum to prevent its ‘Trumpification’. This is in line with highly plausible rumours that have now been circulating for several months. Lagarde walked out of an anti-European speech at Davos last month by Howard Lutnick, US secretary of commerce, at a dinner hosted by current WEF co-chair Larry Fink of BlackRock, who has mused about moving the gathering to Detroit. A former colleague who admires her work said that ‘her departure speech already writes itself. She has managed to steer the ECB successfully through both deflation and inflation challenges during her term’.
Macron rather than Bardella will now be able to help determine Lagarde’s successor, who most observers currently expect will not be French. Other future roles are put back in play, however. On the basis that one country cannot occupy too many top posts in Europe’s institutions, Lagarde’s departure theoretically frees up roles such as the presidency of the European Commission, although Ursula von der Leyen has a mandate until 2029. An observer suggested to OMFIF that if France had the Commission, on top of the Paris-based European Banking Authority and European Securities and Markets Authority, the ECB is anyway surplus to strategic requirements.
Who will the European Council choose to replace Lagarde, now sooner than expected? Informal alliances between national heads of government are shifting as transatlantic assumptions come under strain, the Ukraine war and its costs drag on and core-Europe stagnates. The Franco-German alliance, looking forward to a renaissance after the froideur of Macron’s relationship with Merz’s predecessor Olaf Scholz, hasn’t found one. Merz is apparently irritated that France helped outmanoeuvre Germany on a proposal to deploy for Ukraine frozen Russian assets at Euroclear, favouring instead more ‘Eurobonds’ from the well-regarded borrowing infrastructure set up to right the European economy from the Covid shock.
Germany has since turned to make common cause with Italy. Merz and Giorgia Meloni, Italy’s prime minister, superficially an unlikely pairing, are making common cause on European deregulation in pursuit of competitiveness and a version of European ‘strategic autonomy’, which somehow retains vestiges of the transatlantic partnership.
This pairing might have the unobvious result of excluding one of the German candidates from the ECB race. Fabio Panetta, back at Banca d’Italia after a stint on the ECB board, is said to have developed a dislike there of Isabel Schnabel, ECB board member. It otherwise remains an open race, with the 19 January selection of Boris Vujčić as vice president leaving the permutations open in terms of the balancing act between Europe’s regions and attitudes to money.
Obvious candidates not without flaws
Some of the more obvious candidates are already setting out their agendas and eligibility in relevant forums. Those candidates also have immediate snags. Popular choices such as Pablo Hernández de Cos, general manager of the Bank for International Settlements since July 2025, and Joachim Nagel, Bundesbank president, are, for example, affiliated with different parties to those of their countries’ leaders. Klaas Knot, former governor of De Nederlandsche Bank and widely respected for his economic and technocratic experience, is currently not in an official sector post.
Knot has developed a handy approach to stated policy on the unorthodox monetary instruments that rattle euro-sceptics in Germany and his own country, but may be needed if there is a French sovereign bond crisis: the best way to prevent its use is to declare commitment to it. This is a mechanism that former ECB President Mario Draghi called ‘open-mouth operations’ – where it is enough to oblige markets to consider the possibility that the central bank might push against them.
A new name has recently come into contention, Nadia Calviño, the Spanish president of the European Investment Bank since January 2024. However, there are doubts about the depth of her monetary expertise. Additionally, if either she or de Cos were to leave their highly regarded jobs after just a short time, justified concerns would arise about potential damage to the reputation of these premier international institutions.
Prioritising Europe’s strategic autonomy
Europe’s ‘strategic autonomy’, meanwhile, is starting to become concrete policy, a theme already in the informal ECB presidency hustings. Although the US has dominated the distributed ledger technology-based finance arena in the last year, Europe is making important progress in what may turn out to be a hare-and-tortoise race. The ECB is preparing the means for its financial institutions to settle in digital public money and ideas are emerging to solve the politically intractable challenge of a liquid ‘safe asset’ in euro – via stablecoins.
Nagel has started to explore in public how the European project may once again be moved forward and defended by its money ecosystem. Notions such as these might, sooner than expected, swing the deliberations of the European Council. Nagel’s leanings on a strong mix of key policy issues are undoubtedly closer in line with a majority of EU countries (although not always with Germany’s) than those of any other candidate.
How to resolve a possible stalemate
On the other hand, especially in view of three important ECB jobs all needing decisions over the next year, the different candidates for Lagarde’s post may find themselves stalemated by intractable political and personal factors.
If that is the case, Europe might, in a semi-emergency, turn to Villeroy de Galhau, an urbane central banker with an official and private banking background and strong German connections. He has headed the Banque de France for 11 years and has chaired the Bank for International Settlements since 2022. He would be the third French president of the ECB since it started in 1998. But exceptional circumstances might justify an exceptional prolongation of French stewardship.
Villeroy de Galhau has won acclaim as a pragmatic bridge-builder between different European factions. As one of his central banking colleagues puts it, his forthcoming role as head of children’s charity Fondation des Apprentis d’Auteuil is unlikely to be the last stage in an illustrious career.
John Orchard is Chairman of OMFIF’s Digital Monetary Institute.
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