As expectations harden that Christine Lagarde will announce in September that she is leaving the European Central Bank presidency early, the contest for her succession is entering a new phase. Domestic and international factors are intensifying the contradictory forces affecting the selection chances of the three main candidates.
Assuming no late surprises, these are: Pablo Hernández de Cos of Spain, Klaas Knot of the Netherlands and Germany’s Joachim Nagel, who came out neck and neck in an OMFIF eligibility poll, albeit with different strengths.
Continued speculation about Lagarde
It is now widely expected that Lagarde, who key contenders praise for her corporate stewardship of the ECB and the development of its esprit de corps, will leave before her eight-year term expires on 31 October 2027. This would facilitate a ‘package deal’ – probably at the end of this year – for European Union leaders to decide cohesively how to fill not just Lagarde’s position but also those of fellow board members Philip Lane and Isabel Schnabel, in charge of economics and market operations respectively, whose terms expire in May and December 2027.
The contingent factors for the personnel choices are complex, extending in some scenarios into as yet inconclusive considerations about Lagarde’s role in the French elections in April, as well as the possibility of changes to the Commission presidency before term.
A broader shift of designated posts before the April 2027 French presidential elections would allow President Emmanuel Macron to pre-empt populist or disruptive decisions from a putative Rassemblement National government next year. Many observers expect the ECB’s next board member for economics to be a French nominee proposed by the Macron government. Lagarde’s tenure past May 2027 would make this difficult, on the grounds that two French nationals would sit on the board for five months.
Lagarde added to speculation of an early departure by telling Les Echos newspaper on 2 July that, if the economic environment calmed, she might wish to leave early to provide ‘a European voice’ in the French presidential debate. ‘You are not going to see the back of me before 2027’ was her line at an ECB press conference on 23 July – indicating that exit in the early months of next year remains a strong possibility.
The flare-up of hostilities in the US-Israeli war with Iran, despite the ceasefire agreed in April and extended in June, triggering further upwards pressure in the oil price, validates Lagarde’s decision not to quit this year. Her caution takes account of the risks to stability of bringing in a new ECB president at a time of international monetary turbulence and probable interest rate hikes in Europe and beyond.
A further rate rise is in contention when the ECB’s governing council meets for its next monetary policy decision-making meeting on 10 September. By a quirk of the ECB’s meeting schedule, the gathering will be at an ‘external’ venue – the headquarters of the Bundesbank in Frankfurt. This could be a symbolically attractive point for a crisis-managing ‘swan song’ from Lagarde, combined with an announcement confirming her exit. Meanwhile, her apparent procrastination about a fixed departure date is described by a person close to the process as ‘driving people crazy’.
Nagel and von der Leyen: two Germans, and none
Two of the top three contenders, Hernández de Cos and Knot, now have official domestic government backing for their candidatures – and have started discreet lobbying of leading governments. Germany, apparently playing for time, is staying silent for now.
There is an important impediment to any German candidate, regardless of merit: the incumbency of a German as European Commission president. Ursula von der Leyen, a former German defence minister, has been in the post since December 2019, with her second five-year term scheduled to end in June 2029. In the delicate and unwritten rules about the equitable distribution and rotation of senior posts at Europe’s institutions, two nationals from the same country simultaneously at the helm of Europe’s two most important institutions is widely regarded as a non-starter.
Even if the terms merely overlap rather than coincide, this factor diminishes Nagel’s chances. But several domestic and European factors keep him in play, beyond his useful capital markets experience. Germany’s low-majority coalition of Chancellor Friedrich Merz’s Christian Democratic Union, the allied Christian Social Union and the Social Democrats (SPD) has to confront an awkward dilemma. It can spend European political capital on a native candidate who may be disbarred purely on nationality grounds. Or it could face the risk of having no German at all in a senior EU position after von der Leyen’s tenure finishes in 2029.
Macron determinism?
Nagel may have support from France, whose influence over the post is underlined by Lagarde’s unexpected advancement to it in 2019 (as the second French ECB president following Jean-Claude Trichet in 2003-11).
The complex French reshuffling to front-run a potential RN government with Macron-determined domestic and European appointments began with changes at the Banque de France. In May François Villeroy de Galhau stepped down more than a year early to make way for seasoned monetary technocrat, Emmanuel Moulin, previously Macron’s secretary general at the Elysée Palace and director of the French Treasury. French officials, who officially deny a broader scheme of Macron determinism, telegraphed the change to German counterparts in advance. Villeroy de Galhau bestowed the Legion d’Honneur on Nagel at a ceremony in the French Embassy in Berlin in June.
Nagel could be in a good position to manage possible Franco-German friction if the ECB is called upon to help rescue an RN government’s access to bond market financing. Nagel’s broader mandate from the Berlin finance ministry at the time of his appointment in December 2021 was to balance German post-war central banking orthodoxy with the political dynamics of the ECB’s governing council. The uncompromising hawkishness of his predecessors had sidelined Germany and strengthened the hand of council members arguing for looser monetary policies. Nagel has materially achieved the mission: maintaining carefully calibrated public vigilance on inflation on the one hand while developing political capital among southern European countries on the other.
Nagel as continuity candidate
Nagel offers the prospect of continuity at the ECB, since he has been on the council without interruption since January 2022. The other two main contenders served as council members for lengthy periods but have now been absent from its deliberations for more than a year. Hernández de Cos, governor of Banco de España until June 2024, became the highly regarded general manager of the Bank for International Settlements in July last year. Knot – who early in the race received caveated support from Lagarde – was president of De Nederlandsche Bank for 14 years until June 2025.
The German position remains that there is no vacancy yet. Von der Leyen has been rumoured to be one of many possible candidates for the German federal presidency, where a vacancy opens from March 2027, potentially unplugging the ‘double German’ conundrum in Nagel’s way. The Merz-led government, an unhappy and unpopular coalition with the populist anti-European Alternative for Germany (AfD) snapping at its heels, may announce its decision in September, when important regional elections in eastern Germany pose potential headaches. With a German ECB candidacy, Merz could counter the narrative that Germany is underplaying its hand in Europe after decades of underrepresentation.
Klaas – un-Knotting a French crisis?
Among the monetary policy issues likely to influence decision-making over the candidature, the next ECB president may be called upon to reconcile likely German objections to the deployment of the transmission protection instrument, a so far unused asset purchasing tool designed to settle disorderly sovereign bond markets. The threat of its use is already regarded as a market-stabilising influence. The German Constitutional Court has challenged the ECB’s right to buy government debt, on the grounds that this represents monetary financing forbidden by the EU treaty on union. This is regarded in Germany as a core issue of central bank independence, drawing on the cataclysmic consequences of Reichsbank money-printing in the early 1920s. Routine informal discussions already take place about how a French sovereign bond crisis might partly be ameliorated by market interventions from the ECB.
Knot, too, would be a good contender to solve this potential crisis. Alongside his central banking and financial stability work, Knot has the broadest career experience among the three candidates, recording tenures at the International Monetary Fund and the Dutch finance ministry. The TPI’s deployment would come with fiscal ‘conditionality’, to move towards sustainable deficit and debt levels. Currently these are 5.1% and 118% of gross domestic product respectively in France, significantly in breach of the 3% and 60% treaty benchmarks. Conducting this discussion with a nationalist anti-European RN government would be an exercise in market brinkmanship. In case of unrest after next April’s elections, Knot would be unencumbered by the complexities of the Franco-German relationship and therefore better placed to navigate interactions between the ECB, wary member states and RN ministers.
Knot’s nuanced views of asset purchasing by central banks may help him win German trust to add to possible French support but could yet be a snag in Italy. Although Prime Minister Giorgia Meloni’s advisers are said to be well-disposed to his candidacy, Mario Draghi, ECB president in the 2010s and later Italian prime minister, may harbour resentment from Knot’s vocal rejection of quantitative easing in 2019. Meloni seems to have a constructive relationship with her former political adversary.
Hernández de Cos and Spain’s turn?
Hernández de Cos continues to nudge pole position. A central banker’s central banker, widely praised by those close to the process for his technocratic competence and experience, he has managed to earn respect from typically hawkish northern observers. He had qualms about the ECB’s September 2023 interest rate increase – the last in a 15-month series – to contend with the energy price shock from the Russo-Ukraine war.
Concerns about his underlying dovishness appear outmoded. Spain’s economy, like Greece’s, is among Europe’s best performers. Outgoing ECB Vice President, Luis de Guindos, suggested as he left in May that Spain, as the fourth largest EU economy, is entitled at least to one of the six board seats, and ideally the presidency.
Hernández de Cos is a firm advocate for completing Europe’s capital markets union, now a programme under the Savings and Investments Union moniker. He is said to favour joint borrowing, which bond markets and reserve managers would welcome but is politically impossible for now. Germany continues to be neuralgic about fiscal union, with the popularity of the AfD making it highly unlikely for the foreseeable future. The BIS chief also favours Europe-wide deposit insurance, an obvious step in the direction of an integrated European banking market, which has repeatedly foundered on German objections.
The digital euro
Other challenges await the victor. The digital euro is due to be rolled out as soon as 2029. The ECB’s wholesale initiative in digitalised money, Pontes, is meeting with near-universal support and may even enable Europe to leapfrog the US in market tokenisation. But the retail central bank digital currency programme has had to battle resistance from bank lobbyists and their political allies, and may still face implementation problems, including the risk of poor adoption which has bedevilled central bank digital currency efforts elsewhere.
Digital euro defenders point to Europe’s failure to create a viable pan-European payments scheme, and the risk that dominant American card schemes might be instrumentalised against European sovereignty in future arguments with the US. Since the threatened annexation of Greenland and the brutally one-sided Turnberry tariff agreement, ECB officials have become less bashful in their pursuit of sovereign European payments, as Nagel explained to OMFIF.
These concerns were crucial in a European parliament vote in March 2026 to advance the project to the next stage, successfully countering the objections of Fernando Navarette, responsible for the digital euro in the parliament, who is sceptical about the idea. A major Spanish bank is said to have had Navarette’s ear in particular. Navarette was Hernández de Cos’s chief of staff at Banco de España in the early 2020s.
Knot and Hernández de Cos both support the project, but not unconditionally. While accepting the sovereignty case and dismissive of the more exaggerated financial stability arguments from bank lobbyists, Knot sees tricky issues to resolve, including the potential costs of sponsoring adoption through artificially low merchant fees on the one hand, and the reputational risk of negligible take-up on the other. Hernández de Cos defends the need to provide digital public money as physical cash use declines, while also emphasising industry coordination.
European institutions have other pressing issues, including so far patchy attempts to implement Draghi’s recommendations to improve capital formation and the single market in finance, at a time when Europe is struggling to keep up with American and Chinese advances in the technologies of the future. The ECB remains a tempting answer to try to resolve national and multilateral failures elsewhere in the EU. The shadow-boxing over its future leader is likely to encounter several more twists and turns before the dénouement.
This is the fourth instalment in an OMFIF series on the future ECB presidency. Read the first, second and third parts here.
Join OMFIF on 17 September for Monetary policy and Europe’s economic outlook with Olli Rehn, governor of the Bank of Finland.
John Orchard is Chairman of the Digital Monetary Institute at OMFIF.
Interested in this topic? Subscribe to OMFIF’s newsletter for more.