The European Union is heading into eight weeks of intense negotiation over two of its most sensitive appointments and financial decisions. Alongside the battle over the multiannual financial framework, worth almost €2 trillion, the early departure of Christine Lagarde has opened a contest for the presidency of the European Central Bank and two other seats on its Executive Board. The ECB sets interest rates for the 21 countries that share the euro.
The rules governing the two dossiers differ, which limits formal horse-trading. But diplomatic and EU sources acknowledge that the political balance and the bargaining game link the two questions, not least because no candidate to lead the ECB has ever prospered without the support of Germany and France.
European Council President António Costa has formally opened the process to replace Lagarde, who announced her departure on Thursday. Leaders are due to discuss the succession at an extraordinary summit on 26-27 November, where EU sources say the aim is for a candidate to emerge. The election could then take place at the 17-18 December summit. A diplomatic source described the timetable as tight and the proposed choreography as the desired route to a smooth and coherent transition, while warning that the negotiations—especially those on the budget—will be hard. If the budget is not closed in December, domestic political pressure on member states will grow further.
Talks on the 2028-2034 budget framework, which requires unanimity, remain bogged down. A proposal from Ireland, which holds the rotating Council presidency this semester, pleased no one. The frugal group led by Germany and the Netherlands is dug in on cuts, while the friends of cohesion—including Spain, Italy and Poland—defend a large budget and oppose touching regional and agricultural funds. France occupies an intermediate position: it defends traditional policies but also demands that national contributions not rise and that more money go to competitiveness. Costa is preparing a new proposal that will also take into account the European Commission's approach to raising fresh revenue through taxes on tobacco, gambling, CO2 emissions, technology companies, electronic waste and cryptocurrencies. Brussels believes these 'new resources' could yield around €60 billion a year.
Both the ECB appointment, decided by qualified majority among eurozone countries, and the budget share political variables. Berlin and Paris are distant and face complicated domestic situations, with the far right rising. The EU has entered an electoral supercycle, and over both issues hangs the French presidential election in April 2027, in which polls make the far-right Marine Le Pen the favorite. That coincidence opens the door to a card swap that could unblock the budget—or contaminate the choice of Europe's most powerful central banker. Diplomatic sources caution, however, that it must not look as if the post is being traded alongside regional funds or the common agricultural policy.
The legal route for appointing an ECB president runs through the Eurogroup, the European Parliament, the ECB itself and the European Council. The independence of the office and the institution is shielded. But the decision requires consensus among member states and is multidimensional. Capitals want the best candidate, preferably one of their own. Those who do not put forward a candidate hope the winner will be close to their monetary-policy views, or they may aim for a lesser post. Geographic quotas and gender diversity also play a role.
Lagarde's succession involves three seats. Besides the presidency, the package includes the position of Irish chief economist Philip Lane and that of German board member Isabel Schnabel, who handles markets. These are three of the six seats on the powerful Executive Board that steers the bank. Monetary-policy decisions also include national central bank governors on a rotating basis. Germany and France are due to lose their seats on the board between January and February, Spain lost its last year, the Netherlands and Italy already have a member, and the sixth seat belongs to Vice-President Boris Vujčić, the Croatian who replaced Luis de Guindos. The renewal is therefore a complete package.
The early favorites for the top job are Spain's Pablo Hernández de Cos, former governor of the Bank of Spain and current head of the Bank for International Settlements, and the Netherlands' Klaas Knot, former governor of the Dutch central bank. Both are well regarded inside the ECB, in markets and in academia. Knot comes from northern Europe, whose central banks tend to be hawks favoring higher rates to snuff out inflation. De Cos comes from the south, where policymakers are often doves more focused on financial stability and growth. Both currently present relatively neutral profiles, as might be expected of candidates seeking the widest possible support. The possible combinations are numerous, and all roads pass through Paris and Berlin. It would be strange for the two big capitals to lose their committee seats, and neither has an unofficial candidate as of today.
One financial source said France has not forgotten 'the Klaas Knot of 2012,' and neither have the Greeks and Italians. At that time, the Dutchman aligned himself with the ECB's hardest wing against support measures for countries in crisis. In Berlin, Chancellor Friedrich Merz has signaled willingness to negotiate the three posts quickly. The explicit backing of Alberto Núñez Feijóo for Hernández de Cos is considered very relevant to Germany's role, according to financial sources, though the risk of blockage remains.
Deadlock is precisely when dark-horse candidates emerge. That was the case with Lagarde in 2019, a compromise solution after too many countries rejected Jens Weidmann, the hardest of the German hawks. The risk of a compromise candidate to resolve an entrenched negotiation is what could leave De Cos and Knot out of the running. Germany gave up the ECB at that same summit on 2 July 2019, but Berlin placed Ursula von der Leyen at the head of the European Commission.
The second prize is the chief economist post, for which names such as France's Agnès Bénassy-Quéré have circulated. The markets chief, on paper the lighter role, still has a strong say at the ECB. Both board members help set the guidelines for monetary-policy meetings on two priorities: price stability, which is enshrined in the EU Treaty, and financial stability, another axis of the bank's policy. Depending on the profile chosen and the president's wishes, the two counselors can carry similar weight.
The timing is especially delicate because France's crisis is driving up its risk premium and threatening to spread to the rest of the eurozone. Direct ECB intervention is far off—the bank has a program but with very strict conditions—yet its words alone can have a strong deterrent effect on speculators punishing France. Lagarde did not refer to her own country's situation in her farewell, though she hinted that she would like to say things she cannot say now. For her successor, chaos in the streets and in the markets will be a first-order factor.
Sources: El País Economía.