Lagarde to step down early as ECB president, race to succeed her begins

European Central Bank President Christine Lagarde announced she will step down in early 2027, kicking off the race to succeed her. Lagarde will leave on Feb. 7, 2027, the ECB said in a statement Thursday. She succeeded Mario Draghi in 2019 as the institution's fourth president and the second from France. Her term had been due to end in October 2027. "I leave this institution with the feeling of a job well done and an ECB that is ready for the future," Lagarde said in a video message. European Council President Antonio Costa said the process to find a successor to ECB President Lagarde will start Thursday. "To ensure a smooth transition to the next leadership of the ECB, the appointment procedure for her successor will be launched today and conducted without delay, so that the European Council can take a decision in a timely manner," he said in a statement Thursday. German bunds and other euro-area bonds held small gains after the announcement. The 10-year German yield was flat at 3.36%, one basis point lower than the previous day, while the French spread over bunds was stable at 154 basis points. Lagarde's departure will open one of Europe's most important leadership contests, with her successor responsible for setting interest rates for the euro area's 21 member states and more than 350 million people. "To ensure a smooth transition to the next leadership of the ECB, the appointment procedure for her successor will be launched today and conducted without delay, so that the European Council can take a decision in a timely manner," European Council President Antonio Costa said in a statement. Succession race: De Cos leads, but not by a wide margin Spain's Pablo Hernandez de Cos and the Netherlands' Klaas Knot are vying for Lagarde's job. A survey conducted in October showed that De Cos, a former Bank of Spain governor who now heads the Bank for International Settlements, was the favorite. Twelve economists surveyed favored De Cos and nine backed Knot, indicating that while De Cos is in the lead, the gap between the two is not wide. Rumors about Lagarde's impending departure had long been swirling. She repeatedly declined to commit to serving her full eight-year term. At the same time, there was widespread speculation that she was interested in taking over the World Economic Forum, the organizer of the annual Davos meeting. Lagarde also said she might want to play a role in France's presidential election campaign next spring, but explicitly ruled out running for the top office. Those ambiguous remarks frustrated ECB colleagues, some of whom worried it was not a good sign for one of Europe's most important economic institutions. A major leadership shake-up amid a complex situation "Throughout its history, the ECB has successfully completed leadership transitions while fulfilling its mandate. This time will be no exception. I am confident that the ECB will continue to serve Europe with the same dedication in the period ahead," Lagarde said in a memo to staff. The announcement comes as the US and Iran have yet to reach a lasting peace agreement. The ECB has already raised rates in June and September, and markets expect further policy tightening. Meanwhile, global bond yields have surged, with investors particularly nervous about France's public finances. The premium investors demand to hold French 10-year debt over German bunds recently touched its highest level since 2011, fueling speculation that the ECB might intervene. Lagarde said projections indicate inflation will return to target around the end of 2027, but critics will accuse her of breaking a commitment not to leave her post when the outlook is uncertain. Before Lagarde, the Netherlands' Wim Duisenberg was the only ECB president not to complete a full term. But his early departure was agreed in advance to resolve a deadlock between France and Germany before the ECB was founded in 1998. European leaders will hold summits in November and December to try to select a successor. Beyond the favorites, a dark horse cannot be ruled out Lagarde herself only came into view at the last minute. Governments must also choose a successor to ECB Executive Board member Isabel Schnabel. She will end her term a year early and join the International Monetary Fund in early 2027. With Chief Economist Philip Lane's term also due to expire next May, governments may seek a package deal covering all three positions. Lagarde's early departure could trigger accusations of political interference in the ECB's independence, because the timetable allows French President Emmanuel Macron to help shape the succession before his term ends. Polls show far-right candidate Marine Le Pen could win the first round of the Elysee race. The Bank of France governor also resigned early, and Macron appointed his chief of staff, Emmanuel Moulin, to the post.