The president of the European Central Bank (ECB), Christine Lagarde, resigned this Thursday (29), putting an end to months of speculation about her future. The decision comes as Europe enters a period of increasing economic volatility and controversial electoral politics, especially in its homeland, France.
Lagarde will step down on February 7, giving current European Union (EU) leaders time to choose her successor before the French presidential election, in which polls indicate that far-right candidate Marine Le Pen is the favorite.
The ECB faces inflation risks from a shock to oil prices caused by the war in Iran, while a sharp rise in bond yields, especially in France, threatens to slow growth.
“I leave this institution with the feeling of a good job done and of an ECB prepared for the future,” said Lagarde, 70, in a brief video shared on social media.
A source with direct knowledge of the matter said that Christine Lagarde, former French finance minister and former director general of the International Monetary Fund (IMF), resigned so she could take a stance on political issues in France and around the world. As president of the ECB, she was expected to remain neutral to safeguard the institution's independence.
Markus Ferber, a German MEP for the European People's Party (center-right), said Lagarde's early resignation sent "the wrong signal", considering high inflation, nervousness in bond markets and imminent elections.
“If the impression arises that this departure was timed to coincide with national elections, it undermines trust in an institution that must be above any internal political calculation,” said Ferber, who is part of the parliamentary committee responsible for confirming Lagarde’s successor.
In contrast, Marcel Fratzscher, president of the German think tank DIW, said Lagarde was demonstrating “a strong sense of responsibility towards Europe”.
“By stepping down early, Christine Lagarde gives European governments and institutions the opportunity to appoint a successor who will safeguard European values and protect the independence of the ECB,” he told Reuters.
Lagarde did not directly address these issues. She stated that she will not run for President of France, but that she will defend pro-European values in her home country “in the role she considers most effective”.
European Council President António Costa said the process to find Lagarde's successor will begin immediately.
The appointment is likely to be part of a wider package of senior management roles at the ECB, involving the vacancy on the executive board of Isabel Schnabel, who will step down at the beginning of January, and that of chief economist Philip Lane, who is scheduled to leave in May.
The former presidents of the central banks of the Netherlands and Spain, Klaas Knot and Pablo Hernández de Cos, are considered the main candidates to succeed Lagarde.
“The successors being considered are both very competent and well-established central bankers, so for the markets this will not make much difference,” said Piet Haines Christiansen, economist at Danske Bank.
Financial markets reacted little to the announcement, with some analysts noting that the ECB has already built a reputation that outlasts any of its leaders.
“The ECB is now quite consolidated, and the market is familiar with how it operates,” said Simon Dangoor, head of Fixed Income Macro Investing at Goldman Sachs. “Our view is that institutional behavior will likely endure beyond Lagarde and will be largely similar regardless of who takes office.”
Lagarde's term was expected to extend until the end of October 2027, but speculation about an early departure had been intensifying for months, with the World Economic Forum seen as a likely destination. The World Economic Forum declined to comment.
Lagarde's resignation comes just as the ECB is in the middle of a cycle of increasing interest rates, with the aim of preventing a shock in oil prices, linked to the war in Iran, from being reflected in other prices and wages.
The ECB also needs to deal with a rise in government bond yields — especially in debt-burdened France — which has raised financing costs for households and businesses and, according to Lagarde, will curb growth and inflation.
Caught between persistent inflation, fueled by a further rise in energy costs, and deteriorating financing conditions, the ECB is widely expected to keep its deposit rate at 2.5% this Thursday, while signaling that another increase, possibly as early as December, remains likely.
“There are likely to be few barriers to another increase in December, given the likelihood of a further upward revision of the ECB's inflation forecast due to higher energy prices,” said Oliver Rakau of Oxford Economics.
The ECB is expected to announce its interest rate decision at 10:15 am (Brasília time) this Thursday, followed by Lagarde's regular press conference.
Money markets are currently pricing in three more interest rate hikes by the ECB by the end of next year, which would take the deposit rate to 3.25%, a level widely considered restrictive to economic growth.
