Monetary policy: Merz wants the second most important position at the ECB – and Macron could play along

The Euro states are negotiating under time pressure to appoint a new head of the ECB. Now there are signs of a possible deal between the Federal Chancellor and France's head of state.

Emmanuel Macron and Friedrich Merz: France's head of state and the Federal Chancellor must find a solution for the top of the ECB. Photo: IMAGO/Anadolu Agency

Berlin is targeting the ECB's chief economist: The Chancellery wants to fill the post with Markus Brunnermeier. The government has not yet confirmed any agreements.

According to EU diplomats, a deal between Merz and Macron is on the horizon. France would support Hernández de Cos for the ECB presidency and give up its chief economist in return. In return, France would receive the markets department that will become vacant with Schnabel's move to the IMF.

Lagarde is leaving early, the successor must be decided by February and an agreement is expected by the EU summit at the end of November.

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Frankfurt, Berlin, Brussels. In the struggle for the future leadership of the ECB, there are increasing signs that the federal government is aiming for the position of chief economist. The Chancellery wants to fill the second most important position at the European Central Bank (ECB) with economics professor Markus Brunnermeier, several people familiar with the matter told Handelsblatt.

This also increases Pablo Hernández de Cos' chances of becoming Christine Lagarde's successor. The Spaniard is competing with the Dutchman Klaas Knot for the ECB presidency. It will become vacant in February because the Frenchwoman is leaving early. The federal government has decided not to nominate Bundesbank President Joachim Nagel as a candidate.

According to EU diplomats, a deal is looming between Chancellor Friedrich Merz (CDU) and French President Emmanuel Macron. According to insiders, Macron wants to support Hernández de Cos' candidacy and give up France's claim to the position of chief economist. The newspapers “Le Monde” and “Financial Times” first reported on it.

Brunnermeier, who teaches at the elite Princeton University, is seen in financial circles as a highly qualified candidate to succeed chief economist Philip Lane. The Irishman's term ends in May. To do this, however, the French would have to be content with the markets department in the ECB's board of directors. This will become available at the beginning of January because Isabel Schnabel is moving to the International Monetary Fund (IMF).

Lagarde's early departure allows outgoing President Macron to have a say in the replacement of the ECB leadership in time for the spring elections. So far it looked like Macron was aiming for the more powerful position of chief economist. Central bank chief Emmanuel Moulin reiterated this claim on Tuesday.

Markus Brunnermeier: The German economist teaches at Princeton University. Photo: Bloomberg

But Macron is more flexible than Moulin and would also accept the markets department, an EU diplomat said on Thursday. That is not as influential as the chief economist. But this could at least help Hernández de Cos become president of the ECB, as he would be more willing to make concessions than Knot.

Debate between Knot and Draghi

The ECB needs new leadership from February 7th because Lagarde will only lead two interest rate decisions. The search for a personnel package that also covers the other vacant positions is being overshadowed by France's debt problems. If they come to a head around the presidential elections in the spring, the ECB could be forced to intervene and buy government bonds again.

Against this background, the reorganization of the ECB's personnel is somewhat explosive. On the French side, Laurence Boone is considered the most promising candidate for the markets board responsible for implementing the bond purchases. The investment banker at Santander Bank and former OECD chief economist was once European Minister under Macron.

“A French ex-minister in the team and a German professor who then has to stick to the requirements?” According to central bank circles, this could not only be problematic for the ECB's image as an independent institution. As chief economist, Brunnermeier would also find himself in the awkward position of having to justify this to the public. The Chancellor is taking a major political risk.

Pablo Hernández de Cos: The Spaniard is currently head of the Bank for International Settlements (BIS). Photo: Felix Schmitt for ECB

Both Hernández de Cos and Knot have made it clear that France and other euro countries can count on the ECB's help even under their leadership. The Dutchman was once considered an opponent of the loose monetary policy under Lagarde's predecessor Mario Draghi. Knot recently exchanged ideas with Draghi. Insiders see the discussion as an indication that Knot wants to resolve previous differences. Because Draghi is still said to have great influence, especially with Macron.

According to insiders, the last word is far from spoken. “If you look at the top management of the European financial institutions, southern Europeans are already heavily overrepresented there: the European securities regulator Esma is headed by an Italian, the banking regulator Eba is led by a Frenchman, the European Investment Bank by a Spanish woman and the Euro Group by a Greek,” said an EU diplomat.

“Would it really be balanced if a Spaniard also became President of the European Central Bank?” asked the diplomat. “I find it difficult to imagine that the position of ECB chief economist would be a big enough success for Germany to make that acceptable.”

Klaas Knot: The Dutchman has been out of office since his departure from the top of the Dutch central bank a year ago. Photo: IMAGO/ANP

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ECBEmmanuel MacronEuropean UnionFriedrich MerzFranceIMF

If Knot becomes ECB President, the personnel package is likely to look significantly different in order to maintain proportionality between northern and southern countries in the euro zone at the top of the ECB. France would then provide the chief economist and Germany would again provide the markets board. According to reports, there is also a desired solution for this in the Chancellery: Tobias Adrian, long-time head of department at the IMF.

Government circles did not want to confirm on Thursday that Merz and Macron had already reached an agreement. The German side pointed out that there were no final agreements. It is considered unlikely that the heads of state and government will make a decision at their ongoing informal summit in Dublin.

The aim is to find a package solution before Christmas. People familiar with the talks in Brussels expect an agreement between government leaders at the upcoming EU summit at the end of November. Ideally, the formal appointment process - which includes a hearing before the EU Parliament - could be completed by the end of the year.