|

ECB's game of musical chairs

A major overhaul of the ECB’s six-seat Executive Board looms in 2027, with three seats changing hands between May and December at the latest, including those of the president and chief economist. Speculation about President Lagarde leaving before her term ends in October 2027 has intensified, as she has kept the possibility open. Chief economist Philip Lane leaves in May, followed by market operations head Isabel Schnabel in December. However, Schnabel will leave early on 3 January 2027 for a senior IMF job. In this piece, we assess the candidates, policy implications and appointment process.

There are few firm rules in the ECB’s game of musical chairs, but the seats are politically important and prestigious for euro area governments. Historically, compromises have balanced northern and southern euro area representation on the board. As the euro area has expanded, the balance between eastern and western countries has also gained importance. However, Croatia’s Boris Vujčić has already become vice-president and is the first Executive Board member from a country that joined the EU after 2004, partly addressing eastern Europe’s claim to a seat in this round. Historically, large euro area countries have dominated the Board, as the charts to the right show.

Against this backdrop, attention is turning to the contest for the three seats, particularly the presidency. Although formally separate, the appointments are likely to be closely linked to preserve the political balance. Another French president looks unlikely, as France has already held the presidency twice. Germany’s chances are also slim because it already holds two key EU positions, namely Ursula von der Leyen as President of the Commission and Claudia Buch as head of ECB banking supervision. Germany could still put forward Bundesbank President Nagel for ECB President, but the two mostmentioned candidates are Klaas Knot, former head of the Dutch central bank and FSB chair, and Pablo Hernández de Cos, now BIS General Manager and formerly governor of the Bank of Spain. Both candidates are officially endorsed by their respective governments.

Klaas Knot is typically seen as a pragmatic hawk, while de Cos is seen as a moderate dove relative to President Lagarde, whom we view as neutral. Knot explicitly criticised the ECB’s September 2019 policy decisions, particularly the open-ended restart of QE. In 2022, he was the first GC member to say publicly that the bank should raise interest rates. However, we see him as pragmatic and data-driven, as he later revised, for example, his initial criticism of Draghi’s “whatever it takes” policy, unlike Bundesbank President Weidmann.

Download the full Euro Area research

Author

Danske Research Team

Danske Research Team

Danske Bank A/S

Research is part of Danske Bank Markets and operate as Danske Bank's research department. The department monitors financial markets and economic trends of relevance to Danske Bank Markets and its clients.

More from Danske Research Team
Share:

Editor's Picks

AUD/USD holds rebound near 0.6900 on US-China trade optimism

AUD/USD holds the rebound near 0.6900 in the Asian session on Monday. Mixed China's inflation data for October fails to provide any inspiration to the Chinese proxy, the Australian Dollar, but China's extension of the suspension of 24% tariffs on US goods and reduced US-Iran tensions help the Aussie pair cling to recovery gains.

USD/JPY retreat in sync with USD, appraches 158.00

USD/JPY is back in the red at the start of the week on Monday, eyeing the broad US Dollar retreat amid easing US-Iran tensions. Traders also resorting to profit-taking following the blockbuster US Nonfarm Payrolls data-led rally. US CPI report is next in focus.

Gold rises amid US-Iran peace deal hopes, softer US Dollar

Gold price recovers some lost ground above $4,020 during the early European trading hours on Monday. The prospects of diplomacy in the US-Iran conflict and weaker US Dollar (USD) boost the precious metal.

Solana: Persistent ETF outflows extend downside risk in SOL

Solana trades below $90 on Monday, ticking higher after over 3% losses below a long-term support trendline the previous day. SOL has been steadily declining over the last five weeks, aligning with five straight weekly outflows from Solana-focused Exchange-Traded Funds totaling over $150 million.

Economics week ahead

This week, attention turns to Tuesday’s CPI report, with no year-over-year readings available because of last October’s shutdown-related data gap. We expect headline and core inflation to clock 0.28% and 0.21% month-over-month, respectively. Softer core inflation would offer some relief after September’s upside surprise but should still leave our call for a December rate hike intact.

US Dollar breaks below 101.50 as Democrats sweep Congress
The US Dollar (USD) comes under heavy selling pressure on Wednesday, with the US Dollar Index (DXY) falling around 0.5% to trade near 101.35 after sliding below the 101.50 level. The Greenback retreats to its lowest level in four weeks as investors reassess the political and economic outlook following the Democratic Party's sweeping victory in the United States (US) midterm elections.