ECB Succession Race: Knot and de Cos Nominated to Replace Lagarde
Central Bank Leadership Transition and Implications
By Balazs Koranyi
BRUSSELS/FRANKFURT, Nov 6 (Reuters) - Euro zone nations nominated two central banking veterans on Friday to succeed Christine Lagarde at the helm of the European Central Bank, both of them seasoned crisis-fighters.
Spain nominated Pablo Hernandez de Cos, the General Manager of the Bank for International Settlements, while the Netherlands nominated Klaas Knot, its former central bank chief, to take on Europe's most powerful financial role from February.
"At its next meeting on November 9, the Eurogroup will take stock of these candidacies," said Kyriakos Pierrakakis, president of the Eurogroup, which represents the euro zone's finance ministers, in a statement.
While it may still take weeks before EU leaders pick their favoured candidate, the nominations will send a signal of continuity at the ECB. Both men have served years on the rate-setting Governing Council, or close to it, and have spent most of their careers devoted to central banking.
Challenges Facing the Incoming ECB President
Inflation and Market Stress
NEW PRESIDENT WILL INHERIT INFLATION, MARKET STRESS
The leadership change comes at a tense moment for the ECB.
The bank is raising interest rates to combat inflation while debt sustainability concerns have raised the prospect that the ECB will be eventually forced into the market, especially if turbulence spreads beyond France.
With a presidential election looming, the French government appears unwilling or unable to take painful fiscal measures for an already bloated budget and some fear that any flight from the market could ripple through other vulnerable bond markets.
Upcoming Board Departures
Adding to the new president's challenges, the ECB will also lose two other key board members in the coming months.
Isabel Schnabel, who heads market operations and may be called on to devise a way out of market turbulence, is leaving on January 3. Chief economist Philip Lane, who prepares policy proposals, exits on May 31.
Policy Outlook
ECB watchers do not expect either candidate to fundamentally alter policy, at least not in the near term.
"Simplistically, Knot is seen as slightly more hawkish and de Cos slightly more dovish, although we would not overplay the policy differences between the two," Modupe Adegbembo at Jefferies said.
"The ECB remains a consensus-driven institution and the institution is bigger than any one individual, so we do not expect a change in president alone to materially alter the reaction function," Adegbembo added.
Gender and Geopolitical Dynamics in ECB Selection
Gender Imbalance at the ECB
GENDER IMBALANCE MAY COMPLICATE SELECTION
A potential hurdle in the reshuffle could be the glaring gender imbalance at the ECB. There are only two women -- Lagarde and Schnabel -- on the 27-member Governing Council and both of them are leaving.
France is said to be considering a woman for an ECB role, sources close to the discussion said, but no other nation has publicly discussed picking a woman in a profession still dominated by men.
The European Parliament cannot veto nominations but has delayed appointments in the past in protest over gender issues.
Influence of Major EU Members
France's and Germany's preference for other top ECB jobs may prove to be decisive in the presidential race.
While technically any nation can field candidates for the board, the largest EU members have a de facto permanent seat on the board.
If France secures the chief economist job, then the presidency is more likely to go to Knot on the grounds that the ECB must maintain a balance between more hawkish and dovish members, economists say.
If Germany picks the chief economist, widely considered the second most important role at the bank, then de Cos may have a better chance of winning the presidency.
Potential Board Reshuffle Scenarios
Adding a layer of complication, choosing Knot would force Dutchman Frank Elderson to resign from the ECB board as custom dictates that there should never be two board members from the same nation.
This would then mean that four of six board members are replaced in quick succession. However, this constellation would allow Spain to contest Elderson's seat, if it fails in its presidential bid.
(Reporting by Balazs Koranyi and Sudip Kar-Gupta; Editing by Alex Richardson and Andrew Heavens)
