European Central Bank President Christine Lagarde has announced she will step down in early 2027, intensifying the race to succeed her.
The ECB said in a statement on Thursday that Lagarde will leave office on February 7, 2027. She took over from Mario Draghi in 2019 as the institution's fourth president and its second from France. Her term had originally been scheduled to end in October 2027.
In a video address, Lagarde said: "I leave this institution feeling that I have done excellent work, and the ECB is ready for the future." European Council President Antonio Costa said the process to find Lagarde's successor would begin on Thursday. "To ensure a smooth transition to the next leader of the ECB, the appointment process for the successor will start today and proceed without delay so that the European Council can make a timely decision," he said in a statement on Thursday.
After the announcement, German government bonds and other euro-area bonds held small gains. The 10-year German bund yield was flat at 3.36%, one basis point lower than the previous day, while the spread of French government bonds over German 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 rate policy for the eurozone's 21 member states and more than 350 million people.
In a statement, Costa said: "To ensure a smooth transition to the ECB's next leadership, the selection process for the successor will begin today and move forward immediately, with a view to the European Council making a timely decision."
Succession race: De Cos leads, but not by a wide margin
Spain's Pablo Hernandez de Cos and the Netherlands' Klaas Knot are competing for Lagarde's position. A survey conducted in October showed that De Cos, a former governor of the Bank of Spain and current general manager of the Bank for International Settlements, was the leading candidate. Twelve economists surveyed favored De Cos, while nine backed Knot, indicating that although De Cos is ahead, the gap between the two is not wide.
Speculation that Lagarde would leave early had long been rife. She repeatedly declined to commit to completing her eight-year term. At the same time, there was widespread talk 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 comments frustrated ECB colleagues, some of whom feared they did not bode well for one of Europe's most important economic institutions.
A top-level reshuffle amid a complex backdrop
In a memo to staff, Lagarde said: "Throughout history, the ECB has successfully completed leadership transitions while fulfilling its mission. This time will be no different. I believe the ECB will continue to serve Europe with the same dedication in the period ahead."
The announcement comes as the United States and Iran have still not reached a lasting peace agreement. The ECB has already raised rates in June and September, and markets expect further 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 government bonds 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 promise not to leave her post when the outlook is unclear. Before Lagarde, the Netherlands' Wim Duisenberg was the only ECB president who did not complete a full term. His early departure, however, 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 choose a successor. Beyond the leading candidates, a dark horse cannot be ruled out, and Lagarde herself only entered the picture at the last minute.
Governments must also choose a successor for ECB Executive Board member Isabel Schnabel. She will end her term a year early and join the International Monetary Fund in early 2027. Given that Chief Economist Philip Lane's term also expires next May, governments may seek a package deal covering all three positions.
Lagarde's early departure could prompt 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 presidential election. The governor of the Bank of France also resigned early, and Macron appointed his chief of staff, Emmanuel Moulin, to the position.
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