France Signals Support for Spanish ECB President Candidate

As Paris and Berlin consider reaching a comprehensive agreement on the leadership appointments at the European Central Bank, the campaign momentum for Pablo Hernández de Cos has strengthened.

According to four informed sources, France has signaled that it may support Pablo Hernández de Cos to succeed Christine Lagarde as the President of the European Central Bank next year. EU leaders hope to finalize the relevant agreement as early as this month.

This move from Paris could solidify the consensus around the Spanish economist, who has domestic backing, and is expected to facilitate EU leaders in reaching a comprehensive agreement covering two other key positions on the ECB's Executive Board, which will also become vacant next year. Officials stated that EU leaders will hold informal discussions in Dublin on Friday to discuss the ECB nominations.

Unexpectedly, Berlin may thus secure the position of Chief Economist at the ECB. This position will become vacant in May next year when Philip Lane's term ends, which has previously been viewed as a priority target for France. If Germany secures this position, it will be the first time since 2011 that a German holds the role of Chief Economist at the ECB. In the early days of the ECB, Otmar Issing and Jürgen Stark played significant roles in defining this position. Within this Frankfurt-based institution, the Chief Economist is considered the second most important position after the President.

Germany and other Nordic countries find it difficult to accept a combination of a Spanish President of the ECB and a French Chief Economist.

One of the potential candidates being discussed in Berlin is Markus Brunnermeier, one of the world's leading financial economists. He currently teaches at Princeton University and began his economics degree at the University of Regensburg in 1991. Since 2020, he has operated a channel called "Markus Academy," hosting online economics seminars for non-academic audiences, with tens of thousands of subscribers.

Another potential candidate for the German Chief Economist position is Tobias Adrian, who previously served as the Director of the Monetary and Capital Markets Department at the International Monetary Fund (IMF).

Meanwhile, France has signaled that it may accept the position of ECB Executive Board member responsible for market operations. This position is currently held by Isabel Schnabel from Germany, who will join the IMF in January next year. During the eurozone debt crisis, the Frenchman Benoît Cœuré was responsible for this area during Mario Draghi's presidency at the ECB.

Informed sources indicate that Laurence Boone, who previously served as the Chief Economist of the Organisation for Economic Co-operation and Development (OECD) and is currently the head of corporate and investment banking at Santander in France, is the most likely candidate for the market operations position nominated by France. Boone also served as the Minister for European Affairs in President Emmanuel Macron's government. Another French candidate, Agnès Bénassy-Quéré, the Deputy Governor of the French Central Bank, is considered more suitable for the Chief Economist role.

However, two informed sources cautioned that the agreement regarding the nominations for these three positions has not been finalized, and the outcome largely depends on negotiations between Paris and Berlin. They noted that another candidate who has formally announced his candidacy for the ECB presidency, Klaas Knot from the Netherlands, still has a chance of being nominated. Additionally, the possibility of a third candidate for the presidency emerging at the last moment cannot be ruled out.

A French official stated that both Hernández de Cos and Knot are "excellent candidates," and France will secure a "good position" on the Executive Board.

Hernández de Cos currently serves as the General Manager of the Bank for International Settlements (BIS) based in Basel and was previously the Governor of the Bank of Spain. Knot has served as the Governor of the Dutch Central Bank until last year.

EU leaders hope to reach a consensus on the comprehensive nominations for the three ECB positions before a series of key elections next year. This includes the French presidential election, where the far-right politician Marine Le Pen, who currently holds a Eurosceptic stance, is a leading candidate to succeed Macron.

Recently, the French bond market has experienced turbulence due to social unrest, France's failure to reach a budget agreement, and uncertain electoral prospects. Meanwhile, both far-right and far-left populist forces have shown strong performance in polls. These factors have further heightened the urgency to finalize personnel arrangements as soon as possible.

Leadership changes at the ECB are typically the result of intense political negotiations and interest exchanges among the 21 member countries of the eurozone. In this process, Paris and Berlin usually reach a consensus first to achieve an appropriate power balance between doves and hawks, as well as between Southern and Northern Europe.

The President of the ECB and the other five members of the Executive Board are appointed by the leaders of eurozone countries after consulting the European Parliament and the ECB. To successfully obtain an appointment, candidates must receive support from at least 16 countries, and the combined population of these countries must account for more than 65% of the total population of the eurozone.

Another French official stated that parties will engage in "multiple rounds of discussions on the power balance within the ECB Executive Board" during the Dublin meeting, and that "achieving an appropriate balance" is very important.

The official stated, "This balance has become a topic of discussion between the French President and German Chancellor Friedrich Merz. It is important not only to achieve balance among the relevant candidates but also to form a common vision. This involves not only specific candidates but also relates to the mission and objectives of the ECB in the current situation."

Lagarde announced last month that she would leave the ECB in February next year, and France initially sought to secure the Chief Economist position. However, this strategy led to a conflict of interests with Germany, which also coveted the position.

Meanwhile, the German ruling coalition still needs to reach a consensus on candidates to gain the approval of both conservative Chancellor Merz and Social Democratic Finance Minister Lars Klingbeil.

Informed sources revealed that Klingbeil has raised objections to both candidates Brunnermeier and Adrian.

The French presidential office, the German chancellery, and the German finance ministry declined to comment.

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