ECB President Lagarde to step down several months before term ends

European Central Bank President Christine Lagarde will step down on February 7, 2027, some eight months before her term was due to end, the Frankfurt-based bank announced on Thursday.

Lagarde's term would normally have ended in late October 2027. She took the helm of the central bank on November 1, 2019.

The bank said Lagarde had informed the ECB's Governing Council and European Council President António Costa of her decision.

It is now up to the leaders of the 21 eurozone countries to choose a successor for the French economist.

Rumours had been swirling for months about when Lagarde, 70, would step down, to potentially take the helm of the World Economic Forum in Davos.

Other reports suggested that she might want to step down before the French presidential election in April, amid concerns that the eurosceptic far right of Marine Le Pen could win the vote, which could complicate the appointment of a new ECB chief.

In September, Lagarde, who has previously led the International Monetary Fund, told French newspaper Le Croix that she could not rule out stepping down a few months before her term expires.

Her resignation comes as the central bank is faced with the highest level of inflation in the euro currency area in three years, surging to 3.8% in September due to the war on Iran. This is far above the bank's medium-target of keeping inflation at 2%.

Process launched to pick successor

Costa thanked Lagarde for "her dedication" as ECB president.

"Throughout her mandate, she has led the European Central Bank with a strong sense of duty and responsibility," he wrote on social media.

"Through a global pandemic, a war in Europe, energy crises and inflation shocks, she has provided a steady and determined stewardship, helping to safeguard stability and the resilience of the euro area."

The process to appoint a successor would be initiated on Thursday, "to ensure a smooth transition to the next leadership of the ECB," the European Council president said.

Tough negotiations ahead

Germany and France, the two biggest economies in the currency area, are sure to wield their influence when it comes to picking the next ECB chief.

"Germany will use its weight as the largest country in the eurozone to help put together a new, broadly supported and responsible leadership team for the ECB," Finance Minister Lars Klingbeil said, adding that he was in close contact with Chancellor Friedrich Merz and his European counterparts on the issue.

The timing of Lagarde's resignation will allow French President Emmanuel Macron, a supporter of the euro and the EU, to still exert influence on the appointment, ahead of the French elections.

Macron is not eligible to stand again, and his centrist camp is expected to lose major ground to Le Pen's right-wing populists.

First woman to lead ECB

The top contenders to succeed Lagarde include former Dutch central bank chief Klaas Knot and Spain's Pablo Hernández de Cos, who currently leads the Bank for International Settlements (BIS).

Bundesbank chief Joachim Nagel, who would be the first German at the helm of the ECB in its more than 25-year history, is also vying for the top job.

Countries will also have to decide on a new ECB chief economist, with the term of Philip R. Lane due to end in June 2027.

Holger Schmieding, chief economist at Berenberg Bank, expects EU leaders to negotiate the vacant positions at an EU summit in December.

When the first ECB chief was appointed in 1998, heavyweights Germany and France were deliberately sidelined, with the job going to the Netherlands' Wim Duisenberg in a compromise solution.

Duisenberg left the job in 2003 citing his age, while his successors, France's Jean-Claude Trichet and Italy's Mario Draghi, served full eight-year terms.

Lagarde, a former French economy and finance minister, became the first woman to lead the bank on November 1, 2019, vowing to focus on climate change, the promotion of women and better communication on part of the bank.

During her tenure, she steered the currency through major challenges, including the coronavirus pandemic and the Russian invasion of Ukraine, when inflation in the eurozone soared to nearly 11%.

With an unprecedented run of 10 consecutive interest rate rises, to make borrowing more expensive and curb demand, the ECB succeeded in stemming the tide of inflation.

In June 2024, the bank began lowering its key interest rates again. However, the war in Iran has again caused consumer prices to surge anew, putting the ECB under pressure once again.