Economists expect Lagarde to exit early, handing ECB job to Knot

[BRUSSELS] Christine Lagarde is expected to leave the European Central Bank before her term ends, paving the way for Klaas Knot to succeed her as president, according to a Bloomberg survey of economists.

More than half of respondents expect the Frenchwoman to step down this year. Less than 30 per cent predict she’ll see out her eight-year term, which ends next October.

Should she exit prematurely, Knot – a former Dutch central-bank chief – would be best placed to get the top job, according to about 57 per cent of economists. If she completes her tenure, Bank for International Settlements chief Pablo Hernandez de Cos is favoured to take over.

Questions over Lagarde’s future are swirling after a report that she’ll step aside before French elections so President Emmanuel Macron can help find her replacement. An ECB statement failed to quell the speculation – as did remarks from Lagarde herself that staying on is her “baseline.”

The political dimension is proving controversial. Some applaud what looks like an attempt to shield a functioning European institution from a possible far-right victory in France’s ballot next spring. Others – including some inside the ECB – fret about the implications.

“France alone would be unable to push through a clearly heterodox central banker without broader support,” said Modupe Adegbembo, an economist at Jefferies. “The bigger risk, however, is that the episode could backfire by denting the ECB’s credibility for little tangible gain.”

He’s among the 52 per cent of respondents who say the ECB’s trustworthiness would be damaged if Lagarde exits ahead of time. About a third also worries about its autonomy.

“Lagarde departing early would send a certain signal that the ECB isn’t entirely politically independent,” said Dennis Shen, a lecturer at TU Berlin’s International School of Management. At the same time, “any scenario of France’s far right having a role in selecting Lagarde’s successor would potentially be more damaging for ECB independence than the scenario of her departing early.”

Logistics could also pose a problem, with Berenberg chief economist Holger Schmieding saying a National Rally victory in France could delay the search for a successor to Lagarde.

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More than two-thirds of respondents can imagine a scenario in which a candidate is decided on before French elections, with Lagarde staying on. Half say such an outcome would diminish her position for the remainder of her stint. BLOOMBERG