Knot and de Cos: Two Crisis-Tested Bankers, One ECB Chair

The nomination deadline closed on Friday with exactly two candidates to succeed Christine Lagarde as European Central Bank president from February: Spain's Pablo Hernández de Cos and the Netherlands' Klaas Knot.

Lagarde told the President of the European Council on October 29 that she would resign by February 7, 2027. Eurogroup President Kyriakos Pierrakakis then asked member states to send nominations by Friday.

De Cos currently serves as General Manager of the Bank for International Settlements. Knot is the Netherlands' former central bank chief, and both men have spent most of their careers in central banking.

A two-man race, decided by arithmetic

Executive Board members, including the President, are appointed by the European Council on a recommendation from the Council. The Council acts by a reinforced qualified majority of the euro area member states.

That majority requires support from 72% of euro area member states, at least 16 of the 21 euro area countries. Those states must also represent at least 65% of the euro area's population.

The ECB and the European Parliament will be consulted before the European Council takes the final decision. The Eurogroup takes stock of the two candidacies at its next meeting on November 9.

The job waiting for the winner

The ECB is raising interest rates to combat inflation. At the same time, debt sustainability concerns raise the prospect that it will be forced into the market, especially if turbulence spreads beyond France.

France's government appears unwilling or unable to take painful fiscal measures, with a presidential election looming and an already swollen budget. Investors fear a flight from French debt could ripple through other vulnerable bond markets.

The board is shrinking around the vacancy. Isabel Schnabel, who heads market operations, leaves on January 3, and chief economist Philip Lane exits on May 31.

Two records, one reaction function

The nominations signal continuity, because both candidates served years on or close to the Governing Council. ECB watchers do not expect either man to fundamentally alter policy, at least not soon.

"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," said Modupe Adegbembo at Jefferies.

"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.

The case Madrid is making

Spain's Deputy Prime Minister Carlos Cuerpo set out the nomination in a letter to Pierrakakis, seen by Reuters. He wrote that he was "confident" de Cos would bring the same steady hand he showed at the Bank of Spain.

De Cos governed the Bank of Spain from 2018 to 2024 and brings nearly three decades in central banking. Cuerpo cited his "exceptional knowledge" of economic, fiscal and monetary policy and his expertise in financial stability.

As governor, de Cos chaired the Basel Committee on Banking Supervision and the European Systemic Risk Board's Advisory Technical Committee. Cuerpo credited him with a reputation for technical rigor and for uniting teams and building consensus.

He also praised de Cos's independence and "steadfast commitment to the ECB mandate." His "ability to communicate clearly with markets" was, Cuerpo wrote, invaluable in a president.

The board arithmetic behind the race

Only two women sit on the 27-member Governing Council: Lagarde and Schnabel, and both are leaving. The European Parliament cannot veto an appointment, but it has delayed appointments in the past over gender imbalance.

France's and Germany's preferences for the ECB's other top jobs may prove decisive. If France secures the chief economist post, the presidency is more likely to go to Knot, economists say.

If Germany takes the chief economist role, de Cos may have a better chance of winning the presidency. The largest EU members hold a de facto permanent seat on the six-member Executive Board.

Choosing Knot carries a further cost: Dutch board member Frank Elderson would have to resign. Custom dictates that no two board members come from the same nation.

That would mean four of the board's six members replaced in quick succession. Spain could then contest Elderson's seat if its presidential bid fails.

Italy, whose vote carries weight under the population test, has not picked a side. Officials in Prime Minister Giorgia Meloni's office said Italy had no preferred candidate and was still assessing both nominations.

What remains unknown

Which candidate can assemble 72% of euro area states and 65% of the population behind a Council recommendation is unknown. Neither the timing of the European Council's final decision nor any candidate's policy program has been published.

How France and Germany will trade the chief economist vacancy against the presidency is also unresolved. The process is lengthy, Italy's officials noted, and it may take weeks before EU leaders pick their preferred candidate.

The calendar from here

What to watch: the Eurogroup's stock-take on November 9, the contest for the chief economist post Lane vacates, and the consultations with the ECB and Parliament. Lagarde's successor takes over in February, about nine months before her term had been due to end on October 31, 2027, a TickerGrove calculation from the two dates.