Sawt Falasteen - ECB chief Lagarde to step down early, triggering succession race

"It has been a great pride and a huge privilege to serve this institution," Lagarde posted on X, announcing that she would resign nine months before her term officially ends in October 2027.

"I think that I leave this institution with a sense of good work done and an ECB that is fit for the future," she said.

Lagarde's early resignation opens the way for European leaders to choose a new ECB chief before French presidential elections in the spring, with officials fearing that a far-right victory could complicate talks to pick her successor.

But it also comes at a difficult time in the eurozone as worries mount about France's public finances and the central bank seeks to navigate the energy shock triggered by the US war on Iran, with inflation currently almost double the ECB's two-percent target.

European Union chief Ursula von der Leyen thanked Lagarde "for everything you have done for Europe and the euro".

"From the pandemic to Russia's war of aggression, your steady hand has helped keep our economy stable and resilient," she said.

Lagarde, who previously headed the International Monetary Fund and served as French finance minister, did not say what her next move would be.

But she has ruled out running for the French presidency herself, and has been tipped to take the helm of the World Economic Forum, which organises the annual summit of politicians and business leaders in Davos, Switzerland.

- 'Greater freedom' -

Lagarde, who served in the governments of France's centre-right presidents Jacques Chirac and Nicolas Sarkozy, has also hinted that she could get involved in campaigning for the presidential vote, saying it was important to have a "European voice" in debates.

Sources familiar with the matter told AFP that by stepping down early, Lagarde would have "greater freedom to express her views".

"She cannot remain neutral when she sees the developments taking place in her own country and in the world," said one of the sources, who spoke anonymously.

Her tenure was marked by repeated geopolitical upheavals that often left policymakers struggling to fulfil the ECB's main task of keeping consumer prices in check.

The Covid-19 pandemic, Russia's invasion of Ukraine and subsequent energy shock -- which pushed eurozone inflation to a record of over 10 percent -- the US tariff blitz and now the fallout from the Iran war all severely tested the institution.

The ECB's governing council, which sets interest rates for the 21-member single currency area, faced criticism, in particular during the 2022 inflation surge for responding too slowly.

But officials also won praise for seeking to overhaul the central bank so it is better prepared for a more uncertain world, introducing new crisis-fighting tools and seeking to communicate its decisions more clearly.

- Succession race -

Antonio Costa, head of the European Council, said the process to appoint Lagarde's successor would begin immediately to ensure a "smooth transition".

The frontrunners to succeed her are seen as former Dutch central bank chief Klaas Knot and Spain's Pablo Hernandez de Cos, currently head of the Bank for International Settlements.

One EU diplomat, speaking anonymously, said Knot was seen as the preferred candidate, as he was an experienced crisis manager and a good communicator.

But there are likely to be frantic negotiations in coming weeks between European capitals as several top ECB officials are due to be replaced -- Lagarde, executive board member Isabel Schnabel and chief economist Philip Lane.

Holger Schmieding, chief economist at the bank Berenberg, predicted that EU leaders would try to fill the vacancies "as a package, no later than the EU summit of 17-18 December, and possibly beforehand".

The announcement of Lagarde's resignation came ahead of the ECB's latest interest rate-setting meeting later Thursday, with worries about France's rising debts in focus.

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Z.AbuSaud--SF-PST