Speculation is currently high over German Chancellor Friedrich Merz’s immediate political future. However, it is the medium-term governance of neighboring France that is causing perhaps even greater worries across Europe.
Right-wing populist National Rally leader Marine Le Pen, who was tacitly endorsed by US President Donald Trump ahead of the 2017 French presidential election and who has twice finished second behind Emmanuel Macron, is the favorite to win next May’s vote. Polls put her in a commanding position.
While next spring may appear a political eternity away, the fact Le Pen has a good chance of winning is already creating shock waves of uncertainty across Europe. This includes speculation over the future of European Central Bank President Christine Lagarde, whose term officially ends in October 2027.
It is widely known that Macron is keen to influence the choice of his compatriot’s successor before he leaves office. Macron’s enthusiasm is especially strong given the significant possibility that Le Pen succeeds him in the Elysee Palace. In the past, she and her party have been highly skeptical of the euro single currency and, like Trump, she may not respect long-standing norms of central bank independence if she is elected.
The fact Le Pen has a good chance of winning is already creating shock waves of uncertainty across Europe
Andrew Hammond
Le Pen’s rise has parallels with Trump. Last year, a French court found Le Pen guilty of embezzling EU funds and barred her from standing for public office for five years, a decision that was diluted by an appeal court decision this year. She is now eligible to stand as long as she wears an electronic tag for a year.
Tesla CEO Elon Musk directly compared last year’s French judicial ruling to that of the US president’s legal troubles before he won reelection in 2024. He said: “This will backfire, like the legal attacks against President Trump. When the radical left can’t win via democratic vote, they abuse the legal system to jail their opponents.”
French politics is not the only clue that Lagarde may leave the European Central Bank early. In May 2025, World Economic Forum founder Klaus Schwab asserted that he had discussed with Lagarde the prospect of her becoming the CEO of that organization in early 2027.
In July, Lagarde said, “You are not going to see the back of me (at the European Central Bank) before 2027, OK?” However, that wording does not preclude the possibility of her leaving early in the new year.
Even if Lagarde does not run for the presidency, she could join a future centrist or right-of-center government
Andrew Hammond
Lagarde’s current term is nonrenewable. Moreover, she left her last role at the International Monetary Fund around halfway through a second five-year term. Before that, she had several roles in the French government, including as finance minister from 2007 to 2011.
Lagarde has not categorically ruled out a future return to French politics. Even if she does not run for the presidency, she could join a future centrist or right-of-center government.
The reason the speculation over Lagarde’s future is causing so much concern is that the economic landscape has become less benign, with the European Central Bank in a post-Iran crisis rate tightening cycle. The bank raised interest rates in June for the first time since 2023, making it one of a growing number of central banks to tighten monetary policy in 2026. A second rate rise followed this month and investors are betting on even more to come.
Lagarde said in July that “as we stand now today, (the milder scenario) looks quite unlikely, let’s face it. The full effects of the energy shock (from the Iran crisis) have yet to play out.” While this raises the premium on leadership stability at the European Central Bank, speculation is growing over Lagarde’s future.
One further signal that the speculation about her future may be accurate is that European governments are already beginning to line up their preferred replacements. The Spanish government will reportedly push for Pablo Hernandez de Cos, general manager of the Bank for International Settlements and a former Bank of Spain governor.
Other potential contenders include Joachim Nagel, president of the German Bundesbank since 2022, the former Dutch central bank chief Klaas Knot, and Fabio Panetta, governor of the Bank of Italy since 2023 and a former member of the European Central Bank’s executive board.
With the bank facing a volatile global economic landscape because of the Iran crisis, any change of power in early 2027 needs to be well planned and carefully communicated to markets. Despite the general buoyancy of financial markets, major risks remain and the European Central Bank recently warned of the likelihood of a correction. This might be exacerbated by the ongoing challenges from the Iran crisis further impacting the wider macroeconomic outlook, including disrupting the interest rate cycle.
Taken together, the stakes are growing for the European Central Bank as it contemplates further rate tightening. Uncertainty means any early change of president must be well choreographed to minimize both market and political risk.
