Lagarde quits European Central Bank ahead of French election

The French head of the European Central Bank (ECB) is to step down from the role, just months ahead of the troubled country's presidential election.

Christine Lagarde said she was to leave the Bank as she wanted to add her voice to the nation's bitter political deadlock amid continuing social unrest over the state of public services.

She told a news conference, after the ECB held its main interest rate, that she wanted the "freedom" to be able to speak her mind, declaring: "I don't think I can remain neutral" - with political impartiality a key component of her current job.

The decision forces the ECB, which sets monetary policy for the 21-nation euro area, to seek a successor nine months earlier than had been planned.

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Ms Lagarde, a former French finance minister who has been president of the ECB since 2019, said she wanted to be free to speak her mind on global maters, not just those in France and Europe.

"My voice can help, my action can help, in relation to principles that are dear to my heart".

She added: I'm interested in the truth and I see that truth..., very often, damaged by misrepresentation."

It was announced that she would leave in February, giving European leaders time to elect a successor.

She is departing at a time of turmoil for the global economy, with a surge in energy prices linked to both the conflict in the Middle East and Russia-Ukraine war driving up inflation.

At the same time, a minority government in France is trying to settle a contentious budget that demands spending cuts against a backdrop of widespread, violent protests against austerity.

French government borrowing costs recently hit their highest level since 2002 as investors signalled growing unease over the fiscal, political and societal stalemate.

A presidential election is due in April next year, with the far-right candidate Marine Le ​Pen expected to win according to the most recent polling.

Ms Lagarde, sporting bandages on her face which she attributed to a "small surgery", announced her resignation in a video via her X account.

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

Lagarde played down talk of a presidential election run last month when she was quoted by the La Croix newspaper as saying: "That would not be a good idea at ​all. First, there's the question of ​vitality, energy, and strength. There's also an unavoidable sense ⁠of sacrifice in this type of commitment. And I'm 70 years ​old."

It was widely expected she would be questioned by reporters on her future intentions at the ECB news conference that followed the Bank's latest monetary policy decision.

She left questions on her future until the end of the event but gave no signal she had changed her mind in relation to a resumption of her political career.

No change to the core deposit rate was revealed by the ECB, despite a recent leap in inflation, partly due to the fact that rising government borrowing costs across Europe, especially France, were already having a dampening effect on demand.

Her early departure is, in one way, good for the ECB as it allows European leaders time to elect a replacement who is pro-EU amid a rising tide of populism within the bloc and ahead of the election in France.

The country holds considerable weight within the Bank as the second-largest economy within the euro area.

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But Matthew Ryan, head of market strategy at financial solutions firm Ebury, said: "The timing for the ECB is far from ideal. Lagarde's departure comes as the Iran war keeps inflation well above target, where it looks set to stay for some time. European bond markets are also under strain, with the French-German spread at its widest since 2011.

"Klaas Knot (Dutch) and Pablo Hernández de Cos (Spain) are seen as the frontrunners.

"Knot, a hawk, would likely reinforce expectations of further tightening, which could be bullish for the euro. Hernández de Cos, the more dovish of the two, would likely place greater emphasis on growth and bond-market stability, which matters more than ever given the strain in French debt."

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