By Francesco Canepa and Balazs Koranyi
FRANKFURT, Oct 29 (Reuters) - European Central Bank President Christine Lagarde said on Thursday she would step down early from her position in order to have the freedom to speak out on matters of importance beyond monetary policy.
She will depart on February 7, giving current European Union leaders time to pick her successor before a French presidential election that polls show far-right candidate Marine Le Pen is favoured to win. Her term was due to expire in October
2027.
Lagarde's decision ends months of speculation about her future just as Europe enters a period of rising economic volatility and divisive electoral politics, particularly in her native France.
The move was announced just before the ECB left interest rates unchanged but maintained expectations for another hike in December with a warning that high and rising energy costs were fuelling inflation risks.
Asked why she was stepping down after previously saying she could not leave the ECB with inflationary clouds on the horizon, Lagarde said the neutrality demanded by her role meant she could not speak out on issues affecting Europe and elsewhere.
"I don't think that I can remain neutral," Lagarde told a press conference after the ECB's policy decision.
"I don't think that I can be comfortable in that neutrality at the present time. And I'm interested in the truth, and I see the truth being very often damaged, contradicted by misrepresentation," she said.
Lagarde informed her ECB colleagues of her decision after their two-day policy meeting concluded. According to a source who was present, she became choked with emotion several times while reading a resignation message.
She did not say at the press conference which matters she wished to speak out on, and did not respond to questions about whether she had deliberately left early to allow her successor to be picked before the French election next spring.
FRANCE'S RIGHT-WING PARTY LAMENTS MOVE
French President Emmanuel Macron, who will help choose the next ECB chief, thanked Lagarde for her service at the central bank and called for a coordinated process of succession.
"The transition in the leadership of the ECB must now be prepared in an orderly and balanced manner, in coordination with our European partners," Macron said.
Representatives of Le Pen's National Rally party were scathing.
Jean-Philippe Tanguy, charged with drafting economic policy for Le Pen's election manifesto, told Reuters Lagarde's move showed contempt for the rule of law: "I saw this coming. Another insult in our direction – lamentable."
Le Pen has said she wants to discuss the ECB's role and, if elected, would seek a central bank intervention to ease France's interest rate burden.
Markus Ferber, a German member of the European Parliament for the centre-right European People's Party, also said Lagarde's early exit sent "the wrong signal" given high inflation, nervous bond markets and looming elections.
"If the impression arises that such a departure is timed around national elections, it damages trust in an institution that must stand above any domestic political calculation," said Ferber, who sits on the parliamentary committee that will confirm Lagarde's successor.
European Council President Antonio Costa said the process to find Lagarde's successor would begin immediately.
The appointment is likely to be part of a broader package of top ECB jobs involving the executive board seat of Isabel Schnabel, who will leave in early January, and chief economist Philip Lane, due to depart in May.
COMPETENT CANDIDATES REASSURE MARKETS
The former central bank governors of the Netherlands and Spain, Klaas Knot and Pablo Hernandez de Cos, are widely seen as frontrunners to replace Lagarde.
"The rumoured successors are both very competent, well established central bankers, so for markets, it won't matter too much," Danske Bank economist Piet Haines Christiansen said.
Financial markets showed little reaction, with some analysts saying the ECB had now built a reputation that outlived any of its leaders.
"The ECB is now quite well established, the market is familiar with the way it operates," Goldman Sachs' head of Fixed Income Macro Investing Simon Dangoor said. "Our view is that institutional behaviour is likely to outlast Lagarde, and be quite similar, whoever takes over."
Speculation that Lagarde would leave the ECB early had been mounting for months, with the World Economic Forum seen as a likely destination. The WEF declined to comment.
(Additional reporting by Elizabeth Pineau in Paris and Klaus Lauer in Berlin; Editing by Catherine Evans and Toby Chopra)
