By Michel Rose and Balazs Koranyi
PARIS/FRANKFURT, Sept 15 (Reuters) - France would back Dutchman Klaas Knot to succeed Christine Lagarde as head of the European Central Bank provided the powerful post of ECB chief economist went to a French candidate, people familiar with the matter have told Reuters.
The informal proposal has the support of French President Emmanuel Macron, the sources said. But it would be likely to face stiff resistance from Germany, setting the stage for high-stakes political
haggling among the euro zone's political and economic heavyweights.
Macron's office did not immediately return a request for comment, while Knot declined to comment. The Dutch Finance ministry was not immediately available for comment.
The ECB declined to comment.
The succession race has gained momentum in recent weeks amid speculation that Lagarde and fellow Executive Board member Isabel Schnabel might both step down before their terms expire in late 2027, hastening a reshuffle at the top of the ECB.
The ECB president and five other members of the Executive Board are appointed by consensus among leaders of the currency bloc's 21 countries, with the three largest economies — Germany, France and Italy — holding de facto permanent representation.
An early exit by Lagarde, who is French, and Germany's Schnabel would accelerate decisions due to be made next year and create the conditions for a broad deal to fill their roles and that of Chief Economist Philip Lane, whose term expires in May.
FRANCE BACKS KNOT OVER DE COS
Under the plan, Knot — who led the Dutch central bank from 2011 to 2025 — would take the presidency with France's blessing, the sources said, speaking on condition of anonymity because such negotiations are private and the proposal remains informal.
Knot is viewed by market participants as a pragmatist, naturally inclined toward tighter monetary policy but flexible enough to shift course as economic data dictates.
"He is a hawk, but in a smart way," a French official said of Knot.
Former Bank of Spain governor Pablo Hernández de Cos, who was regarded as a swing voter on the rate-setting Governing Council, is seen as Knot's primary rival.
However, because de Cos hails from southern Europe, his appointment would almost certainly entail one of the euro zone's "frugal" northern countries taking the chief economist role to preserve the balance of power.
COMPETITION FOR THE CHIEF ECONOMIST ROLE
In return for backing Knot, France wants the role of chief economist — picked by the ECB president from among the Executive Board's members — for itself, the sources said.
They identified Banque de France Deputy Governor Agnes Benassy-Quere and Laurence Boone, former chief economist at the OECD and a junior Europe minister in a previous Macron government, as names on Paris's shortlist.
Helene Rey, currently at the Bank for International Settlements, is another name that has been floated by Paris, the sources said.
Appointing any of them would go some way to preserving the gender balance on the ECB's board, where Lagarde and Schnabel are currently the only women.
The manoeuvre risks immediate pushback from Berlin, however. While the proposal would leave Germany with Schnabel's vacated seat and her market operations portfolio, officials there are also eyeing the chief economist role, widely considered the board's second most influential post.
France's mounting debt woes have made Paris keener than ever to keep a firm hand on the levers of euro zone monetary policy. Less indebted and more economically orthodox Germany meanwhile remains wary of any softening of the ECB's commitment to price stability.
LAGARDE HAS SAID SHE WILL STAY UNTIL 2027
Lagarde has publicly signalled an interest in advocating for European integration ahead of next year's presidential election in France, where eurosceptic far-right leader Marine Le Pen is polling strongly.
Stepping down before the election in May would guarantee Macron a decisive say in picking Lagarde's successor before he leaves office.
Lagarde has stopped short of shutting down talk of an early departure, simply saying: "You are not going to see the back of me before 2027." Media reports have frequently linked her to the leadership of the World Economic Forum.
Schnabel has not commented on a report by Germany's Handelsblatt that she is in discussions about a senior role at the International Monetary Fund.
Lagarde's eight-year mandate formally concludes at the end of October 2027, with Schnabel's term ending two months later.
(Writing by Francesco Canepa; Additional Reporting by Jan Strupczewski in Brussels; Editing by Catherine Evans)
