ECB Insight: Ex-ECB’s de Cos Expected to Announce Move to BIS Today; What About Knot?

11 November 2024

By David Barwick – FRANKFURT (Econostream) – It will probably be announced today that former European Central Bank Governing Council member Pablo Hernández de Cos is to take over the helm of the Bank for International Settlements (BIS) when current BIS General Manager Agustín Carstens steps down.

The move to the BIS in Basel, Switzerland would put the ex-governor of Banco de España and ex-chair of the Basel Committee on Banking Supervision in a position that leaves open the possibility of his return one day to the ECB in an Executive Board capacity, provided of course that various other conditions are right when the time comes for what is ultimately a political decision.

De Cos, who left the Spanish central bank in June, will move to the BIS for a five-year term when Carstens leaves at the middle of next year. Carstens would have normally left in November 2022, but the BIS announced in November 2021 that his term had been extended until end-June 2025.

The appointment of de Cos will meet with very high approval among his former Governing Council colleagues, his six-year, non-renewable leadership of Banco de España having won him considerable respect in financial policy circles in general and on both sides of the aisle at the ECB.

ECB Vice President Luis de Guindos is the Spanish national currently on the ECB’s Executive Board, and his term will end only on 31 May 2026, making that the earliest date at which de Cos is likely to have a chance of returning to euro area monetary policymaking.

One key question to which we don’t pretend to have a definitive answer is whether de Cos would be tempted to leave so quickly what is likely to prove a satisfying position at an institution sometimes referred to as ‘the central bank of central banks’. We are inclined to doubt it.

Moreover, the political stars may not be aligned in a way favouring his transition to Frankfurt, de Cos having been appointed by Spanish political party Partido Popular.

At present, Spain’s government is dominated by another party, namely Spanish Socialist Workers' Party (PSOE), which should remain the case until elections that may take place only in August 2027.

The PSOE, as was corroborated by the recent drama surrounding the appointment of de Cos’ successor to the country’s central bank, would probably be disinclined to back the candidacy of someone not from its own ranks for an ECB Executive Board position.

De Cos’ appointment to head the BIS may inadvertently lessen the chances that Klaas Knot, the longest-serving member of the Governing Council and probably the only one with an even more impressive central banking resumé than de Cos, will get to move to Frankfurt, as has been much speculated.

Knot, whose second and last term at the Dutch National Bank will end on 30 June 2025 and who was never an official candidate for the BIS GM job, would probably need a high-level position in financial policymaking to bridge the gap between that date and the next opening of an Executive Board post. Such positions, however, do not grow on trees.

When Knot leaves the Dutch National Bank, the only possibility for him to join the ECB Executive Board without any prolonged gap in his distinguished record would be if the current Dutch national on the board, Frank Elderson, simply vacated his own post.

That however assumes that the current Dutch government would back this idea, and that Elderson, a non-economist decidedly to the left of his government, could be induced to vacate his post just so that a compatriot could take up the same position, all of which is an unlikely proposition.

More believable is that when ECB President Christine Lagarde’s term ends on 31 October 2027, Elderson, whose eight-year stint would then be close to entering its final year, might bow out.

This would be much like what happened when Mario Draghi was tapped to become ECB president in 2011, requiring the exit of his fellow Italian Lorenzo Bini Smaghi, who at the time was looking forward to another year and a half on the Executive Board.

We can imagine that getting one of its nationals into the top job at the ECB would hold some appeal to the Dutch government, perhaps making it easier to paper over political differences that in the case of Knot and the current government may not be so large anyway.

In contrast to France, with eight-year terms served by Jean-Claude Trichet to 2011 and now Lagarde, the Dutch have only contributed one president to the ECB, namely Wim Duisenberg for a mere four years to end-October 2003.

As to a possible claim by Germany to the top spot at the ECB, we would observe that German national Claudia Buch is already Chair of the Supervisory Board of the ECB. It is improbable that Germans could occupy both posts at the same time.

Of course, there remains the very big question of how Knot will occupy his time from 30 June 2025 to 31 October 2027. Crystal clear though it is that he would be a uniquely perfect fit for the position of ECB president, an interim gig in the private sector would not help his chances.