As elections approach across the continent, European leaders are rushing to settle the multi-trillion euro budget and European Central Bank leadership before potential changes in government alter the political landscape, says Helen Thomas
Europe is racing to settle its future before its voters have their say. Negotiations over its next seven-year budget coincide with manoeuvring over the leadership of the European Central Bank. Both will shape how the continent finances its ambitions and responds to financial stress. Both could become harder as elections change the governments around the negotiating table.
Christine Lagarde could be chosen as the next chair of the World Economic Forum as early as November. Nothing has been decided, but leaving the ECB before her term expires in October 2027 would allow Emmanuel Macron to influence her successor before France’s presidential election. With Marine Le Pen the likely winner, the timing matters for those who would want to preserve the European status quo.
The ECB is often presented as a technocratic institution floating above European politics. Its independence in setting monetary policy is real. But the selection of its leadership has always involved political bargaining. Indeed, that bargaining was present before the bank opened its doors.
In 1998, France wanted Jean-Claude Trichet to become its first president. Other governments supported the Dutchman Wim Duisenberg. The compromise appointed Duisenberg for the prescribed eight years while anticipating his early departure and a French successor. His retirement remained legally his decision, but governments had already discussed the succession. Trichet eventually took over in November 2003.
The choreography became more conspicuous in 2011. Mario Draghi’s appointment would leave Italy with two members of the ECB’s six-person Executive Board and France with none. Nicolas Sarkozy pressed Lorenzo Bini Smaghi to make room. Bini Smaghi subsequently departed before his term expired and Frenchman Benoît Cœuré replaced him. Geographic balance had proved an essential accompaniment to professional qualifications.
Lagarde’s own appointment in 2019 formed part of the wider package distributing Europe’s leading jobs, alongside Germany’s Ursula von der Leyen at the Commission and Belgium’s Charles Michel at the European Council. Political selection does not establish political obedience but it shows how the politicians making the choices is consequential.
Elections
Those political leaders could soon change substantially. Spain votes in November, France chooses a president next spring, and Italy and Poland face elections during 2027. Germany’s Friedrich Merz is weakened by electoral setbacks and at risk of removal. Europe’s current leadership cannot assume that its successors will share its priorities or willingness to compromise.
Le Pen has made that explicit. In her recent Financial Times interview, she questioned von der Leyen’s standing and raised the possibility of replacing her before her term ends since “she no longer has the confidence of many governments in the EU”. She also objected to accelerating the EU budget agreement ahead of the elections.
The budget negotiations illustrate the difficulty. Ireland’s presidency has proposed €1.62 trillion for 2028–34, cutting the Commission’s offer by eight per cent. Net contributors still consider it too expensive; recipients are resistant to reductions to agriculture and regional funding. Meanwhile, defence, Ukraine and industrial competitiveness demand more resources.
Such disputes are familiar. What makes this round significant is that Europe must begin paying for its last great institutional innovation while financing its next ambitions.
The pandemic produced a new kind of funding. Brussels had borrowed before, principally to finance loans but the NextGenerationEU’s breakthrough was large-scale borrowing to fund a recovery programme including grants, with repayment through the common budget. It created shared fiscal capacity without creating a permanent fiscal union.
Repayment begins in 2028, precisely when the new budget starts. The grants were not free money: their cost returns through EU revenues, national contributions or spending displaced elsewhere. Governments must agree who pays while their own public finances are strained. The pandemic bargain has become a distributional argument.
Macron has urged agreement before year-end. There is a practical reason as programmes require legislation before launching in 2028 but there is a key political consideration. The budget requires unanimity, giving a future French president substantial leverage. Agreement now could reduce uncertainty, but also furnish Le Pen with a grievance about commitments settled before voters could choose.
For investors, this is more than Brussels intrigue. The widening French–German bond spread is testing confidence in France’s fiscal trajectory and the institutional response in the event of disorderly markets. The ECB must distinguish justified repricing from dangerous fragmentation. Its next leadership will need expertise, authority and sufficient political trust to sustain difficult decisions.
Europe has repeatedly advanced through crises. The sovereign-debt emergency expanded its monetary defences while the pandemic expanded common borrowing. That history demonstrates adaptability but does not guarantee another effortless compromise.
Budget agreements and central-bank appointments can establish continuity but without consent it will undermine the credibility of European institutions. Investors should judge Europe’s resilience by whether its bargains can survive a change of government, as well as whether its present leaders can strike them.
Helen Thomas is founder and CEO of Blonde Money