A new and exciting period is beginning at the European Central Bank (ECB)! According to regulations, the terms of seven out of the 26 members of the Governing Council will expire by the end of 2025. Analysts at Bloomberg estimate that this will be the largest personnel change since 2019.
One of the most noteworthy departures is Klaas Knot, one of the most influential hawks at the ECB. Besides him, several finance ministers who played a key role in managing the European debt crisis are also leaving. Experts believe their experience could be invaluable in facing new challenges, including a potential trade war with the US. Among those who may step down are Mário Centeno, head of Portugal’s central bank and former Eurogroup president, as well as Finland’s Olli Rehn, who previously oversaw the EU’s anti-crisis measures. However, Rehn still has a chance to stay for a second term.
Market analysts do not expect a dramatic shift in the ECB’s monetary policy, but the delicate balance between hawks and doves may be disrupted. The reason is the eurozone's economic stagnation, rising inflation, and the looming threat of US tariffs on European goods under President Donald Trump. "These changes come at the worst possible time as the ECB will be facing difficult decisions this year—the economic outlook has worsened and could worsen even more with Trump’s expected policies, while at the same time, inflation is still too high," Carsten Brzeski, head of macro research at ING, warns.
Recent economic data confirms the challenges ahead: by the end of 2024, the eurozone's GDP remained weak, while inflation in January 2025 exceeded forecasts. Meanwhile, the ECB has been cutting rates, bringing them down from 4% to 2.75% in 2024, but the future path remains uncertain.
New members in the Governing Council could complicate decision-making and shake up the regulator’s messaging. Against this backdrop, analysts at Goldman Sachs admitted that forecasting the ECB’s next moves is becoming increasingly difficult. Some experts argue that the reshuffle will not change the bank’s overall direction—it remains committed to lowering rates. According to forecasts, the Executive Board, where key decisions are made, will remain untouched. Economists at Société Générale emphasize that the ECB remains protected in terms of its independence and decision-making processes.
However, by spring, tensions could rise. After "autopilot" rate cuts in January and March 2025, debates may flare up over how much further borrowing costs should fall. One key issue will be the neutral interest rate—policymakers are divided on how low it should go. The new Governing Council lineup will play a crucial role in this discussion. Previously, four of the seven outgoing members, including K. Knot and Robert Holzmann, head of Austria’s central bank, were staunch hawks.
The reshuffle could slow the ECB’s response to external challenges, such as potential US trade sanctions. Some analysts fear the ECB could lose its independence if former politicians dominate the new lineup. Christine Lagarde, ECB President, has already stressed that in times of instability, monetary authorities must maintain flexibility. "It therefore remains imperative that central banks have the independence to fully deliver on their price stability mandates," she emphasized.
