ECB leadership race focuses on crisis-fighting ability: French debt risk becomes a touchstone.

Title context: ECB leadership race focuses on crisis-fighting ability: French debt risk becomes a touchstone. The race for the European Central Bank presidency is increasingly focusing on one core question: which candidate is best equipped to deal with bond-market "vigilantes." As France's debt problems evoke memories of euro-area turmoil and incumbent President Christine Lagarde prepares to leave early, Dutchman Klaas Knot and Spaniard Pablo Hernndez de Cos may soon take over amid financial turbulence. According to people familiar with the matter, market tension has become an increasingly important factor in the ECB's next move. Observers within the euro area say governments' judgment of candidates' crisis-management skills is dominating the selection of the president. With the two men's qualifications hard to separate, assessing their credibility, authority and character in turmoil matters more. For the ECB, these questions have long been more important because the monetary union lacks fiscal integration, and that asymmetry is itself a vulnerability. Lagarde and her two predecessors all lived through crises, and policymakers remain worried about more trouble. The current problem is that global scrutiny of public finances, combined with concerns about high energy costs, has left France in a bind. Market speculation has never focused so ominously on such a large and critical member of the euro area. The French government is struggling to pass a budget, urban unrest has highlighted political challenges, and government bond yields have already sounded the alarm, which could ultimately prompt the ECB to step in to put out the fire. Former ECB chief economist Peter Praet said the central bank must intervene if financial markets crash, but the question any president faces is "how and how fast"; strict conditions are needed, and every risk that could lead to fiscal dominance or weaken the central bank's independence must be avoided, "especially now." Lagarde has signaled she will leave early but has not announced a date. Working assumptions in euro-area circles are increasingly centering on a January departure. If so, this week's decision will be her second-to-last. German Chancellor Merz said on Monday that if needed, a solution would be found on the executive board very quickly. People familiar with the matter said he met de Cos last week and Knot earlier this month. Euro-area finance ministers also extended the deadline for applications to succeed outgoing German executive board member Schnabel from October 28 to November 27; there are signs that what the Greek prime minister called a "grand bargain" over the presidency and two other ECB posts is taking shape. As bond-market tension heats up, the next president will have to face investors betting that the ECB will bail out France. Key countries' preferences are no secret either: France values a willingness to use any tool and takes Mario Draghi's 2012 "whatever it takes" pledge to defend the euro as the model of resolve; budget hawks such as Germany want a high bar for action. The two candidates' resumes are not very different. Knot served 14 years as Dutch central bank governor and chaired the Financial Stability Board, was seen early on as a hawk and moderated his stance during his tenure; a paper he wrote this month for the Peterson Institute for International Economics in Washington reads like a manifesto, saying he has gone from "skeptic to principled pragmatist." In it, he said his acceptance of new tools including the Transmission Protection Instrument (TPI) was not out of enthusiasm for monetary activism but out of recognition that allowing fragmentation to disrupt monetary policy transmission or the single currency is incompatible with the ECB's price-stability mandate. Knot also served as a senior official at the Dutch finance ministry, giving him experience in fiscal policymaking and political trade-offs. De Cos is currently general manager of the Bank for International Settlements and formerly chaired the Basel Committee on Banking Supervision, and is seen as more dovish but not radical. He also lived through the euro-area debt crisis as a Bank of Spain official and, like Knot, supports the ECB's emergency measures in recent years. In a speech this month, he said the central bank needs to intervene if market dysfunction threatens financial stability or monetary policy transmission; but when debt is high and public financing needs are large, even well-designed operations can be read through a fiscal lens. De Cos served on the euro-area central banks' public finance working group and is familiar with regional policy; his record of advocating fiscal prudence in Spain could be useful when firmness is needed against France's fiscal laxity. Both are former ECB Governing Council members with doctorates and years of experience setting euro-area interest rates. Either the 59-year-old Knot or the 54-year-old de Cos would become the youngest ECB president to date, and both are seen as safe pairs of hands. Emanuel Mnch, co-director of the Center for Central Banks in Frankfurt, said there are no major ideological differences between the two and both are very experienced on monetary policy and financial stability. Their similarity makes this the first leadership race in the euro's history without a strong orthodox divide. Observers in central bank circles say the difference between the two is "shades of gray" rather than black and white; compared with Lagarde, the contrast is greatershe is the first woman, the first politician-turned-ECB president, and the only one who has never run a central bank. Whoever wins will face a politically sensitive role. Draghi said this month that open domestic discussion in France about ECB aid makes the current situation unsettling, "it only makes intervention harder"; the ECB does not want to be part of any particular country's political infighting.