Why Lagarde’s ECB Appointment is (Almost Certainly) Unlawful

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On 2 July, after three days of infighting and political horse-trading, the European Council reached an agreement on appointments to the EU’s ‘top jobs’. To say that these have been controversial would be an understatement, not least because of the process leading to the appointments. The Council’s decision was reached behind closed doors. There was no public scrutiny of the appointees or their agenda for the Union. The European Parliament was all but ignored, as the Council defied the ‘Spitzenkandidaten’ process to appease the leaders of the Visegrad Group. Even the very liberal and pro-EU Guardian conceded that this isn’t an obvious advertisement for the project.

A lot has already been written on the controversies surrounding the four appointees, including the ongoing probe into von der Leyen’s awarding of contracts at the German’s defence ministry and the various corruption allegations against Josep Borrell, the Council’s pick for the role of High Representative for Foreign Affairs. However, Christine Lagarde – chosen to head the European Central Bank – has been largely immune from those controversies. In this post, I argue that insufficient attention has been paid to the fact that Lagarde was actually convicted of a criminal offence for her role in a major financial fraud case and that this raises serious questions regarding the legality of her appointment. Following a brief summary of Lagarde’s role in the Tapie Affair, I examine the rules governing the appointment of the ECB President under the EU Treaties. Other sources of law may be envisaged, such as general principles of EU or global administrative law. But these are beyond the purview of this post and, as will become apparent, my view is that there is sufficient ground under the EU treaties to argue that Lagarde’s criminal conviction renders her appointment invalid and thus liable to judicial review and annulment.

Christine Lagarde: ‘rock star’ of international finance and convicted felon

The appointment of Lagarde – Managing Director of the IMF and ‘rock star’ of international finance – has been met with nothing short of wild enthusiasm by the liberal media. Poised, capable, highly experienced, a good listener with savvy political instincts and deep connections in global finance, she has been hailed ‘the right choice’ to head the ECB and ‘just what Europe needs’ in these troubled times. Lagarde is also a woman, the first ever to score the top job at global law firm Baker McKenzie, to serve as finance minister of a G7 country, to lead the IMF, and now poised to break yet another glass ceiling. A remarkable individual by any measure which, compared to other appointees, may at first glance appear squeaky clean.

Yet, whereas other appointees are tainted with allegations of wrongdoing, Lagarde was actually convicted for her role in the Tapie Affair – a long-running political scandal in which the French state was cheated by nearly half a billion euros through a rigged arbitration. Largarde – who was finance minister at the time – approved a massive payout to French oligarch Bernard Tapie and refused to appeal the arbitral award. This was done against her advisers’ recommendation and in the face of serious corruption allegations which eventually led to the award’s annulment. In what is widely suspected to be part of a secret pact between Tapie and Sarkozy involving a huge payout in return for election support, Largarde was found guilty of gross criminal negligence causing the misappropriation of public funds.

As is all too familiar with white-collar establishment criminals, Lagarde did not receive a formal punishment on account of her ‘international reputation’ and the ‘context of global financial crisis’, causing intense controversy in France and once again proving Jean de la Fontaine’s maxim ‘selon que vous serez puissant ou misérable, les jugements de cour vous rendront blanc ou noir’. Yet her criminal liability was definitively established and her conduct was deemed a ‘decisive cause’ (page 15 of the judgment) in the conspiracy to defraud the French state.

The EU Treaties and the Appointment of the ECB President

The appointment of the EU’s top officials is a notoriously political affair in which EU leaders strike complex compromises based on national preferences, geographical representation, support by leading political parties and policy considerations. Yet the EU remains – as the saying goes – a Union of law, where decisions must have a basis in the constitutive treaties and are made within an agreed legal framework. This goes for technical regulations concerning banana curvature as it does for big political decisions such as top-job appointments. What then do the EU treaties tell us about the appointment of the ECB President? In truth, not much.

The process for appointing the ECB’s Executive Board (including the President) is laid out in article 283 TFEU. The Board is appointed by the European Council, acting by a qualified majority, after consultation of the European Parliament and the ECB’s Governing Council. Yet when it comes to the person specifications for what is in essence one of the most powerful positions in the EU, the Treaties are remarkably short on detail. They lay out only two basic principles: the ECB President must hold the nationality of a Member State; and they must be appointed ‘from among persons of recognised standing and professional experience in monetary or banking matters’ (art. 283(2) TFEU).

As a French national, Lagarde clearly meets the first condition. Whether she satisfies the second is a lot less evident and requires some careful consideration of the meaning of relevant treaty provisions. To be clear, I am not interested here in whether, as a politician with no central banking experience, Lagarde possesses the required qualifications to lead the ECB. Leaving aside the question’s sexist undertone (would we really be asking this if Lagarde was a man?), the ECB has come to assume a highly political role, especially since the Eurozone crisis, and economics are in any event far too important to leave to narrowly focused professional economists.

My concern here is whether, given her conviction in a major financial crime case, Lagarde can reasonably be said to be a ‘person of recognised standing’. To answer this question, one must ascertain the meaning of the term ‘standing’ in the TFEU. ‘Standing’, in the English language, normally refers to a person’s social position, status or reputation. Standing here is axiologically neutral. One can be in good or bad standing. In this acception, ‘person of recognised standing’ may simply denote a person with an established career in the world of finance, a known figure with significant professional experience and competence in areas of relevance to the ECB. However, standing is also often used in a more normative sense to denote a person with good social or moral credentials, an individual commanding respect or admiration because of their positive contribution or influence. In the UK, for instance, passport applications must be countersigned by a ‘person of standing’ in the community, meaning a ‘person of good standing’, the two terms often being used interchangeably.

Looking at non-English versions of the TFEU, it appears plausible that the parties may have intended to use the term standing in this second acception. The French version of the TFEU does for instance use the term ‘autorité’, which indicates a person serving as a reference for others owing to their excellence or seriousness, whilst the Spanish text uses the term ‘prestigio’, a notion with a positive connotation used to describe the respect and admiration resulting from a person’s reputation for high quality, success or social influence.

In the absence of a plain ordinary meaning or clear party intention, the rules of treaty interpretation require taking into account the context of the treaty, including subsequent agreements between the parties and subsequent state practice. In ascertaining the meaning of article 283(2) TFEU, it is helpful to look at the manner in which member states have construed the concept of ‘standing’ in their own legislation, including the statute of their national central banks [NCBs]. NCBs form an integral part of the ESCB (European System of Central Banks, see art. 282(1) TFEU) and their statutes were all revised following the adoption of the Maastricht and Amsterdam Treaties. They therefore constitute implementing legislation and, as such, are highly relevant to the interpretation of the EU treaties.

Looking at NCB statutes, it is fairly apparent that members of the banks’ governing bodies are expected to possess standing not simply in the axiologically neutral sense of competence or eminence, but also in the sense of integrity and honesty. Whilst a few statutes are silent on the question of governors’ credentials (Denmark, Germany, Netherlands, Portugal, Slovenia, Sweden), most indicate that only persons of high integrity are fit to serve on NCB governing bodies. Consider the following examples:

  • ‘members of the Governing Council shall be elected and appointed only among persons of the highest integrity’ (Bulgarian statute, art. 11(3));
  • Only a citizen ‘who is of integrity’ and ‘who has not been lawfully convicted of a criminal offence’ is appointable (Czech Republic, art. 7);
  • The Board is composed of persons ‘whose reputation must be unblemished’(Estonia, art 4(2));
  • A person cannot be appointed as Governor if ‘convicted of an offence’ (Ireland, section 19);
  • Persons who are the object of a ‘conviction for a criminal offence’ cannot be appointed as Councillors (Greece, art. 14);
  • The Director ‘shall be selected among persons […] who meet the requirements of integrity’. Candidates ‘cannot have sustained a conviction, even one still subject to appeal’ (Italy, art. 16);
  • Bank commissioners ‘shall have a clean criminal record’ (Hungary, art. 79);
  • ‘no person shall be appointed a director who […] under the law of any country has been […] convicted of a crime affecting public trust or of theft or of fraud’ (Malta, art. 9(3));
  • ‘a member of the board must be a natural person who is […] of good repute [i.e.] has not been convicted by a final judgment of a deliberate crime’ (Slovakia, art. 7).

Statutes that do not explicitly list integrity as a requirement at the point of hiring typically contain dismissal clauses in case of serious misconduct whilst in office (Belgium, Spain, France, Croatia, Cyprus, Lithuania, Luxembourg, Austria, Poland, Romania, Finland, UK). The above demonstrates that member states have through their subsequent practice taken the view that serious misconduct – and especially criminal conviction – is incompatible with high office at a central bank. It would therefore appear inconsistent to interpret the requirement of ‘recognised standing’ in art. 283(2) TFEU in a narrow, axiologically neutral sense. If integrity is required of those heading NCBs, then surely the same ought to be expected – as a bare minimum – of the ECB President, given the ECB and NCBs together form part of the same European banking system.

The narrow interpretation of ‘recognised standing’ would also, I argue, be inconsistent with subsequent instruments adopted by the ECB itself. In 2015, the ECB adopted Decision 2015/433 on the establishment of an Ethics Committee and its Rules of Procedures. This affirms that ‘the increased level of public awareness and scrutiny requires the ECB to […] strictly adhere to state-of-the-art ethics rules in order to safeguard the ECB’s integrity and avoid reputational risks’. It also adds that ‘the ethics rules for members of [governing] bodies […] should be proportionate to the addressees’ respective responsibilities’, suggesting that persons at the highest echelons of power are to be subject to the strictest ethical rules.

This is confirmed in the ECB’s Code of Conduct for High-Level Officials, which affirms that:

‘as an institution of the EU, the ECB is required to serve the public interest and ensure the highest standards of integrity […] Adherence to these principles is a key element of the ECB’s credibility and […] a key prerequisite for safeguarding the reputation of the ECB’.

Whilst the Code of Conduct is concerned primarily with officials’ integrity in their discharge of duty, it also contains specific post-employment rules. It would be incoherent for ECB officials to be subject to the highest ethical standards during and after their term of office, whilst being free from any ethical requirement at the point of recruitment.

Under the Code of Conduct, high-level officials are expected to ‘lead by example and inspire employees […] to uphold [the highest ethical standards]’ and adherence to these principles is seen as ‘vital to securing the trust of European citizens’. It is hard to see how a person convicted for their role in a major fraud case could inspire others to act with integrity and foster public trust in EU institutions.

Cumulatively, the argument that the concept of ‘recognised standing’ under art. 283 TFEU is void of ethical content is extremely difficult to sustain. The correct reading of this provision is that it requires – at minimum – a high level of integrity and professionalism, both of which appear highly unlikely in the case of a person convicted of criminal negligence. Under this interpretation, Lagarde’s appointment – if confirmed after consultation of the European Parliament in September – would fall foul of the EU Treaties and would therefore be liable to judicial review and annulment.

It has been suggested to me that a point of distinction might exist between crimes of intention – which clearly speak to a person’s integrity – and crimes of negligence – which speak less to integrity than competence. I am happy to take on this argument in the comments section (the editors – who drew my attention to the issue – also drew my attention to the word limit…). Suffice it to say here that, although the argument may have some theoretical traction, it is rendered largely moot by the fact that, if my interpretation is correct, art. 283(2) TFEU requires both integrity and competence. Other questions, including who may have standing (no pun intended) to challenge Lagarde’s appointment before the ECJ, will also have to be addressed separately.


‘No, no, no, no, no’ is what Lagarde is reported to have said last year when asked if she was interested in running the ECB. ‘No, no, no, no, no’ is what any sensible advisor should have told members of the European Council when they first contemplated Lagarde for the role. Yes, compared to some of the other appointees, Lagarde appears competent. And yes, she is a woman, with undeniable qualities. But Lagarde’s judicial antecedents place her squarely in the shady circle of male politicians who, for decades, have continued to prosper despite allegations and convictions of wrongdoing. As noted by one commentator, ‘the female fiscal ‘rock star’ has done well to haul herself up a greasy and frequently dishonourable career pole, but this by no means suggests she is somebody to be admired’. Gender parity is good. Political integrity is better.

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AN says

July 30, 2019

Shooting oneself in the feet -- that is what the EU is doing. Among the rising critical attitudes towards the EU, actions such as these only seek to fuel those attitudes. It is a shame the EU decides to act so imperialistically towards its own community. I like the idea on which the Organization was built (increasing the cost of European wars through interdependence), but honestly I will not mourn the loss of the EU if it continues down these suicidal paths.

Regards. Thank you for a great post.

Virginia P says

July 30, 2019

Despite I share your view that gender equality should not come at the cost of political integrity, let's not make of this another occasion to fuel Eurosceptic sentiments.

The European Council is the sole responsible for this bad election. This body is the direct expression of states' sovereignty, and not of the Union supranational project, vision, and principles. In fact, if the EU project had to come to an end, the future of Europe would be in the hands of these heads of states' meetings alone.

Given the results of the last national elections, it doesn't come as a surprise to me that these leaders act in an irresponsible way, with no respect for EU values. Let's hope that the European project will soon advance and leave behind its intergovernmental side.

Carl Nägele says

August 6, 2019

Thank you for the interesting post Mario!

It should be noted, perhaps, that other non-English versions of the treaty point toward the first reading of Article 283 TFEU. Namely, the German version speaks of "aus dem Kreis der in Währungs- oder Bankfragen anerkannten und erfahrenen Persönlichkeiten" which, in my view, connotes more of a focus on experience in currency and banking matters, than one of a 'moral' standing.

Even then, however, the greater point of your post remains - integrity should prevail in such matters.


Giorgio Sacerdoti says

August 15, 2019

I do not agree with the analysis of the Author of the post which appears to me as a priory biased against the recent choices made for the highest posts of the EU, although the selection processes conform to the EU rules, including the role of the democratically elected EP. Witness the gratuitous attack to van den Leyden whose qualifications and appointment are not the subject of the post.
First, the text is misleading when it says that Lagarde has been convicted of gross negligence. The text of the French judgment speaks of negligence, not “ gross negligence”. Such misrepresentation ( to say the least ) is serious enough in a post whose theme and leitmotif is integrity and ethics. Secondly, the French court ordered that the decision not be registered in the criminal record of Lagarde, which is typical in cases of sentencing for minor offenses. In practice it is as legally non existent for future evaluation of the person.
Thirdly, I find it peculiar that in the analysis the years of tenure of Lagarde at the helm of the IMF are not even mentioned...
As to the interpretation of the word “ standing” in art. 283 TFUE , the post by Carl Naegele has already pointed out that the text in German does not support dr. Post’s interpretation. The same can be said looking to the French text (“autorité) or to the Italian text (“riconosciuta levatura”) which hint at the ordinary interpretation of the term “standing” as comprising not just personal integrity but also professional qualities, besides technical competence. Finally, the interpretation of the Author, on which he boldly bases his firm belief ( in the very title of his post) that Lagarde’s appointment is illegal - with the minor caveat “almost certainly” ( thank you for this humility) - does not match with the strict requirements of “ honorability” for members of banks’ board members in dir.2013/36/EU on access to credit institution and prudential supervision. The bar is apparently higher and clearer here ( art. 91). Terms used are that these persons must be of “ sufficiently good repute” and must act with “ honesty, integrity and independence of mind”. Still, the ECB Guidelines of 2018 do not envisage that a single previous offense such as the one of the French decision, by itself, would bar a person from such an office.
To conclude, I think that a post as this one would have more appropriately figured in a column of an ( opposition) daily or weekly, than in the blog of an academic institution such as ESIL.
Disclaimer: I do not know personally nor have I ever met Mrs. Lagarde.

Mario Prost says

August 20, 2019

Dear Carl,

Thank you for bringing the German text of the TFEU to my attention. I think, like you, that the overall argument stands. The German text reinforces the point about the presence of a range of possible meanings and the case for interpreting art. 283 TFEU in its wider context, including subsequent state practice.

Dear Prof. Sacerdoti,

I feel your comments call for a fuller response, not least because they question the intellectual integrity of my arguments. Let me try to answer the main points you raise in your response:

1. My post does not start from any "a priori position" on the EU nominations. Had the Council selected a candidate whose standing and integrity cannot be impugned, the post would not exist.

2. The post does not feature any “gratuitous attack” on von der Leyen. It merely mentions “the ongoing probe into von der Leyen’s awarding of contracts at the German defence ministry”. That von der Leyen is being investigated for alleged breaches of public procurement rules is an undisputed fact, not an opinion. It is used here to draw the reader’s attention to the fact that Lagarde has been largely immune from the criticism levelled at other nominees.

3. French law does not, as a rule, distinguish simple and gross negligence. Art. 121-3 of the French Criminal Code lays out the constitutive elements of criminal negligence. In situations where negligence does not directly cause harm but contributes to the situation allowing damage to happen (i.e. the type of negligence of which Lagarde was found guilty), it holds that individuals “are criminally liable where it is shown that they have broken a duty of care or precaution laid down by statute or regulation in a manifestly deliberate manner, or have committed a specified piece of misconduct [une faute caractérisée] which exposed another person to a particularly serious risk of which they must have been aware”. There are therefore only two scenarios in which a person can be held liable for criminal negligence in those circumstances: if the person acted in a “manifestly deliberate manner” or if it committed a “faute caractérisée”. The French Criminal Code does not define the concept of “faute caractérisée”. However, this has been interpreted consistently as alluding to a negligence that is both grave and manifest. To find Lagarde guilty of criminal negligence is therefore by definition to find her guilty of gross negligence. One implies the other. The post is not misleading: it accurately reflects the nature of negligence under French criminal law.

4. Dispense de peine (exemption from penalty), in French law, bears no consequence on a person’s criminal guilt. Whilst it gives judges the discretionary power to forgo punishment in specific circumstances (there is broad agreement among French legal experts, by the way, that these were not satisfied in Lagarde’s case), it is categorically distinct from an acquittal. Lagarde was allowed to walk free. Yet her conviction – that is, the formal declaration that she is guilty of a criminal offence – stands entirely unaffected by the dispense de peine. She was not cleared or exonerated. She is and will always remain, as a matter of law, a convicted offender.

5. Lagarde’s years of tenure at the IMF are irrelevant. They do not render her less guilty of criminal negligence. The fact that she remained in office after her conviction is not relevant either. The IMF and the EU are two distinct entities with distinct institutional arrangements, constitutive instruments, and legal systems. That Lagarde was deemed fit to lead the IMF under IMF rules and procedures, even after her conviction, does not render her fit to lead the ECB under the EU treaties. IMF practice has no precedential value in EU law.

6. The point about the German and Italian texts of the TFEU has already been addressed. It does not undermine my argument and, instead, reinforces it. If some versions of the treaty imply integrity and others simply imply expertise/competence, then we need to look beyond the terms’ ordinary meaning and consider their broader context.

7. I’m not sure I understand the point about Directive 2013/36/EU. For one thing, the Directive deals with commercial banks and art. 2 clearly states it does not apply to central banks. For another, it further validates the claim that persons of bad repute are unfit to serve on banks’ governing bodies.

8. To conclude, allow me a brief digression. The rules of this blog contain the following statement of principle: “we welcome robust and critical analysis and comment – including the slaughtering of Holy Cows. We welcome the harsh and the whimsical. But it has always been the policy of EJIL that we endeavour to maintain a tone that does not offend good taste and that in interpersonal exchanges – in our debates in EJIL and in comments on EJIL Talk – disagreements are expressed in a non disagreeable manner”. Surely this principle applies to critiques of the EU and its decision to appoint dodgy individuals to lead its institutions. Such critiques should not be written off as biased, misleading or un-academic simply because they do not accord with dominant views about the Union.