European Central Bank President Christine Lagarde warned that the continent's post-war growth model is eroding as U.S. security backing and global trade norms weaken. Speaking in Geneva on Wednesday, she said capital is pulling back from a region seen as less secure and urged Europe to integrate faster to compete in artificial intelligence.
Europe's decades-old growth formula, built on cheap energy, open trade and a U.S. security guarantee, is eroding, Lagarde told the World Economic Forum's International Business Council in Geneva on Wednesday. She said the continent's post-war growth model is eroding and unlikely to return to its previous form.
Three pillars weakening at once
That growth rested on three pillars, Lagarde said: expanding global trade, manufacturing backed by cheap energy, and a stable, rules-based global order underpinned by a U.S. security umbrella. All three are weakening, she said, pointing to more than 2,500 trade restrictions imposed worldwide last year.
Trade friction with Washington has added to the strain. President Donald Trump's administration imposed a 20% baseline tariff on EU goods entering the U.S., a rate later cut to 15% under a trade deal, though uncertainty remains over how goods such as steel will be taxed.
U.S. retreat from European security
America's pullback from leading Western security is compounding the pressure, Lagarde said. Firms invest less when capital is seen as less safe, weighing on output and consumption, she said, as geopolitical tensions expose critical dependencies and chokepoints.
Lagarde said: "It is unlikely to return to the form we once knew." Her remarks came as Russian aircraft have increasingly encroached on European airspace and the U.S.-Iran war has weighed on the continent's economy, adding fresh security concerns for the region.
A second chance on AI
Lagarde said Europe cannot repeat the mistakes of the dotcom era in the age of artificial intelligence, warning that the continent largely missed out on the first digital revolution. She noted Europe's 34 most valuable listed tech companies carry a combined market value of about €1.37 trillion ($1.59 trillion), against more than $23 trillion for the U.S.'s Magnificent Seven stocks.
She pointed to "EU Inc.," an optional EU-wide corporate structure that would let companies incorporate once and operate under a single rulebook across the bloc, as one proposal to help firms scale across the continent.
Source: International: Top News And Analysis
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