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Christine Lagarde, president of the European Central Bank, cautioned on Wednesday that Europe must urgently remove barriers within its internal market or risk falling behind in artificial intelligence.
Speaking at the World Economic Forum's International Business Council in Geneva, Lagarde cautioned that the continent "cannot afford to repeat" the mistakes of the first digital revolution, where the commercial gains from information technologies were largely captured elsewhere.
While euro area firms expect to allocate 9% of their investment to AI this year, Lagarde stressed that two critical structural hurdles are preventing new technologies from spreading: fragmentation in the single market and fragmented capital markets.
The EU and San Francisco-based scale-ups raise similar amounts in their first five years, but European firms raise roughly 50% less by their 10th year, according to the European Investment Bank. As a result, around 12% of EU scale-ups relocate outside the bloc, mostly to the U.S.
The AI warning comes as Europe's broader post-war growth model faces severe pressure. Lagarde stated that the model, built on expanding global trade, cheap energy-backed manufacturing, and a stable rules-based order, is eroding and "unlikely to return to the form we once knew."
She pointed to more than 2,500 trade restrictions implemented globally last year, alongside rising industrial competition from China, which now competes directly with the euro area in close to 40% of its core sectors.
Furthermore, EU electricity prices for energy-intensive industries averaged more than twice U.S. levels last year following the loss of cheap Russian gas.
Despite the headwinds, Lagarde emphasized that Europe retains strong foundations, including an integrated market of 450 million consumers and a skilled workforce.
To turn domestic resilience into long-term growth, Lagarde urged swift integration of European capital markets and supported measures like "EU Inc.," an optional legal status that would allow companies to operate under a single set of rules across all member states.
"Turning European size into European scale would help innovative firms grow at home, allow new technologies to spread faster and boost productivity," she said.
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