Europe risks losing the investment and scale that once powered decades of growth, European Central Bank President Christine Lagarde told the World Economic Forum’s International Business Council in Geneva. She said the continent’s post-war growth model is "eroding," and "unlikely to return to the form we once knew." The cause is not a single shock, she said, but the simultaneous weakening of three pillars: expanding global trade, cheap energy–supported manufacturing, and a stable, rules-based global order backed by U.S. security.
Lagarde cited concrete signs of strain, noting that more than 2,500 trade restrictions were introduced worldwide last year. She flagged recent U.S. trade moves, including an initial 20% baseline tariff on EU imports that was later reduced to 15% under a deal, and persistent uncertainty over how Washington will tax certain European goods. Those policy shifts, she argued, add friction to supply chains that had been organised for efficiency rather than resilience.
The central banker linked weakening security guarantees to financial consequences. "When economic dependencies can be weaponized or when perceptions of deterrence weaken, concerns about resilience enter economic decisions directly," she said. Firms, Lagarde warned, trim investment when capital is judged less safe, which drags on output and consumption.
Lagarde held out options rather than resignation. Europe still controls the world’s largest web of trade agreements, world-class manufacturing, and a single market large enough to matter. Yet she warned against repeating the dotcom mistake, when the continent failed to capture the commercial upside of the first digital wave. Europe’s 34 most valuable listed tech companies have a combined market value of about €1.37 trillion, compared with more than $23 trillion for the United States’ Magnificent Seven, a gap that illustrates scale problems.
Policy fixes on the table include capital-market reforms and an optional EU-wide corporate legal form dubbed "EU Inc." That proposal would let firms incorporate once and operate under a single rulebook across the bloc. Whether those measures will create the conditions for AI investment to spread and scale remains uncertain, as Lagarde observed. The next test for European leaders is to turn size into scale, or accept a future in which investment, productivity and geopolitical friction shrink the continent’s competitive space.
