Christine Lagarde, who chairs the European Central Bank, made her remarks on Wednesday, indicating that Europe was too important to miss out on the AI revolution. In her view, the development in technology will offer an important chance to improve productivity and growth amid challenges facing the current economic model of the continent.
Lagarde gave her comments in a forum focused on the global economic outlook at the World Economic Forum. According to the ECB head, Europe’s post-WWII growth formula was based on three pillars, which complement each other: global trade expansion, industrial production that is helped by cheap energy sources and a stable international environment.
“We cannot afford to repeat that experience with artificial intelligence, the second digital revolution,”
Lagarde said, referring to Europe’s failure to capture a comparable share of the commercial gains created by the spread of information and communications technology.
Why is Europe’s growth model under pressure?
Lagarde pointed out that Europe had been reaping benefits of openness in the trading environment for many years. Europe had trade levels twice those of the US economy relative to the gross domestic product, she said, but such an arrangement would not continue being the case any longer. More than 2,500 barriers to trade had been imposed across the world between January and October 2025, according to figures provided by the ECB president. The protectionist policies, tariff issues and geopolitical tensions have contributed towards uncertainty among European businesses as well as disruptions in international supply chain channels upon which the export-oriented European economy relies heavily.
Europe is also increasingly facing competition from China. As Lagarde stated, China was competing with the eurozone in nearly 40% of the sectors in which the eurozone had a comparative advantage, as compared to 25% in the early years of 2000. Energy costs have added further to the industrial disadvantage faced by Europe. According to Lagarde’s figures cited by the ECB, the electricity costs in energy intensive industries in the EU were over two times as high as those in the US and 50% higher than those in China.
“The post-war growth model that served Europe so well is eroding, and we should not expect it to return in the same form,”
Lagarde said.
She added that geopolitical tensions, security concerns and the possible weaponisation of economic dependencies were increasingly influencing corporate investment decisions.
How important is AI to Europe’s future?
Lagarde described artificial intelligence as a potential source of higher productivity, stronger investment and new economic growth. She said Europe had largely failed to benefit from the first digital revolution, when the commercial gains from information and communications technologies were captured disproportionately by companies outside the continent.
“Europe largely missed out on the first digital revolution, as the commercial gains from the spread of information and communication technologies were captured disproportionately elsewhere,”
Lagarde said.
President of the ECB stated that Europe has to ensure that it does not have this kind of experience in relation to the new digital revolution – AI. The economy of the euro area grew by 1.5% in 2025, whereas the economic activity rose by 0.4% on a quarter-on-quarter basis in the second quarter of 2026. Domestically oriented demand was the driver of the euro area’s growth in 2025 and contributed positively to the growth of the euro area during the second quarter of this year, as reported by the ECB. Lagarde mentioned that nearly 9% of euro-area investments of companies were forecast to be made in the direction of AI over the next 12 months.
Is Europe already adopting AI?
An ECB study based on harmonised surveys of about 6,000 companies in 12 euro-area countries found that approximately 70% of firms reported some level of AI use. However, only around 7% described their adoption as significant.
AI adoption was strongest in the Netherlands, Finland and Austria, while Italy and Ireland were among the countries with lower adoption levels. Larger, younger and technology-intensive businesses were the most likely to use AI.
Most companies were adopting AI to improve business processes rather than to replace workers. The main obstacles identified by firms were shortages of skilled employees, data-protection concerns and difficulties integrating AI into existing systems.
The ECB study found that companies using AI had stronger productivity, turnover growth and fixed investment, particularly when the technology was used intensively. It also found no evidence of broad labour shedding among the surveyed companies. Instead, AI adoption was positively associated with employment growth.
The findings do not mean that AI will have the same effect in every sector. While the technology may create new jobs and improve efficiency in some industries, it could reduce demand for particular tasks and increase inequality in others.
What is preventing European companies from scaling?
According to Lagarde, there are several major advantages in Europe such as a large consumer market, good research facilities, and industrial knowledge. The EU constitutes about 6% of the world population, but 15% of the scientists work in Europe and 20% of the most cited publications belong to Europe. Nevertheless, according to her, Europe is having difficulties transforming its strengths into globally competitive technology companies. One of the main problems is a fragmented market.
European businesses still have to deal with different laws, taxes, administration, and investment environment in each country in the union. Thus, instead of being a single market, when expanding to other European countries a company should adapt to 27 different environments. According to Lagarde, European scale-ups manage to raise about the same amount of money as San Francisco scale-ups do in the first five years. After ten years, however, European scale-ups raise only half the amount compared to San Francisco’s companies. About 12% of the European scale-ups move out of the EU, mostly to the US.
She backed proposals for an optional EU-wide corporate legal structure, sometimes referred to as “EU Inc.”, which would allow companies to incorporate once and operate more easily across the bloc.
She also called for faster progress toward a genuine European capital market so that innovative companies could obtain larger funding rounds without moving to the United States.
What did earlier ECB research find?
The ECB said the effects of competition were already visible in corporate investment plans. A one-percentage-point increase in perceived AI investment by domestic competitors was associated with an approximately 0.6-percentage-point increase in a firm’s expected AI investment.
The finding suggests that businesses may be more willing to invest in AI when they see competitors moving ahead. It also indicates that delayed adoption could become self-reinforcing: firms that fall behind may lose market share, investment capacity and skilled workers.
In a separate assessment published on August 5, the ECB said uncertainty connected with wars and trade tensions had reduced euro-area growth by approximately 0.4 percentage points between the first quarters of 2025 and 2026.
The central bank said investment in intangible assets, including software, research, data and AI systems, had proved more resilient than traditional investment in physical assets. It estimated that AI-related investment could help ease the impact of uncertainty on euro-area growth.
The euro area was expected to grow by approximately 1% in 2026, according to the ECB assessment.
Has Lagarde issued similar warnings before?
Lagarde has repeatedly warned that Europe risks falling behind in AI and other digital technologies.
At an ECB conference on artificial intelligence in Frankfurt on April 1, 2025, she said Europe was still paying the price for its slow response to the earlier digital revolution. She argued that the technology sector accounted for roughly two-thirds of the productivity gap between the European Union and the United States since the beginning of the century.
On November 24, 2025, at the BratislavAI Forum in Slovakia, Lagarde said Europe had already missed the opportunity to become a first mover in AI because the United States and China were ahead in developing frontier systems.
“With the United States and China ahead of the field, Europe has already missed the opportunity to be a first mover in AI,”
Lagarde said at the time.
She warned that Europe continued to bear the consequences of its slow adoption of digital technologies and urged policymakers to improve computing capacity, energy access, investment conditions and regulatory coordination.
In February 2026, Lagarde said Europe could still benefit greatly from AI even if it did not lead the development of the most advanced frontier models. She argued that Europe could gain by becoming a leading user of AI in manufacturing, logistics, healthcare, energy and other industrial sectors.
What did the Draghi report say?
However, Lagarde’s warning aligns with the conclusions drawn in the aforementioned report concerning the competitiveness of Europe prepared by former Italian prime minister, Mario Draghi, in September 2024. According to the report, Europe had lagged behind the United States in key aspects of the digital economy, but had still been able to get the benefits from further AI and industry innovations. Figures in the report suggest that some 70% of the AI models founded since 2017 originated from the United States. There were three American hyperscale cloud providers which controlled more than 65% of the cloud market globally and within Europe.
Nevertheless, the report highlighted certain aspects of the digital economy, where Europe was still competitive. For example, the EU represented 22% of global activity in autonomous robotics and 17% of the AI-services activity. According to Mario Draghi, there is a need for increased investments, better access to high-performance computing, stronger support for start-ups and faster adoption of AI in such industries as pharmaceuticals, energy and automobiles. The report indicates the average productivity growth rate of about 0.6% in the EU compared to 0.8% in the United States.
Could regulation slow Europe’s AI ambitions?
The European Union is attempting to balance technological development with privacy, safety and human-rights safeguards through the AI Act.
The law’s general provisions, AI-literacy requirements and prohibitions on certain practices began applying on February 2, 2025. Rules for general-purpose AI systems began applying on August 2, 2025, while the main enforcement and transparency provisions entered a further implementation phase on August 2, 2026, subject to transitional arrangements and specific deadlines.
Supporters say the AI Act could increase public trust and provide companies with a clear legal framework. Critics argue that complex compliance requirements could increase costs and slow European firms compared with US and Chinese competitors.
Lagarde has not argued for abandoning regulation. Her position is that rules should be predictable, consistent and applied across the European market rather than interpreted differently in each member state.
The debate reflects a wider policy dilemma. Strong regulation may protect privacy, consumers and democratic institutions, but excessive fragmentation could discourage investment. Weak regulation could accelerate innovation while increasing risks related to discrimination, surveillance, misinformation and employment disruption.
What are the main positions on Europe’s AI strategy?
The policymakers in Europe seem to be in agreement with the strategy that involves investing in computing infrastructures, supporting start-ups, having strong capital markets, using AI in industry and having risk-based regulation. The business organisations are asking for low cost of energy, better financial access, greater computing power and relaxed cross-border regulations. The reason behind their demands is the lack of competitiveness among European companies because the American companies can function in one big market and they can also have huge amounts of venture and growth capital. The civil society organisations and labour representatives have said that the economic gains through AI should not be achieved at the cost of worker’s rights, privacy and democracy. The research from the ECB shows that there are some facts which prove the optimistic scenario of the use of AI that increases productivity without having job losses.
Why does Lagarde’s warning matter?
Lagarde’s remarks link Europe’s AI challenge with a broader structural economic crisis. She is not simply calling for more investment in technology; she is warning that Europe’s future growth model may depend on whether the continent can turn scientific strength and market size into scalable businesses and economy-wide productivity gains.
The central question is not only whether Europe can develop a frontier AI model capable of competing with the biggest US and Chinese systems. It is whether European companies can deploy AI quickly across manufacturing, services, energy, healthcare, transport and public administration.
Europe’s success will therefore depend on more than research funding. It will require a deeper single market, stronger capital markets, lower energy costs, skilled workers, reliable computing infrastructure and regulation that protects citizens without preventing companies from expanding.
Lagarde’s message was ultimately a warning that Europe’s previous economic advantages can no longer be assumed. Unless the continent acts faster, she suggested, AI could become another technological revolution whose greatest commercial rewards are captured elsewhere.
