Europe Risks Losing AI Advantage Amid Internal Market Barriers

European Central Bank (ECB) chief Christine Lagarde has sounded an alarm about Europe's lagging AI innovation, warning that the continent risks missing out on the technology revolution unless it addresses internal market barriers.

Lagarde made her comments at the World Economic Forum's International Business Council in Geneva, where she cautioned against repeating the mistakes of the first digital revolution. She noted that during this period, commercial gains from information technologies were largely captured elsewhere, and Europe cannot afford to make the same mistake again.

The ECB head highlighted two critical structural hurdles preventing new technologies from spreading: fragmentation in the single market and fragmented capital markets. Euro area firms expect to allocate 9% of their investment to AI this year, but EU scale-ups raise roughly 50% less by their tenth year compared to their San Francisco-based counterparts.

This has led to around 12% of EU scale-ups relocating outside the bloc, mostly to the US. Lagarde emphasized that Europe retains strong foundations, including an integrated market of 450 million consumers and a skilled workforce.