Europe's Post-War Economic Model 'Eroding' Amid US Retreat: ECB Chief

European Central Bank President Christine Lagarde has sounded the alarm about Europe's post-war economic model, warning that it is eroding due to the US retreat from global leadership. Speaking at the World Economic Forum in Geneva, Lagarde said that Europe's prosperity rested on three pillars: expanding international trade, a manufacturing sector benefiting from cheap energy, and a stable, rules-based global order underpinned by US security.

However, all three of these foundations are now under strain. Global trade barriers have increased, with over 2,500 trade restrictions introduced last year alone. The EU has also faced uncertainty over access to the US market since President Donald Trump returned to office, with tariffs on European goods remaining a contentious issue.

Lagarde argued that Washington's retreat from its traditional leadership role in European security is changing economic calculations facing businesses and investors. The previous security environment allowed European supply chains to deepen, but today geopolitical tensions are bringing critical dependencies and chokepoints into sharper focus.

The ECB chief also highlighted the threat posed by artificial intelligence (AI) to Europe's competitiveness. Europe failed to capture the commercial benefits of the first digital revolution, and Lagarde warned that it cannot afford another lost technological cycle with AI being the second digital revolution.