Lagarde Sounds Alarm on Europe's Eroding Growth Model
ECB President Christine Lagarde has highlighted the challenges facing Europe's post-war growth model. According to her, global trade fragmentation and the disappearance of cheap energy have eroded the model.
Lagarde emphasized that domestic demand is now a crucial driver of resilience in the euro area. Last year, domestic demand drove 1.5% growth, while contributing positively to Q2 2026 expansion of 0.4% q/q.
The policy challenge, as Lagarde sees it, lies in turning this resilience into higher long-run productivity. To achieve this, she advocates deepening the Single Market and integrating capital markets.
Lagarde specifically pointed out that AI investment is being hampered by fragmented regulation and financing. Euro area firms expect around 9% of their investment to go towards AI this year, but current conditions prevent them from scaling up.