Lagarde Warns ECB Will Monitor AI-Driven Market Corrections

Christine Lagarde, President of the European Central Bank (ECB), testified before the Committee on Economic and Monetary Affairs of the European Parliament in Brussels. The topic was artificial intelligence's impact on Europe's economic future.

Lagarde noted that AI has transformed production processes, business models, and structures across the entire economy. However, its overall macroeconomic effect is uncertain, working through several interconnected channels affecting both demand and supply sides of the economy.

She emphasized that AI will have a significant impact on productivity and investment. Higher productivity could lower costs and reduce inflationary pressures in the long term. But adoption in the economy depends on substantial investment in innovation, computing capacity, data centers, and energy.

The ECB's survey found that 38% of euro area firms already reported at least moderate use of AI by late 2025, while only 7% reported significant use. Lagarde stressed the need for European initiatives to mobilize additional investment in AI infrastructure, citing €30 billion for AI Gigafactories as a good start.

Regarding monetary policy, Lagarde explained that the ECB's strategy is not to react to energy prices but rather if risks of higher energy prices becoming embedded in inflation are seen. The ECB raised interest rates by 25 basis points earlier this month to ensure that inflation stabilizes at their 2% target in the medium term.