Lagarde Warns Euro Area Resilience Rides on Domestic Demand Amid Eroding Growth Model

ECB President Christine Lagarde has sounded the alarm on Europe's post-war growth model, warning that it is eroding due to global trade fragmentation and declining cheap energy. She argues that the Euro area's resilience now relies heavily on domestic demand, which drove 1.5% growth in 2025 and contributed positively to Q2 2026 expansion of 0.4% q/q.

Lagarde emphasized the need for deeper integration of the Single Market and capital markets, highlighting AI as a key area where fragmented regulation and financing hinder firms from scaling up investment. She noted that euro area firms expect around 9% of their investment to go into AI this year, but are held back by regulatory and funding constraints.