Lagarde Warns of Eroding Post-War Economic Model for Europe

European Central Bank president Christine Lagarde has warned that Europe's post-war economic model is eroding due to changes in the international environment. Speaking at the World Economic Forum in Geneva, she said three pillars supporting Europe's economic success were weakening.

The first pillar, expanding global trade, had helped Europe become one of the world's most open economies, Lagarde said. However, she warned that continued trade expansion could no longer be taken for granted, citing over 2,500 trade restrictions implemented globally last year alone.

The second pillar was Europe's strength in mid-technology manufacturing, supported partly by access to relatively cheap energy, according to Lagarde. But this advantage is also being eroded as China moves up the value chain and competes directly with the euro area in nearly 40% of sectors where they have a comparative advantage.

Lagarde said Europe's energy advantage has also faded, particularly following the loss of relatively cheap Russian gas. Electricity prices for energy-intensive industries in the EU were more than twice US levels on average last year and around 50% higher than in China, she added.