Christine Lagarde, ECB President, discusses challenges to Europe’s post-war growth model during the World Economic Forum, highlighting trade, manufacturing, and global order shifts.
Christine Lagarde, President of the European Central Bank, addressed the International Business Council at the World Economic Forum, highlighting key challenges to Europe’s post-war growth model.
Europe’s growth relied on three pillars: expanding global trade, strong mid-tech manufacturing supported by affordable energy, and a stable, rules-based global order. All three are weakening due to global changes.
Trade restrictions increased last year, and China is advancing in sectors where Europe previously held advantages. European energy prices for industry are now significantly higher than in the US and China.
The global order is under pressure from geopolitical tensions and security threats, affecting investment and resilience. Despite these challenges, Europe maintains strengths such as extensive trade agreements, advanced manufacturing, a skilled workforce, and a large integrated market of 27 member states and 450 million consumers.
European GDP grew by 1.5% last year, driven by domestic demand, which is expected to remain the main growth driver. To sustain long-term growth, Europe must better leverage its market size, foster innovation, and address barriers like market fragmentation and capital market disunity.
Proposals such as the ‘EU Inc.’ legal form aim to facilitate cross-border scaling of firms. Additionally, efforts are underway to integrate capital markets by the end of 2026, to support innovation and growth across Europe.
Enhancing scale and removing barriers can help Europe adapt to technological changes, accelerate diffusion of innovation, and strengthen domestic demand as a growth engine.
