European Central Bank (ECB) President Christine Lagarde during an interest rate decision press conference in Frankfurt, Germany, Thursday, June 11, 2026.
Alex Kraus | Bloomberg | Getty Images
Europe is facing a decline in the conditions that have historically driven the continent’s growth, the country’s central banker warned on Wednesday, calling on leaders not to repeat the mistakes made during the AI-era dot-com boom.
Speaking at the World Economic Forum’s International Business Council in Geneva, Switzerland, on Wednesday, European Central Bank President Christine Lagarde warned that the continent’s post-war growth model was “in decline” and “unlikely to return to its former form.”
Lagarde told the audience that this economic growth is supported by three pillars: expanding global trade, manufacturing supported by access to cheap energy, and “a stable, rules-based world order underpinned by the security umbrella of the United States.”
Lagarde said all three pillars are now weakened.
He said more than 2,500 trade restrictions were implemented around the world last year alone.
Shortly after returning to the White House, President Donald Trump announced a number of targeted tariffs, including a 20% threshold tax on products imported into the United States from the European Union. Those tariffs were later lowered to 15% when the two countries agreed to a trade deal, but the stability of the agreement and how certain European imports, such as steel, will be taxed by the U.S. government remains unclear.
The US retreats from the postwar world order
More broadly, Lagarde said in a speech on Wednesday that the West’s withdrawal from the US security leadership was putting further pressure on Europe’s economy.
“That (past) environment has deepened European supply chains and allowed companies to organize their investments around efficiency rather than resilience,” he said.
“Today, that world order is under pressure. Geopolitical tensions have brought critical dependencies and challenges into sharper focus, while Europe faces growing security threats at hand.”
President Trump has long accused America’s European allies of not spending enough on defense, and his administration has threatened to withdraw from the military alliance and even force NATO territory under American control. Meanwhile, Russian aircraft are increasingly intruding into European airspace, and the war between the United States and Iran is weighing on the continent’s economy and posing new security threats to the region.
Lagarde said on Wednesday that capital flows to Europe were at risk as the world became less secure.
“Resilience concerns have a direct impact on economic decision-making when economic dependence can be weaponized or when perceptions of deterrence are weakened. When capital is perceived as less secure, businesses reduce investment, weighing on production and consumption.”
“Taken together, these changes suggest that Europe’s post-war growth model is in decline, and a return to its former form is unlikely.”
AI warning
Looking to the future, Lagarde said Europe still had “great strengths to build on”, including the world’s largest network of trade agreements, world-class manufacturing capacity and the EU’s huge single market.
But he warned the region not to repeat the mistakes of the dot-com era when it comes to the AI revolution.
“Europe largely missed out on the first digital revolution because the commercial benefits from the spread of information and communications technology were disproportionately captured in other countries. We cannot afford to repeat that experience with the second digital revolution, artificial intelligence,” Lagarde said.
Europe’s tech sector has long dwarfed its U.S. counterpart.Europe’s 34 most valuable publicly traded tech companies have a combined market capitalization of about 1.37 trillion euros ($1.59 trillion), while America’s so-called Magnificent Seven stocks have a combined market capitalization of more than $23 trillion.
Lagarde told Wednesday’s WEF board meeting that there are already “encouraging signs” that European companies are investing in AI, but questions remain about “whether Europe will be able to create the conditions for that investment to spread and scale up.”
“One prominent proposal is ‘EU Inc.’ “This is an optional EU-wide company law that allows companies to incorporate once and then operate under a single set of rules across the EU,” he said, noting that at the same time capital market reforms are being designed to help European companies expand across the continent.
“We already have many of the ingredients for stronger long-term growth,” he said. “Scaling Europe to European size will allow innovative companies to grow at home, new technologies to spread faster and productivity to improve. In doing so, it will help make domestic demand a more durable engine of growth.”
Marco Forgione, director of the Chartered Institute for Export and International Trade, told CNBC’s “Squawk Box Europe” on Wednesday that Europe is also guilty of protectionism when it comes to trade.
“The internal market within Europe is free, but trade into Europe is far from free and it’s a very protectionist environment. And I think the question for Europe is what role Europe will play in the new world order,” he said. “Competition from countries like China that are moving much further up the value chain in terms of manufacturing is a real challenge.”
“For Europe to emerge from decades of stagnation and begin to see real economic growth, fundamental changes are needed, both politically and economically,” he added.
