European Central Bank President Christine Lagarde has warned that the European Union risks missing out on the artificial intelligence revolution unless it overcomes deep-rooted market fragmentation and integrates its capital markets.
Speaking at the International Business Council of the World Economic Forum in Geneva on Wednesday, Lagarde said Europe largely missed the first digital revolution and cannot afford to repeat that failure with AI, the so-called second digital revolution. Her remarks echo a landmark competitiveness report by former ECB chief Mario Draghi delivered last year.
“Europe largely missed out on the first digital revolution, as the commercial gains from the spread of information and communication technologies were captured disproportionately elsewhere. We cannot afford to repeat that experience with artificial intelligence,” Lagarde told the audience.
Barriers to Scaling
Lagarde identified two main obstacles facing European AI companies: internal barriers within the EU single market and fragmented capital markets that limit access to growth funding. Legal fragmentation creates practical barriers in terms of costs, time, and the ability of firms to operate across borders, she said, meaning a company in Europe faces more hurdles to scale up than a US-based rival.
The ECB president noted that EU businesses rely heavily on bank credit for funding, while capital markets remain too limited at the national level. Firms that cannot find adequate capital within the EU may end up turning to non-EU markets, further weakening the bloc’s competitive position.
Survey evidence cited by Lagarde suggests euro area firms expect to allocate an average of around 9 percent of their total investment to AI this year. The EU accounts for roughly 6 percent of the world’s population but produces 15 percent of its researchers and almost one-fifth of the most-cited scientific publications. The challenge, she said, is converting that research strength into commercial success.
Reforms Under Way
Lagarde called for speeding up two key legislative efforts: the Savings and Investment Union, a package aimed at creating more integrated capital markets, and the EU Inc. proposal, which would allow companies to incorporate once and operate across all 27 member states under common rules. Both are expected to reach agreement by the end of 2026, though significant divisions remain among member states.
Her comments come as the European Commission pushes initiatives to promote AI uptake in strategic sectors and to finance the construction of large data centres across the continent. The bloc is seeking to narrow a stark investment gap: an estimated 8 billion euros was invested in EU AI in 2023, compared to 68 billion dollars in the United States.
Sources: Euronews; MLex; World Economic Forum
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