Lagarde urges Europe to unlock growth potential through scale
ECB President Christine Lagarde outlined Europe's new growth model, emphasizing the need to turn its size into scale by overcoming structural barriers. Speaking in Washington DC, she highlighted the importance of central bank independence and agile decision-making for sustained economic progress.
Shifting demand towards domestic investment
For 15 years, the euro area relied on external demand, exporting savings and seeing productivity gains accrue abroad, notably in US capital markets.
A significant shift is now underway, with last year's 1.5 percent growth driven entirely by domestic demand.
Government spending on defense and infrastructure is rising, supporting private investment.
AI provides an additional tailwind, with private digital investment increasing by almost 20 percent since 2020. This momentum is expected to be sustained, with much of the defense spending increase still ahead.
Between 2026 and 2028, investment is projected to account for nearly 40 percent of euro area growth, representing over €150 billion in additional cumulative investment.
This fosters a more balanced relationship with trading partners, as the current account surplus fell to 1.6 percent of GDP in 2025, down from 2.7 percent in 2024.
Europe's industrial base embraces AI
Sustained growth requires overcoming supply-side constraints.
Europe's private sector is rapidly adopting new technologies, particularly in manufacturing.
Almost half of EU manufacturing firms use AI and big data, surpassing the US (less than a third), and they also lead in robotics deployment (55 percent vs 36 percent).
This industrial base is a key asset.
Investor sentiment has reversed, with 40 percent of institutional investors planning to increase their allocation to Europe.
AI-related deals accounted for over a third of European venture capital investment last year.
However, unlocking this potential depends on reforms to create scale in markets and finance.
The Single Market remains fragmented, especially in digital services and capital markets.
Aligning EU household deposit ratios with US levels could redirect up to €8 trillion into long-term investments, unlocking substantial growth.