Lagarde warns Europe risks missing AI revolution

European Central Bank President Christine Lagarde said Monday that the continent risks repeating the mistakes of the first digital revolution if it fails to keep pace with the US and China on artificial intelligence. Speaking at a World Economic Forum event in Geneva, she pointed to fragmented markets, weak cross-border competition and limited access to funding as barriers that prevent European AI startups from scaling.

"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," Lagarde said. "We cannot afford to repeat that experience with artificial intelligence, the second digital revolution."

Her warning comes as the US and China dominate development of large language models and construction of hyperscale data centers. European companies are investing heavily in AI, Lagarde acknowledged. The euro zone's internal fragmentation means they struggle to grow to global size. "The result is fewer firms growing to global size and slower diffusion of new technologies across the economy," she said.

She tied the AI challenge to a broader erosion of Europe's post-war growth model. For decades the continent relied on three pillars: a rules-based global order backed by US security guarantees, cheap energy and expanding global trade. "All three are weakening as the international environment changes," Lagarde said. "These shifts suggest that Europe's post-war growth model is eroding. And it is unlikely to return to the form we once knew."