European Central Bank President Christine Lagarde said in Washington on Monday that Europe can harness the economic benefits of artificial intelligence through broad deployment across industry rather than by producing cutting-edge AI models.
Lagarde suggested that the biggest gains will come from applying AI tools throughout the wider economy, with manufacturing and industrial operations singled out as especially promising arenas for impact. She pointed to survey evidence indicating that EU manufacturing firms are ahead of their U.S. counterparts in the use of AI and big data, and also in the adoption of robotics.
The ECB president framed Europe’s industrial base, often dismissed as relic of an older economic model, as a potential strategic advantage in the AI era. "Europe is a sleeping giant. Its potential is immense, but the changes needed to unlock it are not," she said, urging action to tackle deep-rooted structural weaknesses.
Lagarde stressed that Europe’s response to these weaknesses must be sustained even in the absence of an acute crisis. She expressed confidence that the region will move to make the necessary changes, saying this is driven not by inherent optimism but by the mounting cost of inaction and by the fact that required measures lie within Europe’s capabilities.
The ECB president also highlighted investor recognition of Europe’s unused potential. She noted that if households in the EU adjusted their deposit-to-financial-assets ratio to match that of U.S. households, it could free a stock of up to 8 trillion that might be redirected into long-term, market-based investments. Lagarde added that such a shift could translate into a flow of more than 350 billion annually into those investments.
Lagarde acknowledged perceptions that Europe trails the United States in AI adoption and innovation. She referenced a 2024 report by former ECB President Mario Draghi which argued that weak productivity in the region is partly rooted in a failure to benefit fully from the first digital revolution, noting that the U.S. and China have moved ahead in that regard.
Her comments emphasize a policy choice for Europe: prioritize the application of AI across existing industrial strengths and address structural constraints that hamper investment and productivity, rather than focusing solely on competing to develop frontier AI models.
Implications for markets and industry
- Manufacturing and industrial sectors could be principal beneficiaries if AI deployment accelerates.
- Financial markets may see increased flows toward long-term, market-based investments if household asset allocation shifts.
- Policy measures addressing structural weaknesses would influence investors confidence and capital allocation across the region.