Europe can't afford to miss AI revolution: ECB chief

European Central Bank chief Christine Lagarde warned on Wednesday that Europe risks missing out on the artificial intelligence revolution, as the continent's growth model faces mounting pressure. The U.S. and China are currently leading the AI race, with their companies developing the most advanced large language models and constructing extensive data centers.

Lagarde noted that Europe missed the previous digital revolution, where commercial gains from information and communication technologies were captured by other regions. She emphasized that Europe cannot afford to repeat this mistake with AI, the second digital revolution.

While European companies are investing heavily in AI, she highlighted several barriers hindering their ability to scale operations. The fragmentation of EU markets means firms are not competing across the entire eurozone and struggle to raise funds, particularly compared to their U.S. counterparts. This results in fewer firms achieving global size and a slower diffusion of new technologies throughout the economy.

Lagarde emphasized that scale is crucial for Europe to compete in AI and other emerging technologies, especially as Europe's post-war growth model faces significant challenges.

She pointed out that Europe has traditionally relied on three pillars: a rules-based global order supported by U.S. security guarantees, affordable energy, and expanding global trade. However, all three of these pillars are weakening as the international environment changes. The erosion of these foundations suggests that Europe's post-war growth model is in decline and is unlikely to return to its former form.

The re-emergence of former U.S. President Donald Trump in the White House has further strained relations between the U.S. and Europe, with Trump imposing significant tariffs on EU imports and questioning longstanding U.S. commitments to the continent's security.