Lagarde Warns Europe’s Economy Is Weakening Due to External Dependence

Brussels: European Central Bank (ECB) President Christine Lagarde has voiced strong concerns about the state of Europe’s economy, warning that the EU’s heavy dependence on third countries for trade, security, and critical raw materials is undermining long-term stability and growth.

Speaking at the European Banking Congress in Frankfurt, Lagarde stressed that Europe must urgently implement structural reforms and remove internal barriers to revive economic momentum. According to ECB findings, existing barriers within the EU’s single market amount to the equivalent of a 100% tariff on services and a 65% tariff on goods traded between member states.

Lagarde argued that aligning internal trade openness with that of the Netherlands—one of the most open economies in the bloc—could effectively counteract the impact of recent US tariffs. She criticised European policymakers for failing to address long-standing weaknesses and for “quietly covering up” stagnation within sectors essential for Europe’s future, including digital technology, artificial intelligence, and capital markets.

She described Europe as being trapped in a “vicious circle” of self-preservation, marked by weak domestic productivity and an overreliance on foreign assets. European investors’ growing preference for US stocks, she noted, has contributed to faster economic expansion in the United States while Europe’s own productivity continues to lag.

Lagarde also highlighted the EU’s vulnerability arising from its dependence on global supply chains. The withdrawal of key trade partners and China’s dominance in supplying rare earth metals—vital for electric vehicles and renewable energy infrastructure—have placed additional pressure on the region’s industrial base.

She further criticised the United States’ recent shift toward protectionism, especially under President Donald Trump, whose broad tariffs marked a significant reversal from decades of globalisation. Lagarde warned that such policies have intensified challenges for European exporters and underscored the need for the EU to strengthen its internal market and reduce external dependencies.

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