A vision for the Eurozone
This is the acceptance speech by Christine Lagarde for the 2026 Paul A Volcker Lifetime Achievement Award at the 42nd Annual NABE Economic Policy Conference, Washington DC, 23 February 2026.
Europe’s structural challenge
Lagarde argues that Europe’s core problem is that it has size but not scale: it is large in aggregate but fragmented across 27 national markets that prevent European firms from reaching the productive efficiency enjoyed by US counterparts. This fragmentation acts as a brake on investment, innovation, and long-run productivity growth.
The investment gap
A central theme is Europe’s chronic underinvestment, particularly in the digital and green transitions. Europe saves substantially as households accumulate large surpluses, but these savings flow abroad (largely to the US), while Europe simultaneously runs a significant external surplus. Lagarde cites projections indicating Europe needs to mobilize around €800 billion annually in additional investment to meet its modernization and climate goals.
From fragmentation to integration
The remedy Lagarde proposes is completing the Capital Markets Union (CMU) and deepening financial integration so that capital can flow freely to where it earns the highest return. Fragmented national capital markets mean European firms, especially fast-growing ones, struggle to access equity financing at scale, pushing them to list in the United States or remain small. Deeper capital markets would also allow Europe’s large household savings to be invested domestically rather than exported.
Turning size into scale – Europe’s new growth model
By: Christine Lagarde – ECB
How Europe should design its industrial future
The CEPR webinar “Designing “Buy European” Policies for Strategic Autonomy” that took place on 15 April 2025, brought together six economists and policymakers to debate how Europe should design local content mandates and procurement policies to strengthen domestic industrial capacity.
Defence, demand, and small firms
- Moritz Schularick (Kiel Institute / Sciences Po)
He argued that defence investment is not dead investment—tomorrow’s warfare (autonomous systems, AI, satellite constellations, electronic warfare) is inherently high-tech, precisely the sectors where Europe lags. He proposed copying the US dual-procurement system: always two firms producing the same equipment, with one required to come from a different EU member state, spreading technology and productivity across the European industrial base. - Ufuk Akcigit (University of Chicago)
Akcigit warned that US industrial policies (IRA, CHIPS Act) have disproportionately benefited large incumbents through tax credits, reallocating innovative resources away from small firms. Small businesses (77% of US firms) are in distress: credit card financing has doubled, balances carried month-to-month are up 60%, and delinquency rates have risen. Since tomorrow’s superstar firms are today’s small and young businesses, that actually bring AI to market, their health is critical. For Europe, he stressed that deregulation is “the tip of the iceberg”: the entire ecosystem (education, failure stigma, university-industry links, capital markets) needs rethinking, and the 27-member coordination structure inherently slows response.
Digital sovereignty and WTO constraints
- Dietmar Harhoff (Max Planck Institute)
Harhoff focused on digital dependencies. At every level of the stack—chips, connectivity, compute, cloud, undersea cables—European players are increasingly marginalized. He endorsed the “Euro stack” concept, prioritizing government services, healthcare, security, and border control as areas that must be on European infrastructure. His central argument: Europe’s public sector lacks the technological and managerial capabilities to do smart procurement. He called for agency-type organizations with venture-capital-style portfolio approaches and for hiring technologists into government, not just lawyers and economists. - Beth Baltzan (Former US Trade Advisor)
Baltzan offered the most provocative intervention: Europe should stop being overly deferential to WTO constraints. The pandemic exposed the flaws of hyper-interdependence (PPE shortages); the US “Buy American” policy has survived WTO scrutiny for decades; and the EU already carves out agriculture, security, and procurement from WTO disciplines. She argued that past trade liberalization tools—like the IT Agreement with zero tariffs on hardware—inadvertently fuelled China’s hardware dominance.
Competition policy and procurement design
- Martijn Snoep (Netherlands Authority for Consumers and Markets)
Snoep reframed competition policy’s role: the task is not to block “Buy European” but to create European options by closing the gap between supply and demand coordination. Competition enforcement should redirect toward supply chain chokepoints: vendor lock-in, exclusion, and interoperability failures. - Giancarlo Spagnolo (University of Rome Tor Vergata)
Spagnolo made the case for centralized EU-level procurement rather than 27 national champions. National-scale procurement cannot compete with Chinese or American scale. He argued that “Buy European” is costly but WTO-negotiable, citing the US precedent. However, current EU procurement bureaucracies are risk-averse, law-focused, and audited on process rather than outcomes. He called for VC-like expert agencies that can assist startups in scaling (Europe lacks a comparable VC ecosystem), tailor procurement instruments per technology (bundling, set-asides, subsidies), and break the pattern of incumbent consolidation. He warned that models like ESA’s national quota system fail precisely because they fragment rather than centralise.
Designing “Buy European” Policies for Strategic Autonomy
Panel discussion organized by CEPR
