Christine Lagarde warned in Geneva that Europe’s “overly fragmented single market” can’t support the EU’s top priority of competing globally in the AI race. The European Central Bank president told the International Business Council of the World Economic Forum that Europe missed the first digital revolution and can’t afford to miss out again with AI, which she called the second digital revolution. The language is sleek. The machinery underneath is familiar: more integration for capital, more pressure on everyone else to keep up.
The Brussels Machine Wants Scale
Lagarde said the EU needs to complete its single market and integrate capital markets that remain too fragmented if it wants to win the AI race against the US and China. She said Europe largely missed out on the first digital revolution, when the commercial gains from information and communication technologies were captured disproportionately elsewhere. That’s the old story in a new suit. Productivity for whom, exactly? The answer in the article is clear enough: for firms that can scale, for capital that can move, for institutions that can smooth the path.
She said access to capital is limiting Europe’s AI investments because EU businesses get most of their funding through bank credit while capital markets remain too limited at the national level. Legal fragmentation, she said, creates practical barriers for firms in costs, timing and their ability to operate across borders. As a result, a company in Europe faces more hurdles to scale up than a US-based rival and may end up turning to non-EU capital markets. The complaint is not that the system is too harsh on ordinary people. It’s that it’s not efficient enough for the firms trying to grow through it.
Lagarde said scale is particularly important as new technologies reshape the sources of productivity growth. She added that Europe has the full potential to make the most of new technologies and said there are already encouraging signs that European firms are investing in AI. The EU accounts for around 6% of the world’s population but as many as 15% of its researchers, and it produces almost one-fifth of the world’s most-cited scientific publications. Survey evidence suggests that firms in the euro area expect to allocate an average of around 9% of their total investment to AI this year. Those numbers sound impressive until you remember who gets to decide where that investment goes, and who gets to live with the consequences.
Reforms for Capital, Not People
Lagarde called for speeding up key reforms under negotiation in Brussels, including the Savings and Investment Union and single market integration reforms such as EU Inc. The Savings and Investment Union is a package of legislation aimed at creating more integrated capital markets, and legislators hope to reach a deal by the end of the year, though significant divisions remain among EU member states, particularly over reform of the centralised supervision of capital markets. EU Inc. is the Commission's proposal for an optional, EU-wide company structure designed to make it faster and cheaper for firms, especially startups, to incorporate and operate across borders and grow, sidestepping the current patchwork of 27 national systems. Faster for firms. Cheaper for firms. The vocabulary never wanders far from the boardroom.
The article also shows how the EU’s internal architecture keeps bending toward corporate convenience. Brussels wants to smooth out 27 national systems so companies can move more easily, while legislators argue over who gets to supervise capital markets. The public gets the familiar promise of competitiveness. The private sector gets the real prize: fewer obstacles, more scale, and a wider field for accumulation.
London, Brussels, and the Electoral Circus
In a separate political track, London and Brussels are seeking to build on the thaw in their post-Brexit relationship. UK Prime Minister Andy Burnham has spent his first weeks in Downing Street focused on domestic policies, including eradicating rough sleeping and restricting vape and betting stores on England’s high streets. He has said far less about the UK’s future relationship with the European Union, though he has previously spoken of leading a proudly pro-European government and said he hoped the UK would re-join the EU in his lifetime.
EU diplomats expect Burnham to continue with Keir Starmer’s mission to put the UK back at the heart of Europe by mending trading, economic and political ties damaged by years of post-Brexit animosity. Brussels and London were close to major agreements, including removing trading barriers on agri-food products and bringing the UK back into the EU’s internal electricity market, when Starmer announced his intention to resign in June, torpedoing plans to finalise those deals by a July summit that has now been rescheduled for later this year. The names change. The machinery stays.
One European diplomat said it makes sense for Burnham to seek closer trade and economic cooperation in today's world and expressed hope that pragmatism would prevail. Minister Hamish Falconer, whom Burnham appointed as lead EU negotiator, has floated an even deeper and more ambitious relationship with Brussels than under Starmer. Following a meeting on Monday between Falconer and Ireland’s EU Affairs Minister, Thomas Byrne, a UK official said both sides were determined to hold a summit before the end of the year to consolidate the deals and inject renewed pace into the reset. The language of “reset” and “pragmatism” does a lot of work here. It keeps the whole process sounding technical, when it’s really about who gets access, on what terms, and under whose rules.
The Irish government holds the presidency of the EU Council for the rest of the year and is expected to use its influence over the legislative agenda in Brussels to make tangible progress on the UK reset before 2027. For London, removing barriers to trade and economic cooperation is key. Brexit is estimated to have slashed UK exports to the EU by 12% to 16%, and some economic estimates put the cost of Brexit to the UK economy at around 4% to 6% of GDP. The figures are the usual currency of these negotiations: losses measured, costs tallied, and ordinary people left to absorb whatever comes next.
Joel Reland, analyst at think tank UK in a Changing Europe, said Burnham's project for growth is based on devolution rather than building bridges beyond the UK. He said Burnham seems more comfortable with Labour's 2024 manifesto red lines and is not going to push to re-join the Single Market. That could reassure Brussels officials who want to avoid the UK cherry-picking benefits of privileged EU access without subscribing to all its rules.
The reset talks have also focused on a youth mobility deal that would allow young people to move across the Channel to work, live and study. The UK previously pushed for a cap of under 50,000 on the number of visas to be granted to young Europeans, while Brussels has pushed for significantly more, up to 150,000. There has also been disagreement over university tuition fees, with the EU pushing for EU students at UK universities to pay the same home fees as UK students. Even movement, study, and access to education get reduced to quotas, fees, and bargaining chips.
Burnham has also spoken of strengthening the European pillar of NATO, reviving the E3 format bringing together the UK, France and Germany, and breaking down barriers to defence industrial cooperation with European partners. The UK could use its military capabilities to gain greater leverage in negotiations with European partners. Talks on the UK joining the EU's €150 billion SAFE instrument, which provides low-interest loans for joint military procurement, previously collapsed amid disagreement over the UK's financial contribution to the scheme. So the same institutions that talk about peace, growth, and cooperation are also arranging the financing of joint military procurement. Different desk, same state logic.
The messaging around European security and defending Ukraine has remained unchanged, although Burnham is yet to display the leadership Starmer demonstrated alongside French President Emmanuel Macron on international efforts to mediate in major conflicts, from Ukraine to the Middle East. With Macron due to leave office in 2027 and the far-right National Rally ahead in the polls, the future of the Franco-British-led Coalition of the Willing for Ukraine looks more uncertain than ever. The coalition may wobble, but the border regimes, trade rules, and military arrangements keep grinding on.