Lagarde Says Europe’s Post-War Growth Model Is Eroding

Geneva, Switzerland. European Central Bank president Christine Lagarde said Europe’s post-war economic model is eroding and is unlikely to return in its previous form, calling for better use of the bloc’s 450 million-consumer single market to create a more durable source of growth.

Changing global environment

Speaking on Wednesday at the World Economic Forum in Geneva during a discussion on the global economic outlook, Lagarde said three pillars supporting Europe’s economic success were weakening as the international environment changed.

“Europe’s post-war growth model is eroding. And it is unlikely to return to the form we once knew,” she said.

Trade restrictions

Lagarde identified expanding global trade as the first pillar, saying it had helped Europe become one of the world’s most open economies.

Europe is roughly twice as open to trade as the United States and has benefited substantially from globalisation, she said. However, she warned that continued trade expansion could no longer be taken for granted.

“Last year alone, more than 2,500 trade restrictions were implemented globally,” Lagarde said.

Manufacturing and energy pressures

The second pillar was Europe’s strength in mid-technology manufacturing, supported partly by access to relatively cheap energy, Lagarde said.

“That advantage is also being eroded,” she said. “China has been steadily moving up the value chain. The country now competes directly with the euro area in close to 40 per cent of the sectors in which we have a comparative advantage, compared with around 25 per cent in the early 2000s.”

Europe’s energy advantage has also faded, particularly following the loss of relatively cheap Russian gas, she added.

Last year, electricity prices for energy-intensive industries in the EU were more than twice US levels on average and around 50 per cent higher than in China, according to Lagarde.