Lagarde Warns Europe Must Develop Indigenous AI or Face US-China Supply Cutoff

The president of the European Central Bank has urged Europe to develop its own AI technology and expand domestic datacentre capacity to avoid dependence on the United States and China.

Christine Lagarde argued that Europe needs AI models capable of handling most tasks locally, stating that domestic investment would neutralize the threat of external cutoff.

Speaking in Vienna, Lagarde highlighted the geographic imbalance in AI development: the US produced 59 notable models last year compared with China’s 35, while France and the UK each managed only one. She noted that American datacentres account for 75% of global AI computing capacity, versus just 5% for Europe.

Lagarde described Europe’s predicament as an ‘awkward choice’: either restrict adoption due to data protection concerns and sacrifice growth, or embrace AI rapidly and risk losing the ability to shape its economy according to its own values.

She warned that losing access to AI or having its terms altered would trigger widespread and immediate economic consequences.

Lagarde cautioned that within years AI would be screening border goods, selecting tax audits, dispatching trains, monitoring hospital patients, and clearing bank payments. Any withdrawal of access would therefore affect every sector simultaneously.

She emphasized that this gives Washington leverage unprecedented in European trade relations, usable in negotiations over tariffs or digital taxes.

Although the EU and the US remain key allies, the Trump administration has eroded that trust through a series of disputes, including tariff imposition, demands to assume control of Greenland, and the withdrawal of American troops from Europe.

Lagarde noted that rapid AI adoption could boost productivity by up to 4% over a decade, transforming public finances.

Calling for expanded computing infrastructure, she warned that Europe already lacks sufficient datacentre capacity and that the shortfall is projected to more than sextuple within ten years.

She added that US technology firms are borrowing in Europe to fund their massive investment needs, driving up costs for others in the debt market. European pension funds, heavily exposed to US tech stocks, would also suffer in any market correction.

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