In a speech at the Frankfurt European Banking Congress, European Central Bank President Christine Lagarde argued that Europe’s export-led growth model has become increasingly vulnerable and that stronger domestic demand will depend on unlocking the EU internal market, including through deeper banking and capital markets integration. She pointed to resilience in 2025 coming from a strong labour market, rising intangible investment linked to digitalisation and artificial intelligence, countercyclical fiscal policy, and the ECB’s 200 basis point interest rate cuts from their peak feeding through into easier financing conditions, while reiterating that policy will be adjusted as needed to keep inflation at the ECB’s target. Lagarde cited a sharp shortfall in export performance versus earlier expectations, growing reliance on foreign markets to generate wealth, and new forms of geopolitical supply-chain vulnerability, including ECB analysis that more than 80% of large euro area firms are within three intermediaries of a Chinese rare earth supplier. She also highlighted fragmentation within the EU, with ECB analysis estimating internal barriers equivalent to tariffs of around 100% in services and 65% in goods, and argued that reducing barriers towards the level of the Netherlands could materially lift intra-EU trade, with even a partial reduction sufficient in ECB simulations to offset the growth impact of US tariffs. To overcome barriers without full legal harmonisation, the speech proposed reviving mutual recognition, extending qualified majority voting in areas critical for growth including taxation, and using optional EU “28th regimes” alongside national law, with company law flagged as a prime candidate and a digital business identity presented as a possible first step. The European Commission is planning to present a 28th regime proposal under its “Single Market Roadmap to 2028”, with progress framed as contingent on political will.

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