European Central Bank’s Lagarde urges layered international cooperation to manage AI and trade fragmentation uncertainty

In a Global Risk Lecture in Bologna, European Central Bank President Christine Lagarde argued that the world economy is shifting from a period where risks could be reliably modelled to one of “genuine uncertainty”, as rapid artificial intelligence (AI) adoption coincides with escalating geopolitical and trade fragmentation. She cautioned that turning inward would deepen the problem by cutting off growth gains that depend on an open global system. Lagarde described how the ECB is adapting its analytical toolkit by complementing baseline projections with more systematic scenario analysis, building on work begun during the pandemic and later applied to scenarios such as a cut-off of Russian gas, escalation in the Middle East, trade fragmentation and higher defence spending. She also outlined why fragmentation could quickly undermine AI’s growth potential through concentrated semiconductor and critical-minerals supply chains, the need for global market scale to amortise rising training costs, and the dependence of frontier models on diverse data. To respond, she proposed “layered cooperation” comprising reform of multilateral institutions, deeper cooperation among allies focused on supply chains, and minimum viable cooperation with rivals, including possible frameworks such as a critical supply chain accord and a basic AI code of conduct covering transparency on dangerous capabilities and mechanisms to manage incidents.