Lagarde warns Europe’s reliance on foreign AI threatens economic security

The integration of artificial intelligence into critical systems—from border security and tax auditing to healthcare and banking—is accelerating rapidly. Lagarde warned that if external access to these technologies is restricted or altered, the fallout would ripple through every sector of European society simultaneously. This dependence creates a unique vulnerability, as foreign powers could wield control over digital infrastructure as a bargaining chip in unrelated trade disputes or tariff negotiations.

To mitigate this risk, Europe must urgently transition from a consumer to a producer of AI technology. Current trends show that Europe’s data center capacity is failing to keep pace with demand, with the existing deficit projected to expand sixfold over the next decade. Beyond hardware, the region requires independent AI models capable of running on sovereign infrastructure. While the transition demands significant investment, Lagarde noted that the economic stakes are high: rapid AI adoption could boost productivity by as much as 4% over the next ten years, providing a necessary lifeline for public finances. Currently, European capital is paradoxically fueling the very foreign firms it relies on, as massive borrowing by U.S. tech companies crowds out local borrowers and ties European pension funds to the volatility of American markets.