The ECB Sets the Pace as European Leaders Hesitate
ECB President Christine Lagarde links capital markets union, a common safe asset and the euro’s global role to the EU’s strategic autonomy — while political leaders remain trapped in short-term contradictions. A commentary by Marco Buti, and Marcello Messori
Once again, it has been Europe’s only genuinely federal institution — the European Central Bank — that has put forward the most coherent proposals to address the tensions that surfaced, albeit in contradictory ways, at the informal European Council in Alden Biesen and at the Munich Security Conference.
In her interventions last week, ECB President Christine Lagarde set out with unusual clarity the initiatives the European Union should undertake in response to structural shifts in the global geopolitical order.
In the ECB note prepared for last Thursday’s European Council, Lagarde outlined the essential components of the EU’s internal agenda.
Going straight to the core issues, she stressed the need to combine a solid regulatory framework for the single market with financial support for innovative investment.
That, she argued, requires completing the integration of financial markets and launching a euro area safe asset underpinned by a genuine European fiscal capacity.
In doing so, the ECB President distanced herself from most other European leaders who — for reasons ranging from political opportunism and short-term national interests to simple incoherence — have tended to cherry-pick the most convenient elements of reform while ignoring their internal contradictions.
Without engaging in direct polemics, Lagarde exposed the futility of invoking both the single market and expansive state aid as if the two were seamlessly compatible.
At Munich, Lagarde turned to the complementarities and trade-offs involved in strengthening European value chains in a world increasingly governed by raw power.
If the EU is to reduce its technological lag and bolster its industrial base, she argued, three criteria must guide policy.
First, indispensability: the EU must treat as essential those value chains that underpin its strategic autonomy.
Second, independence: it should, as far as possible, re-internalise the strategic nodes of those essential chains.
Third, diversification: where outsourcing is economically rational or unavoidable, dependence on any single external supplier must be avoided.
Linking this external dimension to the internal reforms discussed in Alden Biesen, Lagarde underlined that meeting these criteria requires enhancing the euro’s role as an international currency — including through the ECB’s decision to provide credit to other central banks.
Two fundamental messages emerge from the ECB president’s analysis.
The first is that the EU’s internal and external agendas are not merely interconnected; causality runs from the inside out.
Strengthening the euro’s global role and reducing Europe’s international vulnerability depend on completing the capital markets union, establishing an adequate common budget and creating a European safe asset.
In this respect, critics are right to highlight the contradictions of those who, in the European Council, invoke constitutional constraints to reject eurobonds while, in Munich, lament the breakdown of the geopolitical order and call for greater European sovereignty.
Likewise, the principles associated with MAGA politics are not simply another legitimate political viewpoint within Europe; they stand in tension with the EU’s institutional architecture and core values. Opposition to them is not partisan positioning but recognition of an existential challenge.
The second message is more far-reaching. Lagarde is implicitly questioning what might be described as Europe’s “limited liability” model — the framework on which both the EU and the euro area were constructed.
Under that model, Europe could underinvest in common defence because it relied on the United States for security. It could generate growth through net exports, effectively free-riding on US demand as consumer of last resort. And it could confine the ECB to the role of a regional central bank, as global financial stability was ultimately guaranteed by the Federal Reserve’s swap lines.
Unlike many European leaders, Lagarde appears to recognise that this model is nearing its twilight.
Within the scope of her mandate, she has signalled that the ECB is prepared to provide euro liquidity to third-country monetary authorities — a step towards transforming itself into a central bank of genuine international standing.
Taken together, her two messages imply that the EU must do more than close its innovation gap with the United States and China.
It must do so along distinctive trajectories that preserve a balance between efficiency, equity and sustainability — social, environmental and fiscal.
This is a more demanding path. It does not offer the comfort of imitating models already tested elsewhere. But it is also more realistic. It avoids the fatalism that Europe’s technological lag has become so vast as to be irrecoverable.
European Council president António Costa has announced that the discussions in Alden Biesen will culminate in a roadmap at the March summit. In effect, Christine Lagarde has already sketched the outline of that agenda.
A previous version of this article was published by the Italian daily Il Sole 24 Ore
IEP@BU does not express opinions of its own. The opinions expressed in this publication are those of the authors. Any errors or omissions are the responsibility of the authors.
