At the European Banking Congress held in Frankfurt, Lagarde warned about Europe’s loss of competitiveness and the fact that exports, which traditionally fueled European growth, are no longer the driving force of the economy due to trade tensions and increased global competitiveness.
Lagarde emphasized the importance of internal barriers within the European market being low enough for sectors that will shape future growth to operate in a truly European market.
However, barriers are not sufficiently low in the digital services sector, which will drive future innovation, nor in capital markets.
Internal barriers in the eurozone are not lower than external barriers, especially in the services sector.
“Over the past 20 years, barriers to cross-border trade within Europe have not decreased faster than those international companies face in operating here,” said Lagarde.
Therefore, the ECB president added, although services now account for three-quarters of the European economy, trade in services within the European Union (EU) represents only one-sixth of the Gross Domestic Product (GDP), the same as trade in services with the rest of the world.
Lagarde suggested that Europe can offset the negative impact of increased U.S. tariffs by reducing internal barriers and recommended that many decisions be approved by a qualified majority.
Internal barriers in services and goods are equivalent to tariffs of 100% and 65%, respectively, according to the ECB.
If all EU countries reduced their barriers to the same level as the Netherlands, internal barriers could decrease by eight percentage points for goods and nine percentage points for services.
“If we did just a quarter of that, it would be enough to boost internal trade sufficiently to offset the impact of U.S. tariffs on growth,” estimated Lagarde.
This reduction in barriers would increase trade within the EU by approximately 3%, compensating for a 0.7 percentage point reduction in GDP growth between 2025 and 2027 caused by U.S. tariffs and uncertainty, according to ECB calculations.
For this, Lagarde said it is necessary that “if a good or service is legally provided in one Member State, it should be allowed to circulate freely in the EU without needing to comply with other countries’ laws”.
The same applies to the digital economy and digital markets, according to the ECB president.
“Mutual recognition of digital identities, trust services, and other credentials would dramatically improve interoperability and eliminate hidden costs that impede the growth of Europe’s digital markets,” stressed Lagarde.
Similarly, Lagarde recommended that decisions in Europe be made by a qualified majority in areas crucial for future growth, rather than unanimously, as is currently done.
“In several critical areas, the continued requirement for unanimity in the European Council still hinders significant progress in completing the single market,” warned Lagarde.
A clear example she referred to is the harmonization of VAT or the establishment of a common corporate tax, which remain stalled due to national vetoes, forcing businesses to navigate “a maze of fragmented tax regimes”.
This affects digital platform companies providing cloud and software services in Europe, as they have to comply with 27 different VAT systems, she noted.
“The use of qualified majority voting—using the passerelle clause where necessary—could help break this deadlock,” proposed Lagarde.
