Europe’s “laziness” and inherent aversion to risk-taking are largely responsible for the bloc’s economic decline, European Central Bank President Christine Lagarde told world decision-makers at the annual gathering in Davos, Switzerland.

“We have a lot of assets, but we’re shooting ourselves in the foot many times because we don’t complete the work we set out to do,” she said, urging EU leaders to deepen the single market by removing barriers to trade and investment.

Lagarde said she hoped the re-election of Donald Trump as US president would serve as a “wake-up call”, and reverse European indolence.

This hope was echoed by Germany’s vice chancellor, Robert Habeck, the German Greens’ lead candidate for the February elections.

The return of Donald Trump “has to make a change,” said Habeck. “If we are saying: ‘Oh well, this [blows] over and [then we go] back to our own laziness… we’re doing it all wrong.”

The push for reform is already gaining momentum, with a growing consensus among EU policymakers that Europe’s economic struggles should be addressed primarily by cutting regulations. But what this reform means in practice differs even among its advocates.

Simplifying, not deregulating

“I would say deregulation and making things faster and cutting red tape are right,” said Habeck. There are “lots of examples” where rules could be cut in Germany’s own energy sector.

The country’s industry lobby has been at the forefront of recent calls to cut the EU regulatory burden on companies, alongside its Italian and French counterparts – successfully lobbying their respective governments to take up the issue in Brussels.

Lagarde, however, said that a better descriptor for what is required is “simplification” – a likely nod to the role played by financial deregulation in the lead-up to the 2008 financial crisis.

“I think words matter,” Lagarde said. “We’re not moving to a world of deregulation across the board, but we are certainly looking at significant simplification.”

For example, Lagarde supported von der Leyen’s pledge on Tuesday to boost Europe’s competitiveness by deepening its long-stalled Capital Markets Union.

A financial union could unlock €470 billion in additional private investment annually, according to the Commission. This is over half of the €800 billion in extra annual investments recommended by Mario Draghi, Lagarde’s predecessor at the ECB, to boost EU competitiveness.

Encouraging citizens’ savings to be channelled into productive investments, she said, would help address Europeans’ instinctive aversion to risk-taking.

“It’s not in the DNA to accept failure, as in the US. But I think these things are changing, and we need to accelerate that change.”

[AB/ATB/MM]