European savings are helping finance America’s artificial-intelligence boom while Europe risks missing the resulting growth. European Central Bank (ECB) President Christine Lagarde warned that the continent could also face higher borrowing costs unless it develops more technology of its own.
Euro-area households hold approximately €440 billion in US technology companies, Ms Lagarde said in Vienna. She compared the situation with European investors financing American railways in the 19th century while most of the economic benefits remained in the United States.
Large US technology companies issued more than $100 billion in bonds last year as they raced to build AI infrastructure. That borrowing can push up financing costs beyond America because European long-term interest rates tend to follow US yields.
“Europe will pay for this boom whether or not it shares in the growth,” Ms Lagarde said.
Europe needs AI but remains dependent
Rapid AI adoption could increase European productivity by as much as four per cent over the next decade, according to the ECB president. That could help compensate for an ageing population and a shrinking workforce.
However, the United States hosts approximately 75 per cent of global AI computing capacity, compared with only five per cent in Europe. Ms Lagarde warned that relying on foreign technology for banking, healthcare, transport and public administration could eventually give overseas providers political or commercial leverage.
Europe will pay for this boom whether or not it shares in the growth.
— Christine Lagarde, ECB President
Brussels is trying to prevent European innovations from growing elsewhere. As EU Perspectives recently reported, the proposed European Innovation Act would make it easier for promising companies to access public contracts and use intellectual property to obtain financing.
European money could build European AI
Closing Europe’s computing gap could require as much as €600 billion over the coming decade. Nevertheless, Europe is not starting from zero. Dutch chip-equipment manufacturer ASML recently led a $2 billion funding round for French AI company Mistral, becoming its largest shareholder.
European households save approximately €1.4 trillion annually. Lagarde argued that more of this capital must reach European technology companies rather than flowing overseas.
That is also the objective of the EU’s Savings and Investments Union, which seeks to direct private savings towards European businesses. Without deeper capital markets and more computing infrastructure, Europe may continue financing the AI race while capturing too little of its economic reward.
