As the prospect of a renewed U.S.–Europe trade war sharpens, the International Monetary Fund has delivered one of its bluntest assessments yet of Europe’s economic position, warning that the continent risks entering a volatile geopolitical phase without the economic cohesion needed to defend its interests.
Speaking at the World Economic Forum in Davos, IMF Managing Director Kristalina Georgieva urged European leaders to move faster on long-delayed reforms, arguing that the continent’s internal weaknesses are leaving it exposed just as U.S. President Donald Trump escalates trade pressure on long-standing allies.
Her remarks came days after Trump announced plans to impose escalating tariffs on imports from eight European countries — Denmark, Norway, Sweden, France, Germany, the United Kingdom, the Netherlands and Finland — unless Washington is allowed to acquire Greenland, an autonomous Danish territory. Under Trump’s plan, tariffs would begin at 10% on February 1 and rise to 25% by June 1 if no agreement is reached.
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The threat has injected fresh uncertainty into transatlantic relations, already strained by disputes over trade, defense spending and industrial policy. It has also revived concerns that tariffs are again becoming a central tool of U.S. foreign policy, applied not only to rivals but also to allies.
Against that backdrop, Georgieva’s message to Europe was stark. “Europeans, if you’re watching, get your act together,” she said, arguing that the continent is failing to fully use its economic weight at a time when power politics are reshaping global trade.
According to the IMF chief, Europe’s challenge is not simply external pressure from Washington but deep-seated structural problems that have lingered for years. She pointed to weak productivity growth, fragmented capital markets and persistent barriers that prevent small firms from scaling into global champions.
“Europe has fallen behind in productivity. Europe has fallen behind in getting small companies to grow to giants,” Georgieva said, warning that these shortcomings are eroding Europe’s competitiveness relative to the United States and parts of Asia.
She outlined four priorities she said are essential if Europe is to regain momentum and credibility. The first is completing the capital markets union, which would allow savings to flow more easily into productive investment across the bloc. Georgieva noted that around 300 billion euros of European savings are currently invested in the United States, capital that could otherwise be funding innovation and expansion at home.
The second is completing the energy union. High and uneven energy costs, exacerbated by geopolitical tensions and the transition away from Russian gas, have left European industry at a disadvantage. Georgieva said it is impossible for Europe to compete globally while operating what are effectively 27 separate energy systems.
Third, she highlighted labor mobility. While free movement is a core EU principle, practical barriers still prevent workers from easily taking jobs across borders.
“You cross the border from Germany to France, you can’t work there,” she said, arguing that this rigidity undermines growth and limits firms’ ability to find talent.
Finally, Georgieva stressed the need for sustained investment in research and innovation, warning that Europe risks falling further behind in key technologies if it does not move faster.
Her comments reflect a growing sense among international institutions that Europe’s economic model, while resilient, is struggling to adapt to a more confrontational and fragmented global environment.
European leaders have reacted angrily to Trump’s tariff threats. Several governments have described the measures as unacceptable and have called for dialogue rather than escalation. France is reportedly pushing for the European Union to consider deploying its Anti-Coercion Instrument, the bloc’s strongest trade defense mechanism, which would allow it to retaliate against countries that use economic pressure for political ends.
European Commission President Ursula von der Leyen used her Davos keynote to frame the moment as a turning point. She said Europe can no longer rely on the assumptions of the old global order and must be prepared to stand on its own as geopolitical shocks become more frequent.
“If this change is permanent, then Europe must change permanently too,” von der Leyen said, calling for the construction of what she described as a “new independent Europe.”
While she did not explicitly endorse retaliation, her remarks underscored a growing willingness in Brussels to consider a more assertive stance.
Trump, meanwhile, said he had agreed to meet European officials in Davos to discuss his Greenland ambitions, even as leaders in Denmark and Greenland have repeatedly said the territory is not for sale. The issue has raised alarm within Europe, where officials warn that linking trade penalties to territorial demands could set a dangerous precedent and strain NATO unity.
Despite the rising tensions, the IMF is urging caution. Georgieva noted that the Fund had slightly upgraded its global growth forecasts this week, projecting growth of 3.3% this year and 3.2% in 2027. One reason, she said, is that the economic damage from tariffs has so far been less severe than many feared, largely because governments avoided full-scale retaliation.
“There was no tit for tat trade war,” she said, adding that this restraint helped prevent last year’s tariff threats from tipping major economies into recession.
She urged policymakers and markets alike to remain calm, arguing that economic rationale has so far prevailed over political impulses.
Still, Georgieva’s warning carried a clear subtext. As countries increasingly weigh the strategic use of trade tools, Europe’s ability to protect itself will depend less on rhetoric and more on whether it can finally deliver long-promised reforms. Without deeper integration and stronger competitiveness, she suggested, Europe risks entering a more hostile global era from a position of relative weakness.