Schnabel warns of global economic fragmentation and calls for stronger European innovation and productivity
Key Facts
In a speech delivered in Frankfurt on November 5, 2026, European Central Bank Executive Board member Isabel Schnabel said the global economy had moved from deep integration into a phase of growing fragmentation and geopolitical tensions. She linked this shift to the challenge of Europe’s competitiveness, calling for productivity growth to be revived by supporting innovation and expanding the adoption of new technologies across the economy. She said sustainable improvement requires progress on both fronts. Her speech placed the challenges of productivity and integration at the center of the debate over Europe’s ability to turn its research resources into growth. She also reviewed the cost of barriers to trade within the European single market.
Schnabel sees internal obstacles as making access to the single market less seamless than its formal existence suggests. Divergent national rules require companies to navigate multiple legal and regulatory systems, while internal trade costs, according to European Central Bank estimates she cited, are equivalent to tariffs of about 67% on goods and 95% on services. These estimates show the costs companies bear when crossing borders within Europe, particularly in services. This means that removing regulatory fragmentation could broaden the scope for companies to operate and expand. Schnabel presented these barriers in the context of her call to address what is holding back the single market’s performance.
In a separate speech in February 2026, Schnabel called for a unified European company regime, describing such a system as potentially transformative. In her view, seamless access to the entire European market would give companies the scale needed to turn innovation into economic growth. She also said Europe could compete as one economy rather than 27, which could help build a “Made in Europe” brand. The proposal links the harmonization of company rules to the goal of expanding business growth opportunities across the European market. It complements her broader call to remove fragmentation barriers and strengthen competitiveness.
In Schnabel’s speech, productivity growth emerged as central to strengthening competitiveness, rather than simply increasing spending on innovation. She stressed the importance of Europe’s ability to develop new technologies and, after developing them, deploy them across different sectors of the economy. This combination of innovation and application reflects how the challenge extends from generating new ideas to enabling companies and the economy to use them. Schnabel linked this path to a changing global environment, which she described as more fragmented and tense than during the period of deep integration. Her speech therefore addressed both Europe’s economic capabilities and the obstacles that constrain the single market.
Schnabel also discussed the path of public debt in the euro area, noting that it had risen by about 20 percentage points of gross domestic product since the early 2000s. She said disparities among member states were large, meaning debt had not evolved uniformly across the region. This trajectory places the debt issue among the economic challenges she addressed, alongside productivity and competitiveness. In May 2026, the European Central Bank described vulnerabilities to financial stability in the euro area as remaining elevated as the geoeconomic shock evolved. The bank’s semiannual review provides an overview of potential risks to financial stability in the region.
The European Central Bank is scheduled to publish its next semiannual Financial Stability Review on November 18, 2026. The bank said the review examines potential risks to financial stability in the euro area and aims to raise awareness of these issues within the financial sector and among the public. The date falls less than two weeks after Schnabel’s speech, as the bank places regional financial risks among its upcoming publications. The forthcoming edition will provide an update on the bank’s assessment of vulnerabilities and risks in the region. The speech itself focused on geopolitical fragmentation, single market constraints, innovation and productivity as interconnected issues for Europe’s competitiveness.