ECB's Lagarde calls for a strong Europe to prepare for possible Trump return

European Central Bank President Christine Lagarde on Friday said that Europe must be "strong at home" and go on the offensive in the face of a potential return of Donald Trump to the White House.

"The best defense, if that's the way we want to look at it, is attack," Lagarde told the World Economic Forum in Davos, in response to comments about the outlook for Europe after the upcoming U.S. election.

"To attack properly, you need to be strong at home. Being strong means having a strong, deep market. Having a real single market," she added.

Europe faces an uncertain future in its relationship with its closest international ally, following the U.S. vote.

The re-election of U.S. President Joe Biden would likely continue the status quo, while a win for Trump, who is a frontrunner to win the Republican nomination, could reduce economic and political support.

With that in mind, Lagarde said Europe should invest more in its capital markets in order to fund investments, such as, for instance, in the green transition.

The possibility of Trump winning a second term in the White House has been a hot topic at the gathering of political and business leaders in Switzerland this week.

During his first term in office, Trump was often critical of Europe's economic dependence on the U.S., including within NATO. He has since spoken of withdrawing U.S. funding for Ukraine, which he considers a European issue.

Lagarde was speaking on a Bloomberg panel alongside German Finance Minister Christian Linder, who agreed that market investment is the best route for Europe to improve its self-sufficiency. That's especially important in the face of hefty U.S. subsidies for green projects, he noted.

"We have to avoid a subsidy race. We cannot afford [it]," Linder said, noting that it was unclear whether such support would be continued under a new Republican administration. "Our competitive disadvantage compared to the U.S. is not subsidies but the function of our private capital market."

Linder added that such investment would help Europe foster a stronger transatlantic relationship, particularly with more euroskeptic leadership on the other side of the pond.

"Being an attractive partner on eye level when it comes to the economic situation, and when it comes to a fair burden sharing under the roof of NATO, is the best we can do to be in a good partnership with the United States," he said.

Correction: This story has been updated to better reflect Christine Lagarde's comments in their context.