In a Frankfurt hall on November 21, as Christine Lagarde delivered her keynote at the European Banking Congress, something remarkable happened – or rather, something remarkably quiet. The room, filled with bankers, policymakers, and economists, fell almost silent when the ECB president laid out the stark reality of Europe’s self-inflicted wounds.
Internal barriers within the single market, she revealed, act like a 100 percent tariff on services and 65 percent on goods). These are not external threats from a fragmenting world order; they are homegrown obstacles, the accumulated detritus of 27 national rulebooks that have stubbornly resisted full integration three decades after the single market’s launch.
Lagarde’s message was not new – she has been sounding this alarm since 2019 – but its timing could not be more urgent. Just a day earlier, on November 21, 2025, the world was digesting the latest twists in Donald Trump’s second-term trade policy, with fresh threats of broader tariffs looming over European exports—as U.S.-EU talks on a binding deal remain stalled amid escalating 15–30% rates on autos and steel, per November 24 reports.
As Lagarde put it, Europe’s growth model is “geared towards a world that is gradually disappearing,” one of open global trade now giving way to protectionism, supply-chain rewiring, and geopolitical choke points – from China’s grip on rare earths to disruptions in energy flows.
Yet amid this gloom, there is a silver lining, and it shines brightest on Central and Eastern Europe. For the countries that once tore down the Iron Curtain – Poland, the Czech Republic, Hungary, Slovakia, Romania, and their neighbors – Lagarde’s diagnosis reads less like a requiem and more like a roadmap.
These are the economies that joined the EU precisely to escape the silos of central planning and plug into a genuine common market. For years, it worked miracles: living standards converged rapidly, foreign direct investment poured in, and supply chains intertwined with German and Austrian giants.
But that convergence is stalling. The Vienna Institute for International Economic Studies reported earlier this year that greenfield FDI commitments in Central, East, and Southeast Europe plummeted 55 percent in the first quarter of 2025 alone – the worst in half a decade, a trend holding steady into Q2 and Q3 with no rebound amid global investor caution.
German investors, once the backbone of the region’s industrial upgrade, have sharply curtailed new projects amid their own economic woes and geopolitical jitters. Rising labor costs play a role, but the unfinished single market is a prime culprit. A Polish fintech firm or a Czech battery startup still navigates a maze of divergent regulations when scaling westward, trapping promising companies at national size and denying them the economies of scale that American or Chinese rivals enjoy effortlessly.
Lagarde, echoing Mario Draghi’s competitiveness report from last year and Enrico Letta’s earlier work on the single market, offered pragmatic solutions. First, simply converging national barriers to the level of the EU’s most open member, the Netherlands, could slash hurdles by eight percentage points for goods and nine for services, delivering a growth boost at a time when euro-area expansion is limping below 1 percent.
More ambitiously, she and Bundesbank President Joachim Nagel revived the idea of a “28th regime”: an optional, EU-wide legal framework that companies could elect, bypassing the patchwork of national rules without forcing harmonization on sovereignty-sensitive governments.
This “28th regime” is no radical federalist dream. It is a clever fast lane, already gaining traction in Brussels discussions and public consultations launched earlier in 2025—bolstered by a November 25 coalition of 22 packaging industry groups urging its use for mutual recognition to dismantle admin hurdles.
For ambitious Central European firms, it would mean seamless access to capital pools in Amsterdam or Frankfurt, uniform licensing for cross-border services, and the chance to become true continental champions. Pair it with the long-promised capital markets union, and suddenly a Hungarian logistics platform or Romanian software house could tap Europe’s vast savings as easily as domestic lenders allow.
The urgency is undeniable. With Trump’s tariffs threatening to shave billions from European exports – Lagarde herself noted that even partial removal of internal barriers could fully offset their growth drag – Central and Eastern Europe has the most to gain from a deeper internal market.
FDI inflows to the region have dipped to around 2 percent of GDP, their lowest in a decade. Without change, these economies risk ossifying as low-cost assembly hubs rather than innovation powerhouses. But with a genuine single market, the calculus flips: cheaper cross-border services, easier talent mobility, and outsized gains from convergence.
This matters because Europe still holds formidable cards – a 450-million-person home market, a skilled workforce, world-class research pockets – but it is squandering them behind invisible walls.
Lagarde’s speech was no cry of despair; it was a reminder from the heart of the European establishment that the tools for renewal are within reach. No treaty changes, no grand bargains—just enforcing existing rules, mutual recognition where possible, and that optional 28th regime as a bridge.
For Central and Eastern Europe, the region that proved integration’s transformative power by dismantling the Iron Curtain in 1989, this is more than an economic prescription. It is a historic opportunity to lead.
Western member-states may drag their feet on deeper union, but the East – still catching up, still hungry – can champion the charge. Polish Prime Minister Donald Tusk and Czech leaders have already signaled openness to bolder single-market steps, as Tusk reiterated on November 24 the need for EU economic resilience against external shocks.
As external storms gather, from Washington’s protectionism to Beijing’s supply dominance, the countries that know fragmentation’s cost best should seize Lagarde’s wake-up call. Tear down these new walls, and Central Europe could once again show the continent how convergence is done.
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