Lagarde said neither heavily indebted governments nor banks can come up with the money needed to make the Europe Union more productive and independent in an increasingly fragmented world.

The European Commision says the EU needs 620 billion euros ($672 billion) every year until 2030 for the green transition and a further 125 billion euros annually for digitalisation.

"It is clear that we cannot rely on our existing framework to finance this investment," Lagarde told a conference. "We will not succeed in these transitions if we don’t get CMU (capital markets union) back on track."

She said companies that want to digitalise or decarbonise cannot access the finance they need, with nearly 40% of respondents in an ECB survey of small and medium-sized enterprises lamenting a lack of investor willingness to finance green investment.

And European startups attract less than half the funding of U.S. counterparts, Lagarde added.

As examples of the changes she advocates, she said the European Securities and Markets Authority should be given more powers, akin to those of the United States' Securities and Exchange Commission, to replace the current patchwork of national authorities.

"It would need a broad mandate, including direct supervision, to mitigate systemic risks posed by large cross-border firms and market infrastructures such as EU central counterparties," Lagarde said.

She also called for the creation of a single log, known in market parlance as tape, for recording European securities trades.

"The creation of a European consolidated tape can encourage a shift towards larger, cross-border integrated market infrastructure and exchange groups," she said.

($1 = 0.9220 euros)