The current situation is unsustainable. Since the global financial crisis, Europe has experienced a lengthy decline in private investment, particularly in forward-looking industries. In just the last five years, analysis shows that U.S.-based companies have invested €2 trillion more in digital technologies like artificial intelligence (AI) than their European counterparts. Meanwhile, China is out-investing Europe in traditional manufacturing at a 3:1 ratio.
This investment shortfall hampers European economic growth, impeding the continent from creating, advancing, and deploying the technologies necessary to boost productivity and foster prosperity.
The urgency to increase investments is intensifying. The 2024 Draghi report on European competitiveness estimated an additional €800 billion is needed annually to begin bridging the competitiveness divide, which has now increased to €1.2 trillion per year over the next five years due to added defense investments.
The regulatory context also plays a crucial role. Over the past year, the European Commission has launched numerous initiatives, ranging from regulatory streamlining to creating funding and market-generation mechanisms, and preparing to propose a ’28th regime’ to facilitate company scalability across its 27 member states. Governments are also contributing, with rising strategic public investment in technology, energy, and defense capabilities fostering favorable conditions for private investment. For instance, Germany amended its constitution to exclude defense spending above 1 percent of GDP from its debt brake and established a €500 billion fund for infrastructure and climate-neutral investment. Similar initiatives are emerging in France, Italy, the Netherlands, and the Nordic countries.
However, despite some signs of private sector acceleration, more is required. Ensuring Europe’s economic vitality necessitates the rise of exceptional companies, independently and in alliance with the public sector. Without this, Europe faces the threat of another decade of ‘secular stagnation’: sluggish real GDP growth of roughly 1 percent annually, as excess savings and insufficient investment suppress overall demand and drive interest rates back towards zero.
What is needed to demonstrate more entrepreneurial courage? Our global research and the actions of leading companies reveal several strategies leaders could consider.
One strategy is making broader ecosystem plays, as demonstrated by semiconductor company ASML collaborating with the Dutch government and regional partners to launch Project Beethoven, a €2.5 billion public-private investment to sustain ASML’s presence and expand the microchip cluster in Eindhoven. Another approach is transforming potential stranded assets for future industries, as shown by European utilities repurposing former coal and gas power plant sites for hyperscale data centers. Additionally, radical adoption of AI and automation technologies, which MGI’s research indicates could add up to 3.4 percentage points to global annual productivity growth through 2040, is crucial.
Europe has an opportunity to take decisive steps to change its competitive course.
While public sector leaders can establish the foundational conditions to accelerate investment and growth, the continent’s leading companies are uniquely positioned to magnify this impact and contribute significantly to the continent’s prosperity, security, and strategic autonomy. There is a growing agreement on necessary actions. Now, a large dose of entrepreneurial courage is needed to act.
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