Europe now needs €1.4 trillion of additional investment every year to revitalize its economy and finance the energy transition, defense expansion, and digital technologies that will define the next decade. That need has risen by €600 billion since the release of a European Commission report by Italian economist Mario Draghi on European competitiveness, highlighted in the World Economic Forum’s (WEF) inaugural Leaders For European Growth And Competitiveness report. Falling further behind would weaken Europe’s competitiveness and strategic autonomy at a time when the window for action is narrowing.
The problem is not a shortage of capital. European households hold around €39.5 trillion in savings. The problem is that Europe’s financing system does not move enough of that money into the long-term, capital-intensive, and higher-risk assets the economy needs. That’s because banks are less able to hold those assets, institutional investors are constrained or lack scale in many EU member states, and households keep a large share of their savings in cash.
Critically, this capital needs to reach European companies as they scale, particularly in sectors that will determine Europe’s future strategic autonomy: defense, energy, health, and advanced technologies.
While Europe creates world-class startups, too many are unable to raise sufficient financing to fund expansion to commercial scale. Without deeper pools of patient, risk-tolerant capital, promising European firms are often forced to sell or seek financing abroad at this critical stage putting future jobs, ownership, and strategic capabilities at risk of moving with them. Mobilizing Europe’s substantial private savings to finance growth would help ensure the region has the ability to deliver on its strategic priorities.
Three financial mechanisms are particularly well-positioned to help: reviving securitization, building funded pension systems with fewer restrictions on industries they can invest in, and turning savers into investors. Together, they can help connect Europe’s savings with the investment needed to support growth, the energy transition, defense, and digital development.
How reviving securitization can free bank capital for new lending
Securitization allows banks to package loans and sell them to investors, freeing capacity for new lending and shifting risk to investors. Before the 2008 financial crisis, Europe had one of the world’s most active securitization markets. The crisis upended that market, and it has never fully recovered.
Post-crisis rules designed to prevent another systemic shock made securitized products expensive for banks and insurers to hold, weakening investor demand. European securitization, which has historically been simpler, more transparent, and better collateralized than its US equivalent, was subject to the same broad treatment. In 2025, Europe issued €215 billion of securitized products, but only around €110 billion reached external investors. The market is now less than one-quarter the size of its US counterpart.
That matters because capital that could be recycled into new lending has been sitting on bank balance sheets. European securitization also has had a strong track record: Default rates have been a fraction of those in the US, both during the financial crisis and since.
Why Europe needs more progress on pensions, securitization, and private savings
The good news: Europe is moving in the right direction. Securitization reform is on the agenda, and the proposals are substantive. But progress is too slow. The European Commission should continue to advance reforms and be willing to revise them if they do not have the intended effect.
Member states can help by implementing EU proposals quickly and consistently, while the private sector can strengthen confidence through high-quality origination, transparent data, and sound risk management.
Of the three levers, securitization is the largest and fastest acting. The regulatory and market infrastructure already exist, and coordinated action can remove many of the remaining barriers.
For pensions, the situation is more complicated. Most Europeans rely on state pensions when they retire. In many countries, those pensions are less than a living wage, and demographic pressure will intensify. By 2050, Europe will have fewer than two workers for every pensioner.
Funded pension systems can address both challenges. By allowing people to contribute throughout their working lives through workplace or private pensions, these systems invest contributions over decades. That creates the pools of long-term capital Europe needs while helping improve retirement security. But many member states still need significant reform, with half of EU countries holding pension assets representing less than 20% of their gross domestic product. Based on our analysis, strong pension systems share five characteristics: clear goals, sound design, broad coverage, effective investment, and member engagement.
While the European Commission’s Supplementary Pensions Package points in the right direction, member states still control many of the levers that matter most, including tax treatment, coverage mandates, and national scheme design. The private sector must then provide the governance, investment capability, and administration needed to turn policy into better outcomes.
Turning savers into investors can deepen European capital markets
The final pot of money that Europe can tap is private savings. European households save more than their US counterparts, yet their savings generate far lower returns. The difference is largely where they put their money. Around €11.5 trillion sits in cash deposits. Between 2015 and 2025, those deposits returned only 10% in the eurozone, while the Euro Stoxx 50 returned around 140%.
Around €300 billion of European savings also flows out of the bloc each year, mostly to the United States. That capital helps finance firms competing with European businesses. As more household capital leaves Europe, domestic markets can become shallower and less attractive, reinforcing the cycle.
Europe therefore needs to shift from a culture of saving to a culture of investing. The first step is to make investing easier. The European Commission’s Savings and Investment Accounts proposal gives member states a framework for simple, tax-advantaged investment accounts. The most obvious example of a successful effort is the US 401(k) system, which peaked last year with $10 trillion, but Europe has also made progress. For example, Sweden’s ISK demonstrates how a flat-rate tax wrapper can make investing more accessible at scale. Member states need to implement these accounts without unnecessary carve-outs or complex tax rules that reduce their appeal. The private sector also has a role: Retail investors in Europe currently pay around 40% more in fees than institutional investors, eroding returns and trust.
Access alone is not enough. Only 18% of EU citizens have high financial literacy. Member states need to embed financial education in schools and workplaces, similar to the recommendations in the European Commission’s Financial Literacy Strategy, while financial institutions need to communicate more clearly about risk, cost, and long-term returns.
What Europe must do to close its investment gap
Europe’s investment needs are immediate and growing, and citizens will ultimately bear the cost of inaction. A persistent investment gap will constrain growth, weaken competitiveness, and leave many people facing less secure retirements. While Europe is not short of savings, expertise, or innovation, it is short of a financial system that puts them to work.
Banks need mechanisms to recycle capital into new lending through a revived securitization market. Pension systems need to be redesigned to improve retirement outcomes and supply patient capital. Households need simple, low-cost routes into long-term investment, supported by stronger financial literacy.
The blueprints exist. What is missing is the willingness to act together and at speed. Progress has often been incremental when more transformational, structural change is needed. Various actors have also waited for others to move first. Europe can no longer afford that approach. A continent that cannot mobilize its own capital to finance its priorities will increasingly find its strategic choices shaped elsewhere.