Europe is facing one of the greatest economic challenges in its recent history: financing the transformation needed to support competitiveness, the energy transition, digitalisation, defence and social cohesion.
According to the new report “European Bank Competitiveness”, commissioned by the European Banking Federation (EBF) from Oliver Wyman, the additional investment needs of the European Union have reached approximately €1.4 trillion per year, equal to around 7% of European GDP. This estimate is significantly higher than the €800 billion per year indicated in the Draghi Report published in 2024.
This figure highlights the growing urgency of strengthening Europe’s ability to mobilise financial resources towards strategic and long-term investments.
A continuously growing investment need
The increase in financing needs is linked to several factors.
In addition to the already demanding agenda of the energy and digital transitions, new investments are required for European security and defence, as well as for broader environmental and social needs. According to the report, the main investment areas include:
- energy transition;
- digital infrastructure;
- artificial intelligence;
- semiconductors;
- defence and security;
- innovation and research;
- social infrastructure;
- environmental protection.
Many of these projects have particularly demanding characteristics for the financial system: high capital intensity, long payback periods and higher levels of risk compared with traditional investments.
The real issue is not a lack of savings
One of the most interesting aspects of the study is the finding that Europe does not suffer from a shortage of financial resources.
European households hold approximately €37 trillion in financial assets, but only a limited share is channelled towards productive investment. The issue is therefore not the availability of capital, but the ability of the European financial system to allocate it effectively towards strategic sectors for growth.
According to the authors of the report, Europe has abundant private savings, but still lacks a sufficiently integrated and developed financial ecosystem capable of transforming those savings into productive investment.
Banks remain the pillar of economic financing
Despite the growth of capital markets, banks continue to represent the main financing channel for the European economy.
The study highlights that around 65% of financing to the non-financial sector in the European Union still comes from the banking system. Banks also play an essential role in connecting savings and investment, assessing risk, originating credit and supporting the development of capital markets.
However, the ability of credit institutions to support European growth is now limited by several factors.
Regulation and supervision limit financing capacity
According to the report, the reforms introduced after the 2008 financial crisis significantly strengthened the resilience of the European banking system by increasing capital, liquidity and controls.
However, the progressive accumulation of regulatory and prudential requirements has also produced unintended effects.
Higher capital requirements, regulatory complexity and supervisory burdens have reduced banks’ incentives to finance investments characterised by:
- long duration;
- higher capital absorption;
- higher risk;
- delayed economic returns.
As a result, institutions tend to favour less risky activities with lower capital absorption, such as residential mortgages, at the expense of strategic investments for European competitiveness.
The Savings and Investments Union as a strategic lever
To overcome these limits, the report identifies the creation of the Savings and Investments Union (SIU) as one of the strategic priorities for the European Union.
The objective is to create a genuine single capital market capable of:
- mobilising private savings;
- developing deeper and more integrated financial markets;
- facilitating the financing of innovative companies;
- increasing access to capital for SMEs and start-ups;
- strengthening the link between savings and productive investment.
According to the authors, the SIU must become much more than an institutional project and turn into a concrete instrument to support European competitiveness.
The seven recommendations to strengthen bank competitiveness
The report sets out seven main recommendations to enable European banks to play a more significant role in financing the economy.
The proposals include:
- Rationalising additional capital requirements.
- Explicitly embedding growth and competitiveness objectives into regulation and supervision.
- Modernising the rulemaking process.
- Fully developing the Savings and Investments Union.
- Reviving the European securitisation market.
- Reviewing certain prudential rules that constrain banking activity.
- Reducing fragmentation in the European banking market by promoting integration and consolidation.
According to the report’s estimates, a targeted review of certain capital requirements could free up tens of billions of euros in capital and generate hundreds of billions of euros in additional financing capacity.
The cost of inaction
The report’s conclusion is clear: inaction is not an option.
If Europe fails to build a more efficient and integrated financial system, it risks seeing the competitiveness gap with other major economies, particularly the United States and China, widen further.
The ability to finance innovation, infrastructure, the energy transition and security is now a strategic issue for the economic prosperity, industrial autonomy and resilience of the European Union.
For this reason, according to the European Banking Federation, strengthening bank competitiveness and creating a fully integrated financial ecosystem must become central priorities on the European agenda in the coming years.
Europe has the savings needed to face the challenges of the future. The real challenge now is to create the mechanisms capable of transforming those savings into productive investment, innovation and sustainable growth.
