The European Union faces a major investment challenge: It must invest trillions in its economy between now and 2030 to reverse prolonged weak growth and declining competitiveness, revive its industrial base, and expand its energy and defense infrastructures. But where that money will come from is still unclear.
Our analysis, in collaboration with the European Banking Federation (EBF), shows the EU now needs around €1.4 trillion additional investment every year — far more than the €800 billion estimated in the 2024 Draghi Report. This future investment demand — needed across energy, defense, digital infrastructure, advanced technologies, industrial transformation, and climate resilience — is concentrated in long-duration, capital-intensive, and higher-risk assets, often with uncertain or delayed returns. It requires a financial system capable of mobilizing capital across the full risk and maturity spectrum and allocating it efficiently to productive investment. The EU’s capital markets — both public and private — remain underdeveloped, relative to other advanced economies, leaving the region overly reliant on its banking system. Yet EU banks are increasingly constrained in their ability to expand lending capacity and support long-term productive investment.
This is compounded by persistent fragmentation across the European financial system, including constraints on the efficient movement of capital and liquidity across borders that reduce Europe’s ability to compete globally and mobilize savings at scale. Europe requires a robust financing continuum that brings together banks, capital markets, institutional investors, and private capital.
Why Europe's investment ambitions depend on stronger capital markets
Meanwhile, demand for new energy infrastructure, data centers, defense capabilities, and advanced technologies continues to grow. At the same time, Europe is trying to strengthen its economic resilience and strategic autonomy in a more uncertain geopolitical environment.
Today, Europe faces a growing mismatch between its investment ambitions and the capacity of its financing system to support them — with each type of investment requiring a different type of financing. For instance, infrastructure projects need patient, long-term capital. High-growth sectors, such as artificial intelligence, require investors willing to take on more risk. Financial returns from strategic investments, including defense and social infrastructure, may take longer to materialize. And even without these larger strategic needs, EU corporates struggle with insufficient capital to enable them to grow and compete with better-financed overseas rivals.
To meet all these needs, Europe requires a robust financing continuum that brings together banks, capital markets, institutional investors, and private capital.
EU policymakers increasingly recognize the urgency of addressing these issues and have created the Savings and Investment Union (SIU), which facilitates the flow of citizens' savings from across the 27-nation block into productive, cross-border business investments. But it will take a while to build up the SIU and other European capital markets. That leaves the banks.
Europe needs banks that can better support investment and growth
Banks sit at the center of Europe's financing system, providing much of the credit that businesses rely on. Since the global financial crisis, regulators have introduced reforms that have made banks safer and more resilient, with higher capital requirements and stronger supervision. While these reforms strengthened financial institutions and restored trust in the banking system, the cumulative impact over time has reduced banks' ability and capacity to support sufficient corporate investment to keep the region growing and competitive.
Today, regulatory requirements often make long-term corporate lending less attractive than lower-risk activities for banks, which have naturally shifted towards shorter-term and less capital-intensive assets. That suggests that the EU regulatory framework needs to be updated to reflect current needs and risks.
That said, the solution is not deregulation, as financial stability still remains essential to economic growth. Instead, Europe needs a more balanced framework to unlock investment and competitiveness and ensure that the banking regulatory framework supports competitiveness. Other major economies, including the United Kingdom and the United States, are already reviewing their frameworks to better support investment and growth. So too should Europe.
The dimensions of new EU banking regulatory and capital market frameworks
For the banks, this could mean simplifying unnecessary complexity, reviewing overlapping requirements, and ensuring regulation remains proportionate to risk. It also means accelerating the development of the SIU, creating deeper capital markets, expanding securitization markets, and reducing barriers that are currently fragmenting Europe's financial system. All together, these reforms would strengthen Europe's financing continuum and improve the flow of capital to productive investment.
Europe has many of the ingredients needed for success: deep pools of savings, strong financial institutions, and world-class innovation. What is missing is a financing system that can connect and build upon these strengths more effectively.
Whether the EU can close its investment gap remains to be seen. But the most immediate solutions lie with the banking sector, which could provide more capital if certain constraints were relaxed or removed. This report contains seven recommendations that would enable banks to play a stronger role in supporting the EU’s competitiveness, investment, and long-term economic resilience.
The need for more corporate investment is urgent and growing. The question is whether the EU can unleash its capital and financing system fast enough to meet the challenge.
This report was commissioned by the European Banking Federation (EBF) and represents the view of Oliver Wyman as independent experts that do not necessarily represent those of the EBF or its members.
