David Harrison / Mar 2026
Image: Shutterstock
“Finally, no question about it, Europe lacks investment. There will be no competitiveness without more investment.” (European Council President Antonio Costa, following the informal EU leaders’ retreat on 12 February 2026).
Europe, by any standards, has enormous investment needs.
The Draghi Report on competitiveness suggests increasing EU investment by about 5 percentage points of GDP, from 22% to 27% – more than under the Marshall Plan. Across the wider Europe 30 (the EU plus the UK, Norway and Switzerland) net investment, taking account of depreciation and impairment of existing assets, particularly needs boosting, having halved after the global financial crisis to a meagre average 3.3% of GDP from 2009 to 2022. Over the next decade NATO members need to invest at least 3.5% of GDP for core defence and 1.5% of GDP for related defence and security purposes, like strengthening their industrial base. And the supply of affordable housing has become a policy problem everywhere in Europe.
A German Finance Ministry publication of December 2025, noting a stagnant economy for several years, with investment required in many key sectors, identifies an investment backlog in Germany alone of several hundred billion euros. The EUR 500 billion Special Fund for Infrastructure and Climate Neutrality focuses on the greatest needs: transport infrastructure, education, digitalisation, housing construction and energy infrastructure.
The Marshall Plan was preceded by European states coming together to agree on a joint programme setting out their economic situation and plans for recovery, to which Marshall aid could contribute. For Jean Monnet, then Planning Commissioner in France, it was an exercise in Europe drawing up a balance-sheet of its own needs and resources – always the starting-point when addressing a new and difficult question.
The position in Europe today is not as in 1947, when reconstruction and recovery after war were at stake. Instead, public and private investment levels have declined during peacetime, with net public investment near zero for years. This deterioration, giving an investment shortfall now greater than under the Marshall Plan, has been underway for at least the first quarter of the twenty-first century – a period of time comparable to the years of high growth and high investment after the Second World War.
To address the problem, the first step is again to draw up an overall balance-sheet of Europe’s needs and resources. The investment needs are mostly public knowledge: those identified in Draghi (like for decarbonisation); by the OECD; in the NATO defence and security commitments; and by numerous reports and studies (like that of the German government).
The resource side of the balance-sheet should then take account of Europe’s stock of savings: household savings plus those professionally managed in the form of pension, insurance, sovereign wealth funds and the like. Both are large: household savings and bank deposits run into the trillions; and assets under professional management were estimated at US $26 trillion in 2020 – making Europe the second largest market in the world.
Since savings are withheld from expenditure on consumption, expenditure on investment should, broadly, balance savings, if effective demand for the output of Europe’s economy is to be “large and steadily growing” (as the preamble to the WTO Agreement puts it).
Achieving balance requires joint action to increase both public and private investment expenditure over a period of time, as it will not occur of its own accord, or by the operation of an invisible hand, and the mechanisms affecting savings differ from those affecting investment.
To help do this, a European Investment Community, operating under a realistic timetable and programme, could turn a problem-solving exercise into a positive project to strengthen Europe and promote growth. By spreading increased investment as widely as possible the European economy should be made to work for citizens everywhere, countering the economic discontent on which the far right feeds.
For public investment, the new German Innovation and Advisory Board provides a model. A European Board of Public Investment would have the task of creating a pan-European pipeline of large, necessary, public investment projects, each viable under agreed financial assumptions, drawing on the best available expertise.
There is not one, but many different ways of financing a pipeline of large public investment projects, once created. One is by issuing common debt, but, unlike with the 2021 Recovery and Resilience Facility, viable projects would be identified first, before any financing. There would be no blank cheques. Others include mutual guarantees for the joint execution of specific projects; and revisiting the existing EU fiscal rules to ensure projects constituting net public investment – which add to the stock of Europe’s public capital – are promoted, not penalised.
For increased private investment, European companies will draw on their own retained earnings if they see future opportunities open up – as is happening with defence.
To raise more external capital, the key is aligning institutional savings, like pension funds, with company investment. Existing capital markets have not been good at this, and merging them in the hope they will do better is to elevate hope over experience. Institutional funds have for decades used very large capital markets in the US and the UK to obtain share price appreciation, not provide long-term capital to businesses. A report for the government in 2012 found that UK equity markets had not been an important source of new capital for British businesses for many years.
A public/private initiative would see a publicly-owned body create a completely new kind of capital market whose simple purpose is to match the long-term investment needs of European companies with long-term institutional savings. The initial focus would be on the larger capital-intensive companies – like those in defence, infrastructure, transport and energy – where Europe’s needs are greatest.
All these issues interconnect, and so a unified approach is needed. Whether membership is via enhanced cooperation; through a coalition of the willing (but under-invested); or by some other self-selecting configuration of states, an Investment Community would offer participants mutual support in rebuilding Europe’s economic strength.
