How Investing in Europe’s Competitiveness Can Spur a New European Renaissance | MEA Summit 2025

Overview and Strategic Context

• The Milken Institute launched the "Investing in Europe's Competitiveness" initiative to channel capital toward opportunities in Europe amid geopolitical uncertainty and supply chain shifts.
• Investment flows into Europe are increasing, with the region emerging as a unique market offering both scale and stability for long-term and short-term investors.
• The 16% of the global economy represented by the EU has seen significant growth since the 2004 enlargement, with Poland and Malta's economies more than doubling in that period.
• The European Union and the United Arab Emirates are negotiating a bilateral trade agreement to target strategic investments in green transition, digitalization, AI, and defense.
• The UAE is currently one of the top 10 investment partners for the EU, leveraging Europe's transparency, predictability, and 50 free trade agreements covering 70 countries.
• The Draghi report serves as a primary catalyst for reform, identifying a competitiveness gap requiring roughly €800 billion in annual investment to accelerate European growth.
• Approximately €400 billion of the required investment is needed for infrastructure, creating a gap that governments, with national debt exceeding 100% of GDP in many nations, cannot fill alone.
• Private equity, venture capital, and private credit markets in Europe are roughly half the size of those in the US relative to GDP, representing significant room for expansion.

Investment Opportunities and Asset Classes

• M&G manages $100 billion in private assets and $250 billion in balance sheet assets in Europe, observing a 30-year trend of selling Europe that is now shifting toward active investment.
• Institutional investors are increasingly allocating capital to European real assets, including infrastructure, private credit, and real estate, driven by US bank retrenchment.
• European equities offer significant valuation advantages compared to US equities, with inflows into European equities noted as significant in 2025.
• Private credit in Europe is identified as a superior yield environment compared to the US, particularly in the non-sponsored space which funds firms directly rather than supporting PE acquisitions.
• The "Savings Union" concept aims to mobilize €30 trillion in European household savings to inject capital into the real economy.
• The EU plans to invest over €200 billion via the "Invest AI Initiative," targeting the construction of 10 AI factories and 5 giga-factories to plug research institutions into commercial infrastructure.

Sector-Specific Analysis: Infrastructure and Defense

• Infrastructure:
  • Investment is driven by necessity for energy sovereignty, requiring massive capital in electrification, renewables, nuclear power, and batteries.
  • Digital infrastructure, specifically fiber optics and data centers for AI, is identified as a critical and growing investment avenue.
  • Mobility decarbonization and global transport networks present ongoing investment needs.
  • Demographic shifts toward an aging population create sustained demand for education and healthcare infrastructure.
  • Key infrastructure drivers include stability in financial, regulatory, and political environments, despite challenges in governance agility.
• Defense:
  • The "peace dividend" has ended; Europe faces a paradigm shift requiring self-reliance, speed, scale, and industrial consolidation in defense.
  • Hyperion Defense launched a specialized aerospace and defense fund managing €250 million, with plans to expand to address industry consolidation.
  • Defense investment is projected to drive dual-use technology benefits in mobility, communications, energy (batteries, hydrogen), and materials.
  • The US commitment to NATO members to achieve 5% of GDP on defense expenditure is expected to boost the dual-use technology market.
  • Consolidation in the defense sector is expected to occur at the tier-one and tier-two levels rather than among major prime contractors, which are often state-owned.
  • Non-European sovereign funds and investors are being encouraged to invest via European funds to bypass lengthy Foreign Direct Investment (FDI) approval processes.

Artificial Intelligence and Innovation

• Europe possesses a leading edge in AI talent, with top mathematicians and computer scientists contributing significantly to global research.
• The current AI bubble is characterized by inflated valuations for generative AI firms; however, European startups focusing on revenue and resilience are positioned to succeed once the market stabilizes.
• Europe currently leads in digital governance and e-governance, creating business opportunities for strategic partners.
• A major challenge for European AI is the gap between research excellence and commercialization, partly attributed to a conservative mindset regarding new technology adoption.
• The EU is developing a "28th regime" to create a common regulatory framework across member states, enabling companies to scale and cooperate across borders.
• Nuke AI successfully hosted a 2022 challenge in Paris where its AI beat eight world champions, demonstrating European capability in complex AI applications.

Policy Recommendations and Governance

• Capital Markets: There is a consensus among panelists on the urgent need to finalize a Capital Markets Union (CMU) to improve scalability and access to financing.
• Regulation: Panelists advocate for faster, more efficient regulatory processes, criticizing the current treatment of deep technologies as if they were standard car parks.
• Solvency II: Reform of the Solvency II framework is required to better accommodate insurance companies investing in real assets and private markets.
• Education and Incentives: Incentives for long-term investment, such as tax-free investment accounts, need to be structured to encourage equity and private market allocation over cash holding.
• Governance: Europe's lack of agility and clear governance remains a primary barrier to scalability, though its stability and reliability are viewed as unique strengths.
• Cross-Border Cooperation: Successful investment requires closer collaboration between key nations, particularly Germany and France, to create a unified front in defense and technology.

Forward-Looking Statements and Future Outlook

• 2035 Horizon: The panel envisions 2035 as the "golden age" for Europe, characterized by economic growth, the successful implementation of the Savings Union, and the retention of talent.
• Competitiveness Metrics: Future success will be defined not just by GDP, but by maintaining social safety nets, living standards, and environmental values alongside economic competitiveness.
• AI Race: The AI race is described as a marathon rather than a sprint; European startups are expected to be among the survivors and leaders in the final stages.
• Defense as Foundation: Europe's prosperity and freedom depend on the ability to innovate, produce, and expand its own defense and security technologies.
• Global Partnership: The success of European competitiveness relies on funneling non-European capital (from the Middle East, Asia, and the US) through European investment vehicles to ensure strategic alignment.