From savings to growth: Europe must invest better to strengthen its future

Europe’s challenge: low productivity growth
Europe is lagging the United States when it comes to productivity growth – a gap that makes it more difficult to secure future prosperity and deliver on strategic ambitions. In a time of considerable uncertainty, this issue should be addressed to ensure economic and financial stability. It is therefore also a topic that on the agenda at Danmarks Nationalbank.

In her speech at the CFA Society, Signe Krogstrup highlighted that the problem does not lie in the overall level of investment, which is comparable to that of the United States. Rather, the challenge lies in how investments are allocated. While the United States invests heavily in technology and innovation that drive higher productivity growth, a larger share of European investment goes into housing, construction, and established firms.

Europe has the resources – it is a matter of using them effectively
Europe has a high level of savings – even higher than in the United States – but these savings are not sufficiently translated into productive investment. A significant share of European savings is instead invested outside Europe, particularly in US assets. At the same time, Europe is relatively weak when it comes to risk-tolerant venture capital, especially in the later stages of growth when companies scale up. Financing new and fast-growing companies requires cooperation between banks, investors, and funds, each playing their role.

Signe Krogstrup stated: “In the EU, conditions for higher productivity growth must be strengthened. The EU has the resources, but these need to be used more effectively. We do not see a trade-off between financial regulation and growth. However, simplifying the regulatory framework – without compromising key requirements on capital, liquidity, and resolution frameworks – can help strengthen competitiveness. This is precisely what is being worked on.”

Signe Krogstrup pointed to two main tracks in the EU debate that can contribute to better conditions for productive investment. First, a stronger single market, where barriers between EU countries are reduced, enabling companies to grow and compete globally. Second, deeper and more integrated capital markets that can more effectively channel savings into risk capital across the EU. At the same time, there is room for simplifying the regulatory framework without compromising the key requirements on capital, liquidity, and resolution frameworks that safeguard financial stability.

In conclusion, Signe Krogstrup emphasised that there is currently momentum in Europe – but also that progress requires broad support. Banks, investors, and authorities must all play their part if Europe is to succeed in turning savings into productive growth.