How a single capital market would unlock Europe’s potential
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Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
David Bach became president of Switzerland‘s IMD business school in September and is Nestlé professor of strategy and political economy
It has become conventional wisdom to view Europe as an economic powerhouse past its prime, overshadowed by the steady advance of the US and meteoric rise of China. Critics cite Europe’s shrinking share of global GDP, excessive regulation, and sluggish investment as evidence of a “competitiveness crisis”. But this narrative obscures a more profound truth: Europe is brimming with untapped potential that, if fully harnessed, could dramatically reshape the global economic landscape.
Europe’s strengths in competitiveness, talent, innovation and sustainability could, when integrated within a unified capital market, radically transform its economic trajectory.
While many focus on the challenges of Europe’s larger economies, it is smaller nations — Denmark, Finland, the Netherlands, and Switzerland — that show what is possible. According to IMD’s World Competitiveness Ranking, these countries consistently outperform global peers, revealing the power of a robust commitment to nurturing talent and human capital through cross-border mobility and education.
European Business Schools Ranking
This is an early article from the ranking report, out on Monday December 2
While only 1 per cent of US and 2 per cent of Chinese students study abroad, 15 per cent of their European peers do so. This emphasis on global learning fosters a more interconnected workforce, one that embodies the spirit of integration essential for future success. In fact, EU citizens living in another member state have surged by 60 per cent over the past two decades, a testament to Europe’s commitment to cultivating a truly global citizenry.
The impact is palpable at the highest levels of business. Among the CEOs of Europe’s 20 largest companies, half are not citizens of the country where the headquarters is located. That compares with 20 per cent in the US and none in China. This diverse leadership leaves Europe uniquely placed to navigate the geopolitical complexities today.
Europe’s leadership in the energy transition also offers a blueprint for prosperity. It is ahead of the rest of the world, generating some 40 per cent of its power from renewables, outpacing China and the US, which generate 30 per cent and 21 per cent, respectively. Public support for green investment remains robust, with less partisan division, reducing the risk of drastic policy swings after elections. If anything, Europe’s efforts to become the first net-zero continent are accelerating as a result of Russia’s invasion of Ukraine.
Artificial intelligence is another arena where Europe can assert influence. While the notion that Europe regulates while the US and China innovate is a common critique, Europe’s measured approach — exemplified by the EU AI Act — may set a global standard. Data privacy rules offer a precedent. US tech companies have decried Europe’s strict rules, but comprehensive data privacy standards now protect three-quarters of the global population. And they have not held back European business. Can Europe do the same in establishing responsible AI practices globally?
History has shown us that Europe has been counted out before, only to rise again, often when least expected. This was evident in the implementation of the Single European Act in 1986, which launched the Single Market in response to growing competition from the US and Japan. Similarly, the creation of the euro and the region’s recovery from the global financial crisis demonstrate a resilient spirit. Today, as geopolitical tensions shift and the US grows increasingly unpredictable, Europe stands at another inflection point.
So, how can Europe seize this moment? By leveraging its competitive smaller economies, fostering a holistic and inclusive approach to sustainability and AI, and championing its global leadership in talent. Mario Draghi’s report on the future of European competitiveness makes numerous recommendations, including an ambitious €800bn investment spree. Yet, the most crucial step may be deceptively simple: a single European capital market.
What differentiates American and Chinese businesses from their European counterparts is superior access to capital, enabling them to scale up innovations and aggressively expand markets. Without deeper financial integration, Europe risks leaving much of its potential untapped. Creating an integrated European capital market would streamline access to funding and also empower innovative enterprises across the continent, enabling them to scale up and compete effectively on the global stage.
The benefits of this capital market are manifold. It would facilitate cross-border investments, enhance liquidity, lower costs, and improve the overall efficiency of resource allocation. By creating an environment more conducive to investment, Europe can nurture homegrown champions and attract foreign investment to fuel its growth.
Moreover, enhancing access to capital would enable European start-ups and small and medium-sized enterprises to thrive, unlocking innovation in sectors such as clean energy, digital technology, and advanced manufacturing. This, in turn, would bolster the continent’s position as a global leader in sustainability and technology.
But Europe is at a crossroads, with the potential to redefine its global standing. Without deeper financial integration, it risks leaving its potential untapped. Getting this one critical area right will enable Europe to harness its strengths and compete far more effectively than it currently does.
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