Cécile Philippe // 03 December 2025

This paper examines Europe’s widening long-term capital deficit and its implications for competitiveness, innovation, and economic sovereignty.

Despite repeated policy efforts to improve capital allocation, Europe continues to lag significantly behind the United States in both stock market capitalisation and retirement savings.

The analysis shows that Europe’s underdeveloped pension capital and its fragmented financial landscape have left the continent reliant on short-term savings and traditional financing structures that are poorly suited to supporting disruptive innovation.

As a result, Europe faces substantial deficits amounting to €19.3 trillion in market capitalisation and €19.7 trillion in retirement assets. These shortfalls undermine the continent’s capacity to finance technological progress, scale new industries, and maintain strategic autonomy.

The paper argues that incremental reforms will be insufficient and concludes that only the widespread adoption of funded pension systems can deliver the long-term capital necessary to restore Europe’s competitiveness and reduce fiscal pressures.

The main findings of the briefing include:

• Europe faces twin long-term capital deficits: a €19.3 trillion shortfall in stock market capitalisation and a €19.7 trillion gap in retirement savings.

• European firms invest substantially less in innovation, with R&D spending at 1.2 per cent of GDP, compared with 2.4 per cent in the United States.

• Europe has produced only 14 major young tech firms, compared with 241 in the US, reflecting a lack of long-term equity financing.

• Major EU economies rely heavily on pay-as-you-go pensions, leaving them without the pension capital essential for deep equity markets.

• The paper concludes that only widespread adoption of pension funds can close Europe’s capital gap, improve pension value for money, and strengthen economic sovereignty.