Businesses across the European Union are facing a myriad of challenges and the European Investment Bank has warned that deeper capital markets, regulatory and bureaucratic simplification, and large-scale investment in innovation are crucial to maintaining global competitiveness. In its latest report, on 5 March 2025 ahead of the EIB Group Forum in Luxembourg (5–7 March), the EIB calls for cutting red tape, accelerating investment in technology and sustainability, and strengthening financial integration to secure Europe’s economic future.
Market integration
The report found that intra-EU market fragmentation remains a significant hurdle for European businesses. 60% of exporting firms and 74% of firms engaged in cutting-edge innovation that it surveyed cited differing national regulations--including consumer protection standards, value-added tax requirements and licensing rules--as major obstacles to business expansion. Addressing these discrepancies could enhance trade efficiency and create a more cohesive European marketplace.
The EIB acknowledged that Europe’s financial integration has yet to recover to pre-financial crisis levels. It concluded that closing half of this gap could lead to a 3% increase in cross-border financial flows, which in turn could raise GDP by 1%. The report further indicated that firms with access to equity financing are 13 percentage points more likely to innovate, while investment growth rates among these firms are seven percentage points higher. Despite this, EU scale-up firms have secured, on average, 50% less capital than their US counterparts over the past decade.
Regulatory simplification
The cost of regulatory compliance remains a considerable financial strain on European firms. The report revealed that 86% of EU businesses employ staff specifically for compliance-related tasks, at an average cost of 1.8% of turnover. This figure rises to 2.5% for small and medium-sized enterprises, making regulatory costs one of the most significant operational burdens. By comparison, the cost of energy for EU firms following the recent energy crisis amounted to 4% of turnover. The EIB concluded that reducing regulatory complexity could improve investment opportunities, particularly for high-tech and capital-intensive industries.
Public sector spending
The report observed that investment growth in the EU is increasingly reliant on public-sector spending, as private investment has slowed. In the first half of 2024, government investment grew by 7.2% year-on-year, while private investment contracted by 2.5%. Public investment reached 3.5% of GDP in 2023, with subsidies increasing from 0.6% to 1.6% of GDP over the same period. The EIB highlighted that the recovery and resilience facility, along with EU structural funds, played a pivotal role in sustaining investment, but these funding mechanisms are set to expire in the coming years.
Despite these challenges, the report noted that improving macroeconomic conditions, easing inflation and sustained EU policy support could help stabilise investment levels. The EIB also pointed to growing investment in high and mid-tech industries as a positive indicator for future economic expansion. However, the report warned that uncertainty, trade restrictions, and tighter national budgets could dampen investment prospects.
AI and digital transformation
The report underscored the potential for European firms to capitalise on artificial intelligence and digital transformation. The EU remains a global leader in research, publishing 24% more research papers than the United States, noted EIB. However, European firms lag behind in AI adoption, with the share of companies using AI and big data analytics being six percentage points lower than in the United States.
Preliminary EIB findings indicated that manufacturing and service firms integrating AI into their processes experienced higher productivity levels. The report suggested that Europe could accelerate AI adoption by leveraging its investments in clean and affordable energy, data centres and digital infrastructure. Additionally, it identified a need for a more unified regulatory framework that ensures data security and encourages competition.
Green investment
According to the EIB report, Europe’s climate leadership is yielding economic benefits. Renewable energy (which the EIB heavily invests in) accounted for 48% of the continent’s electricity supply in 2024 and emissions from power generation fell by 13% during the year. European firms also profited from an increase in exports of low-carbon technologies, which have grown by 65% since 2017. In comparison, China’s exports in the sector rose by 79%, while those of the United States increased by just 22%.
The report argued that Europe’s consistent climate policies offer firms greater certainty and incentives to invest in energy efficiency. It noted that ambitious but pragmatic climate policies could lead to lower energy prices, greater energy security and sustained economic growth.
Social investment
The report highlighted the growing importance of social investment for economic performance. In 2024, 51% of EU firms cited a shortage of skilled workers as a major barrier to investment, up from 38% in 2016. The EIB estimated that aligning female labour force participation across all EU member states to the highest European standards could increase GDP by 4%.
Housing constraints were also identified as a factor hindering labour mobility and productivity, particularly in high-growth urban areas. The report concluded that improving efficiency in public spending on education and healthcare could yield significant savings, estimating that EU members could achieve the same social outcomes while reducing expenditure by 2.5% of GDP.
The report concluded that Europe’s economic future relies on maintaining a strong focus on investment policies. As the recovery and resilience facility nears its end and fiscal constraints tighten, strategic public investment will be crucial. The EIB emphasised that financial instruments and coordinated EU efforts would be key to maximising the impact of limited public funds.