Europe often describes competitiveness as an industrial challenge. It debates energy independence, defence spending, artificial intelligence and technological sovereignty. Yet, beneath all these discussions lies a more fundamental question: who will finance Europe’s next generation of champions?

Europe has the money, can it finance its own future?

For Themis Themistocleous, head chief investment office Emea at UBS Global Wealth Management, the answer has surprisingly little to do with the amount of capital available. Europe is already rich. Its problem is what it does with that wealth.

“We have a market of around 450 million consumers, sizeable economies and considerable wealth,” he says. “But we are still not leveraging that strength collectively.”

The observation cuts through one of Europe’s biggest misconceptions. The continent does not lack savings. European households collectively hold one of the largest pools of private wealth in the world. What Europe struggles to do is transform those savings into productive investment capable of financing innovation, industrial transformation and future global leaders.

That challenge, more than tariffs or quarterly GDP figures, may ultimately determine Europe’s competitiveness.

A better Europe but not yet a stronger one

Markets have rewarded European equities this year, helped by a gradual recovery in manufacturing after several years of weakness. Themistocleous cautions, however, against reading too much into the recent rebound.

“The US economy has historically grown faster than Europe,” he explains. “Its equity market is driven by technology and innovation, whereas Europe remains a much more mature market.”

From a long-term perspective, the structural advantages remain largely on the American side. Technology companies dominate US equity indices, productivity growth has consistently exceeded Europe’s, and the country’s capacity to generate new global champions remains unmatched.

That does not mean Europe cannot outperform over shorter periods. Improving manufacturing data, stabilising inflation and fiscal stimulus linked to defence and infrastructure spending have all contributed to renewed optimism. But matching US market performance should not be mistaken for closing the competitiveness gap.”For Europe, performing roughly in line with the US is already a good result.” he notes.

Europe’s paradox: abundant savings, scarce growth capital

If Europe possesses abundant private wealth, why do so many successful companies still look elsewhere for financing? Part of the explanation, according to UBS, is behavioral.

American investors have traditionally been more willing to embrace risk and back new opportunities. European investors remain significantly more conservative.

“I always joke that the European consumer finds any excuse to save,” says Themistocleous. But culture alone does not explain the phenomenon. The investment universe itself remains narrower.

The United States continues to generate a greater number of high-growth companies in technology, software and innovation, attracting capital from investors worldwide, including Europeans. The consequence is striking. European savings increasingly finance growth… outside Europe.

Financial sovereignty

European policymakers increasingly speak about strategic autonomy. For UBS, genuine autonomy requires something deeper than industrial policy. It requires financial autonomy. “Europe has a long way to go.” Progress is visible. Defence cooperation is improving. The debate around the Capital Markets Union has returned. The Savings and Investment Union is back on the political agenda, but fragmentation remains Europe’s defining weakness.

“If Europe wants to play on the global stage, it needs to be strong financially, economically and militarily.” Unlike the United States, Europe still struggles to convert its economic size into coordinated financial power.

Ironically, geopolitical shocks may finally accelerate integration. “Europe usually responds to crises.”

Whether the catalyst is the war in Ukraine, changing US foreign policy or growing geopolitical competition, each crisis appears to push European governments towards deeper cooperation.

The missing link: financing scale-ups

 Perhaps the most revealing part of the conversation concerns private capital. Europe, Themistocleous argues, is not failing entrepreneurs at the beginning of their journey.

The real funding gap emerges later. “I think Europe does a decent job supporting very young companies. But once they start growing, the funding is simply not available.” That observation explains why many European technology companies eventually seek American investors. The evolution of financial markets reinforces this trend.

Years ago, businesses typically entered stock markets with valuations measured in billions. Today, many of the world’s largest technology companies remain private for much longer. “I remember when companies came to market with valuations of $2bn or $3bn. Now they arrive with valuations measured in trillions.”

The implication is profound. An increasing share of wealth creation now takes place before companies become publicly listed. That elevates the importance of private equity, private credit and infrastructure investors. These markets have become essential not simply alternative to financing innovation.

Europe may have missed one AI race but not the next

Artificial intelligence naturally dominated part of the discussion. Can Europe still compete? Themistocleous is realistic. “Europe is starting very late.” Competing directly with the United States on semiconductors, hyperscale infrastructure or foundation models will be difficult.

Yet he believes Europe still has an opportunity. The next phase of AI may not belong to hardware. It may belong to applications. “The next major development will be businesses built on top of AI. The comparison is telling.”

The internet itself created enormous value, but companies such as Google, Amazon or Facebook ultimately generated even greater economic impact by building businesses on top of that infrastructure.

AI could follow a similar trajectory. Europe’s opportunity may therefore lie less in producing chips than in reinventing industrial processes, healthcare, manufacturing and enterprise software through AI adoption. That shift could play directly to Europe’s existing industrial strengths.

Debt, not geopolitics, is the long-term macro threat

While headlines remain dominated by wars, tariffs and geopolitical tensions, UBS sees another issue demanding closer attention. Public debt.

Governments across developed economies dramatically expanded borrowing after the pandemic. Few have demonstrated political willingness to reverse course. “The way we look at debt is not debt-to-GDP. We look at the cost of debt as a percentage of government revenues.”

That ratio continues to rise. Eventually, governments will face difficult choices between fiscal consolidation, financial repression or structurally higher inflation. Markets already recognise the risk. Elevated long-term bond yields reflect growing concerns about sovereign debt sustainability.

Three themes for the next decade

Asked to identify the structural trends that will shape portfolios over the coming decade, Themistocleous highlights three.

Artificial intelligence. Electrification. Longevity. Among them, AI stands above the rest. Not because it will transform markets overnight. But because history suggests investors consistently underestimate the long-term impact of breakthrough technologies. “In the short term, technology is often overestimated. In the long term, it is underestimated.”

For Europe, that observation extends beyond investment strategy. The continent has the savings. It has the talent and it has the industrial base.

Its next challenge is ensuring that capital flows towards the businesses capable of defining the next generation of European growth. Because competitiveness is no longer simply about producing ideas, it is about financing them before somebody else does.