European Investment Challenges Amid Global Uncertainty
The European Union faces significant fiscal hurdles and market fragmentation as it seeks to enhance competitiveness and sustainability.
The strengthening of protectionist policies and fiscal tightening are casting a shadow over global investment flows.
The 'America First' stance has particularly heightened uncertainty, significantly impacting the green transition and innovation.
In this challenging context, the European Union (EU) is at a crucial juncture.
To remain competitive and secure in a divided global economy, it must accelerate the transformation towards a more productive, innovative, and sustainable economic model.
This transformation, however, relies on significant and continuous increases in investment, as articulated by Damjan Sorel, head of the European Investment Bank (EIB) regional center for the Western Balkans.
Mario Draghi has recently underscored the scale of the challenges, estimating that the EU needs to invest €800 billion annually to revitalize its economy, alongside efforts to remove barriers and better integrate its internal market.
The investment gap extends well beyond climate goals.
The evolution of artificial intelligence, a lack of skills, and new security and defense requirements necessitate coordinated financial mobilization.
Simultaneously, the fragmentation of the internal market continues to undermine the EU’s ability to develop innovations at a larger scale and attract global capital.
Currently, real corporate investments in the EU are just 1% above pre-pandemic levels, compared to 12% in the United States.
According to the latest Investment Report from the EIB, uncertainty remains the main barrier to investment, with 79% of firms in the EU identifying it as a key limiting factor.
This is followed by a lack of qualified workforce and high energy costs, as noted by 77% of companies.
While 66% of firms have been affected by extreme weather events, only a small fraction has invested in adaptation measures or purchased insurance.
Similar barriers exist for investments in energy efficiency, where a lack of financing and skills hinders progress.
Market fragmentation within the EU is also a considerable obstacle.
As many as 60% of exporters and 74% of firms engaged in sophisticated innovations believe that internal barriers limit business opportunities and expansion potential.
Removing these barriers through market expansion, facilitating capital flows, and improving access to finance could unlock significant growth potential, particularly for innovative firms.
Differences in capital mobilization are particularly pronounced: European firms in the growth stage have raised 50% less capital than their American counterparts over the last decade.
This gap is significant because firms that manage to raise capital through equity investment are 13% more likely to engage in innovation.
Although Europe leads in academic output with 24% more research than the US, according to the Nature Index, it lags in commercializing those findings.
While still competitive in green technologies, it risks falling behind in other strategic sectors such as biotechnology, digital technologies, and artificial intelligence.
Europe's climate ambitions have positioned it as a global leader in the green transition, with the energy revolution gaining momentum.
By 2024, renewable energy sources comprised 48% of electricity consumption in the EU, contributing to a 13% reduction in CO₂ emissions.
European firms have capitalized on this momentum, with exports of low-carbon technologies increasing by 65% since 2017—a pace that, although behind China's 79%, significantly exceeds the US's 22% growth.
The EU is well-positioned to continue on this trajectory.
Ongoing investments in affordable clean energy, digital, and social infrastructure, combined with efforts to deepen market integration, provide a strong foundation for sustainable growth.
The EIB, as the EU's bank, is central to these initiatives, serving as a capital market union instrument that enables loans with a unique EU signature to steer savings into productive investments.
More than 60% of EIB Group investments in 2024 have contributed to the green transition, doubling investments in electricity grids and connections.
The EIB has mobilized a record €100 billion in higher-risk investments to support European innovators.
These developmental trends are not only transforming the EU economy but may also yield benefits for neighboring regions such as the Western Balkans, which maintains close economic and institutional ties with the EU. Under the new Growth Plan, the region is progressing toward market integration.
Initiatives such as 'Green Corridors,' the establishment of digital innovation hubs, and the expansion of the Single Euro Payments Area (SEPA) are bringing local economies closer to EU standards.
Serbia has recently become the fourth country in the region to join SEPA, facilitating euro transactions and reducing transaction costs.
Despite progress, challenges remain, particularly regarding energy transition, climate activities, and skill development.
The use of renewable energy sources is gradually increasing but must be accompanied by the expansion of energy infrastructure and a more decisive shift from fossil fuels, which still dominate the energy mix in the region.
Industrial sectors such as manufacturing and construction remain energy-intensive due to outdated equipment and inefficient processes.
While 10% of firms report the impact of climate change on their operations, investments in adaptation remain limited.
In response, EIB Global is providing financial support for equipment modernization and increased capacity for renewable energy sources, aiming to enhance energy efficiency and productivity.
Field evidence indicates that technologically advanced new equipment can reduce energy consumption by up to 70% compared to older models.
Access to finance (with about 34% of firms experiencing credit restrictions) and a lack of skilled labor continue to pose growth challenges in the Western Balkans.
High emigration rates have led to an acute labor shortage, while skills mismatches further diminish productivity.
According to United Nations projections, the region's population is expected to decrease by 3 million by 2050 (with Serbia alone projected to lose over 18% of its population), posing a long-term risk to economic resilience.
To foster equal opportunities in the region, EIB Global supports digitalization and school renewal, creating opportunities for lifelong learning and more inclusive employment.
Science and technology parks supported by the EIB have significantly strengthened Serbia’s innovation ecosystem and enhanced its visibility in the global technology arena.
Amid changes in the geopolitical dynamics affecting global value chains, firms across the EU and the Western Balkans face a strategic opportunity to reposition themselves by balancing efficiency and resilience through deeper market integration.
From energy and transport to social and digital infrastructure, EIB Global plays a critical role in aligning financial support with EU policies to maximize economic impact.
Since 2010, the bank has directed more than €11 billion into the Western Balkans, facilitating the adoption of EU standards and improving living conditions and the business environment.
In close collaboration with the European Commission and local partners, plans are in place to continue promoting growth, innovation, and sustainability.
The 'America First' stance has particularly heightened uncertainty, significantly impacting the green transition and innovation.
In this challenging context, the European Union (EU) is at a crucial juncture.
To remain competitive and secure in a divided global economy, it must accelerate the transformation towards a more productive, innovative, and sustainable economic model.
This transformation, however, relies on significant and continuous increases in investment, as articulated by Damjan Sorel, head of the European Investment Bank (EIB) regional center for the Western Balkans.
Mario Draghi has recently underscored the scale of the challenges, estimating that the EU needs to invest €800 billion annually to revitalize its economy, alongside efforts to remove barriers and better integrate its internal market.
The investment gap extends well beyond climate goals.
The evolution of artificial intelligence, a lack of skills, and new security and defense requirements necessitate coordinated financial mobilization.
Simultaneously, the fragmentation of the internal market continues to undermine the EU’s ability to develop innovations at a larger scale and attract global capital.
Currently, real corporate investments in the EU are just 1% above pre-pandemic levels, compared to 12% in the United States.
According to the latest Investment Report from the EIB, uncertainty remains the main barrier to investment, with 79% of firms in the EU identifying it as a key limiting factor.
This is followed by a lack of qualified workforce and high energy costs, as noted by 77% of companies.
While 66% of firms have been affected by extreme weather events, only a small fraction has invested in adaptation measures or purchased insurance.
Similar barriers exist for investments in energy efficiency, where a lack of financing and skills hinders progress.
Market fragmentation within the EU is also a considerable obstacle.
As many as 60% of exporters and 74% of firms engaged in sophisticated innovations believe that internal barriers limit business opportunities and expansion potential.
Removing these barriers through market expansion, facilitating capital flows, and improving access to finance could unlock significant growth potential, particularly for innovative firms.
Differences in capital mobilization are particularly pronounced: European firms in the growth stage have raised 50% less capital than their American counterparts over the last decade.
This gap is significant because firms that manage to raise capital through equity investment are 13% more likely to engage in innovation.
Although Europe leads in academic output with 24% more research than the US, according to the Nature Index, it lags in commercializing those findings.
While still competitive in green technologies, it risks falling behind in other strategic sectors such as biotechnology, digital technologies, and artificial intelligence.
Europe's climate ambitions have positioned it as a global leader in the green transition, with the energy revolution gaining momentum.
By 2024, renewable energy sources comprised 48% of electricity consumption in the EU, contributing to a 13% reduction in CO₂ emissions.
European firms have capitalized on this momentum, with exports of low-carbon technologies increasing by 65% since 2017—a pace that, although behind China's 79%, significantly exceeds the US's 22% growth.
The EU is well-positioned to continue on this trajectory.
Ongoing investments in affordable clean energy, digital, and social infrastructure, combined with efforts to deepen market integration, provide a strong foundation for sustainable growth.
The EIB, as the EU's bank, is central to these initiatives, serving as a capital market union instrument that enables loans with a unique EU signature to steer savings into productive investments.
More than 60% of EIB Group investments in 2024 have contributed to the green transition, doubling investments in electricity grids and connections.
The EIB has mobilized a record €100 billion in higher-risk investments to support European innovators.
These developmental trends are not only transforming the EU economy but may also yield benefits for neighboring regions such as the Western Balkans, which maintains close economic and institutional ties with the EU. Under the new Growth Plan, the region is progressing toward market integration.
Initiatives such as 'Green Corridors,' the establishment of digital innovation hubs, and the expansion of the Single Euro Payments Area (SEPA) are bringing local economies closer to EU standards.
Serbia has recently become the fourth country in the region to join SEPA, facilitating euro transactions and reducing transaction costs.
Despite progress, challenges remain, particularly regarding energy transition, climate activities, and skill development.
The use of renewable energy sources is gradually increasing but must be accompanied by the expansion of energy infrastructure and a more decisive shift from fossil fuels, which still dominate the energy mix in the region.
Industrial sectors such as manufacturing and construction remain energy-intensive due to outdated equipment and inefficient processes.
While 10% of firms report the impact of climate change on their operations, investments in adaptation remain limited.
In response, EIB Global is providing financial support for equipment modernization and increased capacity for renewable energy sources, aiming to enhance energy efficiency and productivity.
Field evidence indicates that technologically advanced new equipment can reduce energy consumption by up to 70% compared to older models.
Access to finance (with about 34% of firms experiencing credit restrictions) and a lack of skilled labor continue to pose growth challenges in the Western Balkans.
High emigration rates have led to an acute labor shortage, while skills mismatches further diminish productivity.
According to United Nations projections, the region's population is expected to decrease by 3 million by 2050 (with Serbia alone projected to lose over 18% of its population), posing a long-term risk to economic resilience.
To foster equal opportunities in the region, EIB Global supports digitalization and school renewal, creating opportunities for lifelong learning and more inclusive employment.
Science and technology parks supported by the EIB have significantly strengthened Serbia’s innovation ecosystem and enhanced its visibility in the global technology arena.
Amid changes in the geopolitical dynamics affecting global value chains, firms across the EU and the Western Balkans face a strategic opportunity to reposition themselves by balancing efficiency and resilience through deeper market integration.
From energy and transport to social and digital infrastructure, EIB Global plays a critical role in aligning financial support with EU policies to maximize economic impact.
Since 2010, the bank has directed more than €11 billion into the Western Balkans, facilitating the adoption of EU standards and improving living conditions and the business environment.
In close collaboration with the European Commission and local partners, plans are in place to continue promoting growth, innovation, and sustainability.
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