Europe's €12trn savings glut stalls AI catch-up

Europe is falling behind the US and China in artificial intelligence, risking a repeat of the economic stagnation it suffered during the IT revolution, according to 2025 Nobel economics laureate Philippe Aghion. He warned that without rapid action to integrate capital markets and fund innovation, the gap in per capita GDP—already nearly twice as high in the US as in the EU—will widen further. "We need to wake up," Aghion said.

The core bottleneck is not a lack of ideas, but a failure to finance them. Luxembourg Prime Minister Luc Frieden noted that Europe holds about €12 trillion ($13.6 trillion) in household savings, but "most of that money flows into real estate and government bonds, rather than investments in startups."

European startups struggle to secure venture capital because local banks avoid young, collateral-light companies. Marlene Schörner, a researcher at the Jacques Delors Center, pointed out that fragmented bankruptcy laws across EU member states deter specialized investors who need clarity on recovering funds if a business fails. Aghion emphasized the need for more venture capital and long-term research financing, specifically calling for greater participation from pension funds.

To bridge the funding and research gap, Aghion proposed a European equivalent to the US military research agency DARPA. "We need something like DARPA," he said, suggesting France and Germany lead the initiative. On the corporate side, SAP vice chair Thomas Saueressig argued Europe should bypass the race to build large language models and instead apply AI to traditional manufacturing. "Take our capabilities in manufacturing, for example: We could use physical AI and bring it to the next level. We need to use this technology to leapfrog our existing model into the future. In uncertain times, the biggest risk is not to take a risk," he said.

Rather than viewing strict regulations solely as a burden, Aghion suggested Europe's privacy rules could be a competitive moat. "I believe there will be a demand for a more ethical AI, an AI that avoids some dangers. People want to be protected. To have some regulations will make us even more attractive." He also pointed to healthcare as a prime vertical, noting, "We have fantastic health data in Europe, much better than in the US. And there will be fantastic AI health applications. We can develop a lot of specialized AI."

The European Commission is attempting to address the funding shortfall through its Savings and Investment Union, a rebranded Capital Markets Union. However, past efforts to integrate the bloc's financial markets have failed due to national resistance. Aghion cautioned that failing to manage AI's disruption through education and retraining carries severe political risks, warning that without strong social safety nets, "AI will create a lot of unhappiness and frustration, and there's a huge risk that they go into populism for a long time."