Europe's Investment Environment Needs to Improve Its Competitiveness

Question AI · How can Europe’s digital technology advantages address geopolitical challenges?

A spectator shakes hands with a humanoid robot at the 2025 Germany Berlin International Consumer Electronics Show. Xinhua News Agency photographer Zhang Haofu

The European Investment Bank Group Forum was recently held in Luxembourg. The “European Investment Bank Group Report” (hereinafter referred to as the “Report”) released during the event points out that Europe has significant advantages in technology investment and single markets but also faces multiple challenges such as geopolitical tensions, accelerated technological change, and shifts in the global economic landscape. Europe needs to adjust its investment strategies and build a more resilient and competitive investment environment to adapt to the new situation.

The report highlights that Europe has clear advantages in digital transformation and artificial intelligence investment. In several key industrial sectors, such as advanced manufacturing, robotics, quantum computing, and high-end manufacturing, Europe possesses world-leading technological expertise and industrial know-how, providing a solid foundation for digital transformation. In recent years, European companies have made notable progress in adopting digital technologies. Big data analytics, artificial intelligence, and digital platforms are increasingly used, boosting productivity and competitiveness. Data shows that by 2025, 76% of EU companies have adopted digital technologies, a figure comparable to the United States, indicating rapid progress in digital technology adoption across Europe. Additionally, 46% of EU companies have implemented big data analytics and AI, demonstrating Europe’s active engagement with cutting-edge digital applications. The EU and its member states have also enacted policies and investment plans, such as the “Digital Europe” program and the “Connecting Europe Facility,” to promote digital infrastructure development and technology dissemination.

The report also notes that Europe has a distinct advantage in the digital development ecosystem. Public and private sectors are increasingly collaborating on digital transformation, forming a healthy innovation ecosystem that fosters rapid development and application of digital technologies. Europe is home to many renowned research institutions and universities, providing strong intellectual support for R&D and innovation. The region’s venture capital, startup incubators, and accelerators are thriving, creating a favorable environment for digital startups to grow.

In green development and renewable energy investment, Europe demonstrates strong momentum. The continent leads globally in renewable energy, with wind and solar power capacity continuously increasing, fueling Europe’s green energy transition. By 2025, renewable energy accounts for two-thirds of Europe’s electricity capacity, reflecting significant achievements in renewable energy development and utilization. The EU’s policies, such as the “Green Deal,” provide clear guidance and support for green technologies and innovation, accelerating green industry growth. European companies invest heavily in green tech R&D and innovation, advancing clean energy technologies, energy efficiency, and circular economy initiatives. Europe is also upgrading grid infrastructure to enhance flexibility and reliability, ensuring effective integration and utilization of renewable energy. Furthermore, Europe collaborates extensively with other countries and regions on clean energy tech, green finance, and carbon markets, jointly promoting global green transformation. By integrating internal markets, Europe facilitates the free flow of green products and services, creating broad opportunities for its green industries.

However, Europe’s investment activities face multiple challenges, stemming from both global economic shifts and internal structural issues.

Externally, escalating geopolitical tensions, especially events like the Russia-Ukraine conflict, threaten energy supply disruptions and trade barriers, increasing investment uncertainties. The uneven pace of global economic recovery, with some regions facing recession risks, also impacts European exports and investment decisions.

Internally, despite the EU single market offering economies of scale and efficiency, market fragmentation persists, especially in service trade and digital services, where cross-border investment and trade face obstacles. Regulatory differences and barriers among member states raise compliance costs and investment risks, dampening cross-border investment enthusiasm. The report highlights significant challenges in risk financing, technological innovation, labor supply, and balanced development, which limit Europe’s investment potential. Rising global interest rates and financial market volatility increase financing costs for European firms, especially SMEs and startups, which face greater difficulties in raising capital. Although Europe has made some progress in venture capital, the scale remains small and insufficient to meet the needs of innovative enterprises. Europe still relies on external supply chains for some critical technologies, such as semiconductors and AI, posing supply security risks. As digital and green transitions accelerate, Europe faces serious skills shortages, particularly in digital and green skills. Rigid labor markets, strict employment protection laws, and high labor costs reduce investment attractiveness. Regional disparities are also prominent, with some areas lagging economically and lacking investment appeal, leading to resource misallocation and widening gaps. Policy differences and conflicting interests among member states further complicate regional coordination, affecting overall investment effectiveness.

To address these issues, the report recommends that Europe adopt comprehensive measures in policy coordination, accelerating transformation, financing innovation, skills development, and regional balanced growth to create a more resilient and competitive investment environment. Specifically, for transformation, Europe should set long-term renewable energy development goals, ensuring continuous growth in wind and solar capacity, and invest in smart grids, energy storage, and cross-regional transmission networks to solve intermittency issues and enhance energy system resilience. Policies like the “Green Deal” should support R&D in frontier technologies such as carbon capture and hydrogen, reducing green transition costs. Utilizing EU innovation funds and programs like “Horizon Europe” can guide private capital into green industries. Additionally, support should be increased for digital technologies like AI and big data in industrial, healthcare, and transportation sectors. Investment in higher education and research institutions, promoting industry-academia-research collaboration, can accelerate technological breakthroughs and commercialization. Venture capital and startup incubators should be leveraged to nurture digital startups, aiming to build a European “Silicon Valley.” (Economic Daily Reporter Liang Tong)