Europe’s strange inability to put its money to work
In his Free Lunch newsletter column, Martin Sandbu starts from how quickly US AI companies such as Anthropic (5 years old) and OpenAI (11) are heading for giant public offerings, and asks why Europe fails to scale companies of its own. Using charts from the Draghi competitiveness report, he shows Europe invests less than the US in both private non-housing and public investment, and that Europe's banking sector (assets to GDP) has grown far larger than those of the US and even Japan at its peak, a divergence that started around 1980. A Bundesbank report finds the median market-based share of eurozone corporate debt and equity financing is only about 20%, against roughly 40% of debt capital and 60% of equity capital from markets in the US. VC and early-stage investment is many times larger in the US as a share of the economy, and Sandbu estimates the VC gap explains one-third to one-half of the Europe-US productive investment gap in the Draghi chart. An ECB survey from last month shows about a third of euro area household savings, nearly €10tn, sit in cash and low-yield bank deposits, and 80% of households own no stocks or market-based instruments; US households hold only 11% of financial assets as deposits, and among the richest 20%, over 65% in the US hold listed shares, bonds or funds versus under 45% in the euro area. With a current account surplus of about 2% of GDP, Europe effectively sends its savings abroad; redirecting less than a third of that surplus would close the VC gap with the US. His conclusion, as the author's view: money is not Europe's macro problem; the way it is intermediated is flawed, and the single market still has invisible barriers. Caveats he flags: the OECD warns VC is not measured consistently across countries (Sandbu says alternative data shows a similar picture), market-based financing shares vary a lot between European countries, and the column offers a diagnosis rather than specific policy proposals.
Why it matters
This is the clearest data-backed case for why European startups run out of growth capital: the gap is not savings but how they are channelled, with nearly €10tn idle in deposits and a VC gap that Sandbu says accounts for up to half of the transatlantic investment gap. It gives hard numbers for the savings-and-investments-union and pension-reform debate that Dealroom's own European VC data feeds into.
Executive takeaways
Thesis (author's view): Europe has plenty of money; its financial intermediation is the problem, plus hidden single-market barriers. | • Market finance: median ~20% of eurozone corporate debt and equity financing from markets (Bundesbank) vs ~40% of debt and ~60% of equity in the US. | • VC gap: VC/early-stage investment many times larger in the US relative to GDP; Sandbu says it explains one-third to one-half of the Draghi-chart investment gap. | • Savings: nearly €10tn (about a third of euro area household savings) in cash and low-yield deposits; 80% of households own no market instruments; US households hold 11% of financial assets as deposits. | • Wealthiest 20%: >65% hold listed securities or funds in the US vs <45% in the euro area. | • Surplus: current account surplus ~2% of GDP; redirecting under a third would close the VC gap. | • Caveat: OECD says cross-country VC data may be unreliable; national differences are large.
What Financial Times may be missing
The column is a diagnosis, not a plan: it does not assess the concrete fixes on the table (savings and investments union, pension and auto-enrolment reform, the 28th regime), how long they would take, or why previous capital markets union efforts stalled. The 'one-third of the surplus closes the VC gap' arithmetic assumes the money could be redirected into risk capital, with no discussion of whether Europe has enough fund managers, exit routes (IPO markets, acquirers) or later-stage pipeline to absorb it. It also leaves out demand-side reasons for lower investment, such as regulation, energy costs and fragmented customer markets, and treats the eurozone as one block while noting that countries differ widely.
