Francesco Di Costanzo
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Europe's AI Sovereignty Debate Is Really About Capital Allocation

/8 min read

Sovereignty Is Financed, Not Declared

Over the past three years, Europe has engaged in an increasingly urgent debate about "AI sovereignty" - the ability to build, deploy, and control artificial intelligence using domestic infrastructure, talent, and governance frameworks. The European Union has passed the AI Act, launched initiatives such as InvestAI and the AI Factories programme, and framed digital autonomy as both an economic and geopolitical priority. Yet beneath the regulatory architecture and political rhetoric lies a more structural reality. Europe does not lack ambition, talent, or even capital. It lacks mechanisms that convert savings into scale.

The widening AI gap with the United States is not primarily regulatory. It is financial.

The Investment Arithmetic

AI at the frontier is unusually capital intensive. Training and deploying leading models requires vast compute clusters, energy capacity, data centre construction, and multi-year research cycles supported by balance sheets that can absorb uncertainty. In 2024, private AI investment in the United States reached roughly $109 billion - several multiples of Europe's total. At the same time, US hyperscalers are deploying capital expenditure at a scale that dwarfs most public programmes. Individual firms are guiding annual AI-related capex in the tens or even hundreds of billions of dollars. This is not incremental funding. It is industrial-scale capital deployment.

The European response, including a EUR20 billion facility for AI gigafactories under the broader InvestAI banner, is meaningful but modest by comparison. When a single US technology company can deploy more annual capex than a continent-wide infrastructure initiative, sovereignty becomes a question of arithmetic rather than aspiration.

Europe's Savings Paradox

The deeper issue is not the absence of capital. Europe is not capital poor. On the contrary, European households hold more than EUR10 trillion in bank deposits. Gross savings as a percentage of GDP exceed those of the United States. Mario Draghi's competitiveness report captured the paradox directly: Europe generates substantial savings but struggles to transform them into productive investment at the technological frontier. The result is a structural imbalance. Capital preservation dominates capital formation.

A significant share of European savings flows abroad each year, often into US equity markets and venture funds. Pension allocations to venture and growth capital remain materially lower than in the United States. Retail savings are concentrated in low-yield instruments. These are not irrational choices; they are the predictable outcome of a financial architecture designed around prudence, fragmentation, and bank intermediation rather than risk pooling and scale equity.

In AI, that architecture becomes binding.

The Late-Stage Cliff

At early stages, Europe performs well. Its universities produce world-class researchers. Seed rounds are funded. Technical depth is not in question. The fracture appears at scale. When European AI companies reach growth-stage capital requirements - EUR50 million, EUR100 million, or beyond - domestic pools of patient, risk-tolerant capital thin out rapidly. Foreign investors fill the gap. Relocation to the United States becomes a financial decision rather than a cultural one.

Mistral AI illustrates both the potential and the constraint. The company has raised increasingly large funding rounds and secured partnerships that provide access to compute and distribution. Its later-stage financing, including a substantial investment from a major European industrial champion, demonstrates that Europe can mobilise significant capital under the right conditions. Yet even in this success story, scaling required complex capital structuring and partnerships with global platforms to ensure access to infrastructure and market reach. The lesson is not that Europe cannot produce champions. It is that doing so requires exceptional coordination and capital mobilisation rather than the routine functioning of deep, integrated markets.

Financial Architecture as Industrial Policy

This is not a cyclical weakness. It is structural.

Europe's financing model remains more bank-centric and nationally fragmented than that of the United States. Securitisation markets are smaller. Late-stage growth funds are fewer and less concentrated. Public equity markets lack the same liquidity and recycling capacity. The Savings and Investments Union agenda recognises this gap and seeks to integrate capital markets across member states. That initiative is not a technical reform; it is industrial policy in financial form. Without deep, liquid, cross-border equity markets, technological scale will remain constrained.

China's model is different but equally capital-intensive. State-directed funds, industrial policy, and guided investment pools channel resources into strategic sectors at scale. Europe does not replicate the US model of hyperscaler-driven capex dominance, nor does it mirror China's state-coordinated financing. It sits between them, with neither balance-sheet concentration nor centralised capital mobilisation at comparable magnitude.

Sovereignty as a Financial Outcome

When an ecosystem cannot reliably fund its own AI stack at scale, dependency emerges. European companies rely on US cloud infrastructure. European startups partner with US platforms for compute and distribution. Iteration velocity - the speed at which models are trained, tested, and redeployed - is determined by those who control the clusters and the energy supply.

Sovereignty language then becomes a response to dependency. But dependency is financial before it is geopolitical.

Regulation can set standards. It can shape global norms. It cannot substitute for capital scale. The AI Act may influence governance frameworks worldwide, but it does not alter the concentration of high-end compute or the asymmetry in infrastructure investment. Sovereignty without balance sheets risks becoming branding.

What Would Move the Needle

What would materially change the trajectory is not another strategy document, but financial architecture reform.

First, institutional allocation must evolve. Even incremental increases in pension and insurance allocations to venture and growth capital would alter Europe's late-stage funding landscape. This is not about speculative excess. It is about recognising that long-duration liabilities can prudently support long-duration innovation.

Second, capital markets integration must move from aspiration to execution. Cross-border equity raising, harmonised insolvency regimes, and deeper public markets are prerequisites for technological scaling. Without credible exit pathways, risk capital will remain scarce.

Third, compute and energy infrastructure must be structured as repeatable, bankable assets. Permitting certainty, long-term offtake commitments, and blended finance mechanisms that crowd in private capital are essential. Europe may not produce hyperscalers of US scale overnight, but it can design project-finance frameworks that manufacture aggregate scale through coordinated capital deployment.

The Strategic Stakes

The stakes extend beyond AI as a sector. Over the past two decades, the productivity gap between the United States and Europe has widened, particularly in digitally intensive industries. AI will compound that divergence if capital formation remains asymmetric. Draghi's warning was not about a single technology. It was about Europe's capacity to convert savings into strategic capability.

Europe does not need to save more. It needs to invest differently.

Until savings are systematically redeployed into risk capital and productive infrastructure, the AI sovereignty debate will remain a policy conversation about a financial reality.

Sources

AI Investment Data

  1. Stanford HAI, AI Index Report 2025 - Economy. "U.S. private AI investment hit $109.1 billion in 2024." https://hai.stanford.edu/ai-index/2025-ai-index-report/economy

EU AI Policy & Programmes

  1. European Commission, "AI Act enters into force" (1 Aug 2024). https://commission.europa.eu/news-and-media/news/ai-act-enters-force-2024-08-01_en

  2. European Commission, "EU launches InvestAI initiative to mobilise EUR200 billion of investment in artificial intelligence" (10 Feb 2025). https://digital-strategy.ec.europa.eu/en/news/eu-launches-investai-initiative-mobilise-eu200-billion-investment-artificial-intelligence

  3. European Commission, "Memorandum of Understanding on AI Gigafactories" (Dec 2025). https://digital-strategy.ec.europa.eu/en/library/memorandum-understanding-ai-gigafactories

  4. Innovation News Network, "EuroHPC unveils EUR1.5bn funding for Europe's first AI factories" (Dec 2024). https://www.innovationnewsnetwork.com/eurohpc-unveils-e1-5bn-funding-for-europes-first-ai-factories/53817/

The Draghi Report & Competitiveness

  1. European Commission, The Draghi Report on EU Competitiveness (Sep 2024). https://commission.europa.eu/topics/competitiveness/draghi-report_en

  2. The Conference Board, "The Draghi Report: Where to Find 800 Billion Euros" (Oct 2024). https://www.conference-board.org/publications/the-draghi-report-where-to-find-eight-hundred-million-euros

European Savings & Capital Markets

  1. Euronews, "EU plans to channel EUR10 trillion of citizens' savings into investments" (Mar 2025). Confirms EUR1.4T annual EU savings vs. EUR800B US; EUR300B annual outflow to non-EU markets. https://www.euronews.com/my-europe/2025/03/19/eu-commission-unveils-plan-to-channel-10-trillion-of-citizens-savings-into-strategic

  2. PwC Legal, "The EU's 2025 Savings and Investments Union Strategy" (Mar 2025). https://legal.pwc.de/en/news/articles/the-eus-2025-savings-and-investments-union-strategy

  3. EFAMA, "Households continue to keep a disproportionate amount of money in bank deposits" (Jan 2024). EU household deposits reached EUR13,944B by 2022. https://www.efama.org/newsroom/news/households-continue-keep-disproportionate-amount-money-bank-deposits-most-european

  4. ECB, "Euro area quarterly balance of payments and international investment position" (Q4 2024 data). 60% of euro area foreign equity holdings in US securities. https://www.ecb.europa.eu/press/stats/bop/2025/html/ecb.bq250404~3a3bb7d212.en.html

Pension Funds & Venture Capital Gap

  1. Delors Centre, "Europe ventures forward: Getting the scaleup of cleantech right" (Jul 2024). EU pension funds allocate 0.018% to VC vs. 1.9% in the US. https://www.delorscentre.eu/en/publications/detail/publication/venture-capital-getting-the-scaleup-of-cleantech-right

  2. European Women in VC, Venture & Growth Capital in Europe - 2025 Pension Funds Report. US pensions >10% to private assets vs. Europe <0.1%. https://www.europeanwomenvc.org/report-2025

  3. CEPS, "It's finally time to leverage pension funds to foster EU productivity" (Feb 2025). https://www.ceps.eu/its-finally-time-to-leverage-pension-funds-to-foster-eu-productivity-and-benefit-pensioners/

Mistral AI / ASML

  1. ASML, "ASML, Mistral AI enter strategic partnership" (Sep 2025). EUR1.3B investment as lead investor in Series C. https://www.asml.com/en/news/press-releases/2025/asml-mistral-ai-enter-strategic-partnership

  2. Reuters, "ASML becomes biggest Mistral investor in boost to Europe's AI ambitions" (Sep 2025). https://www.reuters.com/technology/asml-becomes-biggest-mistral-investor-boost-europes-ai-ambitions-2025-09-09/

Securitisation & Financial Architecture

  1. AFME, "US and Asia Lead Securitisation While Europe Falls Behind" (Jun 2023). EU issuance at 0.3% of GDP vs. 1.4% in the US. https://www.afme.eu/news-insights/press-releases/us-and-asia-securitisation-markets-contribute-far-more-to-financing-their-economies

  2. Oliver Wyman, "How To Fix Europe's Securitization Market" (Mar 2025). EU outstanding at EUR440B vs. US ~EUR2.8T. https://www.oliverwyman.com/our-expertise/insights/2025/mar/how-to-fix-europe-securitization-market.html

Productivity Gap

  1. Banque de France, "Revisiting the European performance gap vis-a-vis the United States" (Feb 2025). EU-US gap widened in GDP per hour worked, driven by digitally intensive sectors. https://www.banque-france.fr/en/publications-and-statistics/publications/revisiting-european-performance-gap-vis-vis-united-states

  2. ECIPE, "Why Europe's Productivity Is Falling Behind" (Apr 2024). US ICT services contribute 6x more to value-added growth than in the EU. https://ecipe.org/publications/keeping-up-with-the-us-why-europes-productivity-is-falling-behind/

Hyperscaler CapEx

  1. Goldman Sachs, "Why AI Companies May Invest More than $500 Billion in 2026" (Dec 2025). https://www.goldmansachs.com/insights/articles/why-ai-companies-may-invest-more-than-500-billion-in-2026

  2. Oliver Wyman, "Europe's EUR1.2T Challenge To Secure Strategic Autonomy" (Feb 2026). 32% of EU household assets in deposits vs. 13% in US. https://www.oliverwyman.com/our-expertise/insights/2026/feb/europe-remaining-competitive-investment-challenge.html