Europe is laying the foundation for renewed economic growth. Regulatory simplification is gaining traction. Public investment is accelerating in technology, energy and defense. Private capital is supplementing these efforts. These are meaningful steps, which, in the eyes of many, are long overdue and still need to gain pace. But an additional ingredient is required. 

Our new research finds that closing the continent’s competitiveness gap requires Europe’s major companies to place a new emphasis on entrepreneurial courage: that is, the increased willingness to embrace uncertainty and take calculated risks in service of renewal and growth. Corporate leaders willing to make bold investments and engage in modern public-private collaborations, much like their American and Asian peers, stand to reap the rewards for acting decisively and with greater urgency.  

Europe’s global competitiveness is ultimately a function of individual companies making a material difference, particularly large corporations and dynamic scale-ups. And it doesn’t require many acting boldly to have a disproportionate impact. In examining a sample representing about 15 percent of the U.S. economy, the McKinsey Global Institute found that more than two-thirds of productivity growth between 2011 and 2019 was driven by just 44 ‘standout’ companies. Meanwhile, 13 standout companies drove a similar proportion of the German sample’s productivity growth during the same period. These highly valued ‘outliers’, together with differences in growth and return on invested capital, underpin much of the valuation gap between European companies and their international peers, as highlighted in research we conducted on UK capital markets.  

The status quo is not tenable.  Since the global financial crisis, Europe has endured a prolonged slump in private investment that has been especially pronounced in future-shaping industries. In the past five years alone, our analysis found that companies with headquarters in the United States have invested €2 trillion more in digital technologies such as artificial intelligence (AI) than their European peers. And in traditional manufacturing industries, China is out-investing Europe at a rate of 3:1. 

And the need to boost investments is growing: when the landmark Draghi report on European competitiveness was released in 2024, it estimated that an additional €800 billion needed to be mobilized annually to start closing the continent’s competitiveness gap. With the required additional investment in defense, that figure is now estimated to be €1.2 trillion annually for the next five years. 

Of course, the regulatory landscape is also important. The positive news over the past year is that the European Commission has implemented dozens of initiatives, from regulatory simplification to streamlining and enhancing funding and market-creation mechanisms, as well as preparing to propose a ‘28th regime’ to make it easier for companies to scale across its 27 member states. Governments are also stepping up, with growth in strategic public investment in technology, energy and defense capabilities creating tailwinds for private investment. For instance, Germany amended its constitution to exempt defense spending above 1 percent of GDP from its debt brake and established a €500 billion fund to support infrastructure and climate-neutral investment. Similar programs are taking shape in France, Italy, the Netherlands and the Nordics. 

But, while private sector activity shows some signs of acceleration, more is needed. Driving Europe’s economic vitality requires the emergence of standout companies, acting both individually and in close collaboration with the public sector. Without it, Europe risks another decade of ‘secular stagnation’: sluggish real GDP growth of around 1 percent annually as excess savings and a dearth of investment depress aggregate demand and push interest rates back to near zero. 

One example is making broader ecosystem plays, such as semiconductor company ASML joining with the Dutch government and regional partners to launch Project Beethoven, a €2.5 billion public-private investment to ensure ASML’s continued presence and expansion of the broader microchip cluster in Eindhoven. Another is re-inventing potential stranded assets to position them for the industries of the future, illustrated by the range of European utilities converting or marketing former coal and gas power plant sites for hyperscale data centers. And a clear one is radical adoption of AI and automation technologies, which MGI’s research shows could add up to 3.4 percentage points to annual productivity growth globally through 2040. 

But while public sector leaders can lay the foundations necessary to accelerate investment and growth, the continent’s leading companies are distinctly positioned to amplify this and make a critical contribution to the continent’s prosperity, security and strategic autonomy. There’s growing consensus on what needs to be done. What’s now needed is a hefty dose of entrepreneurial courage to act.