The question Europe keeps asking itself is whether it can afford the green industrial revolution. It is the wrong question. The right question is why Europe is financing everybody else’s. Six trillion euro of European savings are sitting in American assets, funding American consumption and American industrial policy. Europe is not short of capital. Europe is short of the institutions that would keep its capital at home.
That capital flight is not a natural phenomenon. It is the product of an institutional architecture Europe built for a world that no longer exists. For decades, the European Union (EU) has been a regulatory state, designed to police markets rather than shape them. The architecture of the single market itself, competition law, state aid rules, the four freedoms, was designed for a world of cheap Russian gas, open Chinese markets, American security, and a multilateral trading system that worked. All four have collapsed in under five years. And yet the liberal rules that govern state aid, merger control, and cross-border capital flows still assume the geopolitical conditions of 1995.
But something is quietly changing in the EU – it is just not being said out loud. Through administrative accumulation rather than political decision, Europe is shifting from a single-market state to an industrial-policy state. The Draghi report set the diagnosis in September 2024. Since then we have had the Clean Industrial Deal State Aid Framework, CISAF, last June. A revised Block Exemption. The Industrial Decarbonisation Accelerator Act in March. Foreign subsidy rules. A procurement review coming in the autumn. Each of these breaks with the old liberal orthodoxy. Together they amount to a new regime.
But notice how this shift is happening. It is not happening through Treaty change, or through a grand political bargain. It is happening through Commission soft law: Communications, frameworks, guidelines. The plumbing is being rewired quietly, by technocrats, in Brussels. That’s a problem. A new regime built on soft law, without a Treaty anchor and without a public narrative, has nothing for voters to get behind. There is no story. There is no winning coalition. There is no mandate. And without those, the industrial-policy state cannot consolidate. It will remain provisional, technocratic, and politically vulnerable to the first serious challenge from a populist right that understands narrative better than Brussels does.
The first task is to give this new economic regime a political objective and a political narrative. The organising test should be straightforward. Does a given competition rule accelerate the decarbonisation of the European economy, or does it hold it back? That test should govern state aid, merger control, procurement, foreign subsidy screening. The fundamental target should be decarbonisation and getting off fossil fuel imports.
The second task is to see that green industrial policy is the only frame that makes sense of what Europe is actually doing. Look at the four big negotiations running in parallel. The two-trillion-euro EU budget. The Clean Industrial Deal and Draghi’s eight-hundred-billion-a-year investment gap. The Savings and Investments Union, formerly Capital Market Union. ReArm Europe, another eight hundred billion. Four negotiations. Four Council tables. Four timelines. That is how they are being treated, and it is a mistake. They are one big political conversation.
Defence rests on energy security. Energy security rests on decarbonisation. Decarbonisation rests on investment. Investment rests on fiscal capacity and capital market depth. The chain runs through green industrial policy. Nothing else connects the four with the same causal logic. And I want to be precise about why green specifically, not just industrial. Only the energy transition is, at the same time, a fiscal project, a competitiveness project, a macro-financial project, and a security project. Decarbonisation hits all four. It is also the only frame that holds a political coalition from the Greens to the centre-right, across neutral and non-neutral member states. That is its structural advantage.
The third task is the one that matters most, because it returns us to where we began. Europe’s capital is leaving. The scale of the capital haemorrhage is difficult to overstate. The European Commission estimates that roughly 300 billion euro in European savings flows to the United States every year for investment. As of mid-2025, euro-area residents held nearly 4 trillion euro in US equities, 800 billion in US sovereign debt, and 1.5 trillion in other US debt securities. Over 6 trillion euro in total. Note – those are European Central Bank figures, from last November’s Financial Stability Review.
Six trillion euro of European savings, sitting in American assets. It is European money funding American consumption. Funding American industrial policy. It is financing the very subsidies our companies are now told they cannot match. Why does this happen? Because European savers cannot find enough safe European assets to buy. The money leaves.
We already know what the answer is. NextGeneration EU worked. Common borrowing, backed by the EU budget, oversubscribed by the market. The Draghi report called for exactly this model to be made permanent. Make it permanent. Scale it. Tie it to the green industrial revolution.
Notice what this does to the competition debate. If capital flows at European scale, state aid stops fragmenting the single market. The level playing field is preserved because everyone draws on the same facility. And European industry can finally compete with American and Chinese subsidy power on equal terms.
The prize is there. The money is there. It is just in the wrong place.
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