Europe in the Intelligent Age 2025

What can Europe do to change its current trajectory? To become more competitive over the next 15 years and capture the value at stake, European private and public sector leaders should consider making calculated choices, recognizing that their resources cannot be spread across every frontier, and that they cannot prioritize hundreds of initiatives in the same way. Beyond dealing with the energy shock and changing geopolitical environment, which are beyond the scope of this paper, this research suggests that a three-pronged approach may help Europe begin to regain technology competitiveness: 1. Where to play and how to win: Targeted strategy for key technologies. Europe could benefit from tailoring how it invests in, deploys and adopts specific technologies. The right approach and prioritization depend on how large markets are likely to become, the strategic importance of a given technology for Europe, technology maturity and Europe’s starting point. 2. Mobilizing action: Private sector-led lighthouse initiatives to create momentum and unleash critically needed change in the investment environment. A select number of high-impact, private sector-led model projects aimed to accelerate Europe’s position within strategic technologies may help rally support for transformative change and lay the foundation for larger-scale progress. 3. Unlocking investment: Ten European public sector grands projets to create a more innovation-friendly environment. Success would require a bold commitment to public- sector initiatives that can be launched soon to materially change the investment environment within the next two to three years. The analysis behind this paper shows that to succeed, these efforts need to be focused on six priority areas for reducing Europe’s tech deficit: overcoming fragmentation and building scale, simplifying and speeding up the regulatory and permitting environment,26 increasing innovation capital and investment, driving commercialization, strengthening research and talent, and cultivating ecosystems and global leaders. Filling the tech gap could already have a material impact on Europe in 2030, with a significant compounding effect by 2040 FIGURE 3 GVA at stake represents a significant share of Europe’s welfare spend, in € trillionAnnual value at stake from lagging in tech, ¹ gross value-add (GVA), in € trillion Healthcare 1-3x of EU’s healthcare expenditures in 2022 20221.6 GVA at stake4 3 2 2x Defence 5-9x of the expected NATO spending of its European members 2024³ 20240.4 GVA at stake4 3 27x Sustainability 4-8x the annual gross investment needed to reach net-zero GHG by 20504 Investment needed 0.5 GVA at stake4 3 26x 2-4 20402030 0.5-1 2010-20² ~0.4 Tech 1. The corporate (gross) value-added (GVA) opportunity European firms could miss out on if Europe fails to improve on transversal technologies 2. Annual European GDP/productivity loss due to technology lag vs the US during 2010-20 (corresponding to gap of 0.2-0.6% in productivity growth per year) 3. Based on estimations from the North Atlantic Treaty Organization (NATO) from June 2024 using EUR/USD = 0.93 4. Based on an estimate of annual gross investment needed for Europe to reach Net Zero by 2050 in the article “The net-zero transition: What it would cost, what it could bring”, by MGI (2022) Source: McKinsey Global Institute, Eurostat, NATO Europe in the Intelligent Age: From Ideas to Action 9