From listed equities, to credit, and even real estate, investors are starting to rediscover Europe.
The change stems partly from the extreme concentration of global portfolios. The remarkable rally in a handful of US tech stocks has left most equity investors largely invested in just one country, one currency and one sector.
Many are now asking themselves whether it is still reasonable to concentrate most of their risk there?
This shift in attitude is not based on a perception of American decline. The US remains one of the most innovative economies in the world, according to the 2025 WIPO Innovation Index. Its capital markets are unmatched, its technology companies set the pace for global innovation, and its ability to attract talent remains strong. None of this is in question.
Yet history suggests that while investment leadership cycles may last a decade or more, they eventually fade. The US dominated stock market returns in the 1990s; Europe and emerging markets led in the 2000s; then the US regained the upper hand after the global financial crisis and the European debt crisis. Now, the tide may be turning again.
These shifts often coincide with a phase in which one sector of the economy drives growth through borrowing. In the 1990s, it was corporations; in the 2000s, it was US households; today, it is the state. Since 2009, the US has run an average fiscal deficit of 6.4% of GDP, the highest among advanced economies. Public debt has risen from 87% to 124% of GDP, an increase of 37 percentage points (see Fig. 1).
Even assuming a conservative multiplier, this fiscal expansion has added around 0.5 percentage points to US growth each year. US exceptionalism therefore stems not only from innovation but also from fiscal leverage. But for all these gains, such deficits cannot be sustained.
The inevitable fiscal consolidation is likely to transform the policy backdrop from a tailwind to a drag on US financial markets.
Public debt, % of GDP
Source: Pictet Asset Management, CEIC, LSEG. Data covering period 01.01.2008-01.01.2025.
European investment boom
In contrast, Europe is now in a position to spend and invest more to drive its economy – and boost the value of European assets. Over the same period, public debt in the European Union has increased by only 7 percentage points.
Europe suffers less from a technology deficit than from a financing and scaling-up deficit. This weakness is visible all along the innovation chain, from research to mass production. Regulation is particularly troublesome.
Some 69% of European companies cite regulation as a major constraint, compared with 54% of US firms; 45% consider access to finance insufficient, versus only 29% across the Atlantic.EIB Investment Survey 2025: European Union overview.
Europe’s challenge, thus, is not generating ideas, but capturing their economic value. This is precisely where policy is beginning to change.
Landmark reports by former Italian prime minister Enrico Letta on strengthening and deepening the EU single market, and by former European Central Bank president Mario Draghi on boosting Europe's competitiveness and growth are being translated into concrete measures: a savings and investment union, deeper capital markets, regulatory simplification, a ramp-up in defence spending, and an acceleration of industrial policy.
Above all, Europe is preparing to deploy a fiscal lever that has long been underused. With public debt as a share of GDP running some 30 percentage points below US levels, the scope for catch-up is real. Almost 15% of EU GDP is expected to be invested over the next decade, around one-third of it coming from Germany, in sectors where this spending could have a strong impact on productivity such as defence, infrastructure, AI and the green transition. If these amounts are deployed quickly, European growth could more than double over the next three to five years, to 2%–2.5%, according to our analysis.
Progress on energy, defence and banking
The energy transition already provides a glimpse of what could be achieved. Since 2020, solar electricity production in Europe has increased by more than 20% per year, with a large-scale investment cycle in grids, infrastructure, storage and industry. Defence spending is moving in the same direction: over the same period, Europe’s share of global military spending has risen from around 16% to nearly 20%.
Financial integration is also accelerating. In 2025, European bank mergers and acquisitions reached their highest level in more than a decade, and momentum has continued in 2026. Cross-border deals — BPCE–Novo Banco, Erste–Santander Polska, BAWAG–PTSB — are gradually shaping a more integrated banking market.
Together, industrial consolidation and regulatory convergence are strengthening the ability of Europe’s banking system to finance investment and transmit the benefits of financial integration.
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EU investment 15%
of EU GDP to be invested over the next decade
We believe Europe is on track to become a credible source of growth, profits and innovation.
Leveraging household savings
Another economic boost could come from individual investors. Europe is beginning to mobilise what may be its most underestimated asset: household savings. In the euro zone, households save more than 16% of their disposable income, compared with around 3% in the US. This abundant pool of savings, long misallocated, is gradually becoming a macroeconomic lever. Government-initiated schemes are proliferating across the euro area with a common objective: connecting household savings to corporate financing needs.
Of course, many challenges remain: fragmented capital markets, slow reforms, and the absence of a risk-free asset comparable to US Treasuries. But markets do not require perfection; they look for improving fundamentals when expectations elsewhere become excessive.
We believe Europe is on track to become a credible source of growth, profits and innovation. The great rebalancing would then not be a story of US decline, but of a world in which diversification drives investment performance — and in which Europe is a key pillar of global portfolios.
