The Case for a Continental Capacity State: Saving Europe’s Competitiveness

Europe doesn’t lack plans; it lacks delivery. This essay makes the case for a “continental capacity state” that can execute at scale - harmonising capital markets, accelerating grid build-out, aligning the AI Act with compute and power, and de-risking without deindustrialising. Drawing on Draghi, the OECD, Bruegel, IEA and I4CE, it sets out how Europe can convert strategy into growth, resilience and technological leadership by 2030.

Europe does not suffer from a poverty of plans; it suffers from a poverty of execution. That is the uncomfortable through-line of Mario Draghi’s competitiveness review for the European Commission (2024/25) and of the most serious commentary that has followed it. For a quarter-century we have perfected the art of the strategy state (drafting roadmaps with poetic ambition, from Lisbon to REPowerEU) while the rhythms of daily economic life move to a less exalted beat: grid build-outs that stall in permitting queues, capital markets that fragment along national lines, scale-ups that decamp to deeper pools abroad, an AI ecosystem long on governance and short on compute. The paradox is stark. A continent superb at designing rules and principles struggles to build at speed and scale. If we care about prosperity and strategic autonomy, our question cannot be “What new strategy should we write?” It must be: “What institutions will get things done quickly, consistently, and across twenty-seven jurisdictions?”

Draghi’s report does not shy away from the scale of the task. He calls for a step-change in investment, a deeper Single Market (now explicitly including network industries like energy and telecoms) radical simplification of rules, and a competitiveness mindset embedded across portfolios. More pointedly, he warns that the cost of inaction is now measured in lost growth and shrinking geopolitical agency. The OECD’s Economic Surveys: European Union and Euro Area 2025 reinforces the diagnosis in the cool prose of officialdom: services markets remain balkanised; productivity growth has flat-lined; energy costs are structurally higher than in the United States; the remedy is well known: complete Capital Markets Union, accelerate permitting, integrate power systems, and scale private risk capital. The European Commission’s Annual Single Market & Competitiveness Report 2025 is, if anything, more candid, documenting that industrial electricity prices have been multiples of US levels since the energy shock and that financing frictions still hobble European firms in their growth phase. None of these are novel observations. The novelty is the near-consensus that the constraint is not strategy but capacity.

“Europe must mobilise more equity-like risk capital at home or watch its most ambitious firms grow elsewhere.” 

Energy makes the point in the clearest way because it is so tactile. Bruegel’s work by Ben McWilliams, Simone Tagliapietra and Georg Zachmann has traced a persistent price gap with the US since 2022: European industrial electricity has been roughly double to triple US levels on average, while gas has often been a multiple of US Henry Hub. The International Energy Agency’s Electricity 2025 and its mid-year update show wholesale prices easing from the crisis peak but still elevated and volatile by historic standards, a volatility that translates into risk premia for industrial users. The European Court of Auditors, in a 2025 review of grid readiness, is blunt: planned investments and permitting performance are insufficient to integrate the renewables Europe is already auctioning; bottlenecks at interconnectors and substations are delaying connections and driving curtailment. We have, as the line goes, the law, but not the lines. The Commission has begun to speak the language of physical constraint, trailing a European “Grids Package” and identifying the cross-border corridors that will make the greatest difference, but until auction-to-connection times halve, the price gap with the US will be a competitiveness tax that no amount of rhetorical flourish can offset.

Hydrogen illustrates the same execution deficit. Targets have multiplied; final investment decisions have not. The IEA’s latest hydrogen outlook trims 2030 expectations because projects are slipping or being shelved amid slow permitting and unclear offtake. National operators now concede multi-year delays to elements of Europe’s hydrogen backbone. One need not litigate the merits of every electrolyser to see the pattern: we are good at missions; we are slow at plumbing. A European authority with the mandate to fast-track cross-border network infrastructure (electricity, hydrogen, data) would not negate local consultation or environmental safeguards; it would sequence them against firm time limits, coordinate impact assessments across borders, and deliver a single adjudication for assets that traverse multiple jurisdictions. Europe has done versions of this before in its own idiom: the Coal and Steel Community and Euratom were not mere compacts of principle; they were administrative machines designed to pool capacity precisely where scale mattered.

Capital markets tell the same story in a different register. The Listing Act (adopted late 2024, phased through 2026) trims prospectus burdens and modernises market-abuse rules. ESMA and the Commission are steering a move to T+1 settlement on 11 October 2027, aligning with the US and reducing friction in cross-border trading. Euronext’s European Common Prospectus (April 2025) has emerged as a market-led standard in English to streamline listings while EU law catches up. These are real advances, asked for by practitioners for years. But they remain plumbing, not the water main. As the European Parliamentary Research Service has long argued, twenty-seven insolvency codes, divergent tax treatments and supervisory dissonance still deter the cross-border equity that scale-ups need. The consequences show up in headlines: CRH moved its primary listing to New York in 2023; Smurfit Kappa merged with WestRock and listed on the NYSE in July 2024; Klarna’s IPO choice this year followed the same gravitational pull. Each firm has its reasons; collectively they point to depth, speed and scale. The European Investment Bank’s Investment Report 2024/25 and the ECB’s recent analysis of green-investment needs converge on the same institutional moral: Europe must mobilise more equity-like risk capital at home or watch its most ambitious firms grow elsewhere.

“The conclusion is not that regulation is the enemy of innovation; it is that rules and capacity must grow together.”

Digital policy is where our self-image collides most visibly with the data. On governance, Europe is first mover. The AI Act sets obligations for general-purpose AI from 2 August 2025; the Commission has published GPAI guidelines and a Code of Practice to help providers demonstrate conformity; the Digital Markets Act and Digital Services Act are now deep into enforcement cycles. Yet Stanford’s AI Index 2025 records only three notable European foundation models released in 2024 versus forty in the United States and fifteen in China - a stark proxy for the scale of compute, talent and capital commanded by ecosystems abroad. The conclusion is not that regulation is the enemy of innovation; it is that rules and capacity must grow together. If Europe intends to regulate GPAI on that August timetable, it must align procurement, permitting and power with the same urgency (accelerating data-centre connections, building sovereign-grade compute, and backing cross-border fibre and cloud), so that law and infrastructure mature in tandem.

De-risking adds another layer of institutional complexity. The European Commission has become more assertive in using its trade-defence toolkit, imposing anti-subsidy duties on Chinese battery electric vehicles in late 2024 and moving against subsidised mobile access network equipment in 2025, while tightening inbound investment screening and consulting on outbound risks as part of the economic-security agenda. Beijing has replied with provisional anti-dumping duties on EU pork, concentrating the pain in Spain, the Netherlands and Denmark. Whatever one’s view of the merits in each instance, de-risking is not a paragraph in a strategy. It is a long march through institutions: the customs code, the courts, the competition authorities and the diplomatic stovepipes that must be knitted to industrial policy. That work is the essence of capacity.

What, then, is the argument? It is that Europe’s competitiveness crisis is not a strategy gap but a capacity gap, and that closing it requires building what may be called a continental capacity state. By this I mean, in one sentence, a European architecture of delivery that invests in, coordinates and standardises the enabling systems (capital, standards, infrastructure, skills and procurement) necessary for private scaling, with accountability and iterative feedback built in. The lens is not novel out of thin air; it sits squarely in a line of scholarship that distinguishes the scope of a state from its strength (Francis Fukuyama), emphasises industrial policy as a process of discovery with firms rather than top-down selection (Dani Rodrik), and frames missions as successful only when agencies, budgets and learning institutions can hold risk over time (Mariana Mazzucato). The ambition here is to translate that theory into European practice.

“The only credible answer is rules and a relentless focus on crowding in private capital rather than supplanting it.”

To make the case responsibly we must face the counterarguments squarely. The first is democratic legitimacy. Who decides that a Brussels-level permitting authority should trump local objections to pylons or substations? The correct answer is not technocratic impatience but constitutional design. A capacity state worthy of the name must be radically transparent, publishing real-time dashboards of permitting timelines, auction outcomes, grid connections and reasons for delay; subjecting itself to parliamentary oversight at EU and national levels; and establishing ex-post evaluation with consequences. Citizens should know where a project sits in the queue, what standards it must meet, and who is accountable when it slips. The second counterargument is ordoliberal: that a muscular execution agenda corrodes the Single Market by normalising discretionary intervention and state-aid carve-outs. Here the remedy is to bias the programme toward horizontal public goods (grids, interconnectors, data standards, training pipelines) and to make any targeted support strictly time-limited, contestable and clawed back upon under-delivery. Bruegel and the Jacques Delors Centre have both warned that unbounded state aid risks a subsidy race; the only responsible response is to embed sunsets and transparent yardsticks from the outset. The third critique is prudential: common financing instruments risk moral hazard and fiscal drift. The only credible answer is rules (narrow mandates, no-bailout clauses, automatic sunsets absent renewal) and a relentless focus on crowding in private capital rather than supplanting it.

The causal chain linking execution to competitiveness must also be explicit. In energy, delayed interconnection and grid reinforcement increase curtailment and reduce capacity factors, which in turn raise the blended cost of power to industry; volatility adds a risk premium to corporate hedging costs. The IMF’s recent euro-area work and the European Court of Auditors both make this logic concrete. In capital markets, T+1 and the Listing Act reduce settlement and documentation frictions, which should lower transaction costs and shorten IPO cycle times; but only insolvency convergence, tax neutrality for cross-border investment and supervisory alignment can shift the financing mix materially towards equity. The Commission’s “Savings and Investments Union” framing is correct; the task is to turn that frame into law and lived practice.

A further objection is aesthetic as much as analytical: does speed not threaten deliberation, the very virtue Europeans claim as a constitutional asset? Sometimes it does. But in a world where the United States moved from bill to billions under the Inflation Reduction Act within a year, and where China can erect entire battery supply chains in months, speed has become a form of sovereignty. The task is not to abandon consent but to compress processes that have grown baroque with good intentions and overlapping veto points. Well-designed “fast lanes” with clear thresholds, public reasoning and hard deadlines protect both legitimacy and competitiveness. Capacity is not the enemy of democracy; it is the condition of democratic agency in a century in which time is the scarcest political resource.

“None of this requires a constitutional revolution. It requires disciplined functionalism: building delivery institutions with mandates to act where scale is decisive and time is of the essence.”

What would success look like by 2030 if we took this argument seriously? It would not be another strategy document. It would be facts on the ground that alter cost curves and risk appetites. Interconnectors through the Pyrenees and across the Øresund would quietly do their work; auction-to-connection times for renewables would be half today’s; the EU’s hydrogen backbone would be in service along priority corridors; the European compute backbone would be powered by newly reinforced cross-border substations; the price gap with US industrial power would have narrowed materially; procurement agencies would be bundling cross-border demand for next-generation grids, storage and semiconductors; a handful of European AI labs would be training frontier-class models on EU soil; and climate-tech and deep-tech IPOs would stay in Amsterdam, Frankfurt, Paris and Milan because cross-border equity pools are deep and liquid. None of this requires a constitutional revolution. It requires disciplined functionalism: building delivery institutions with mandates to act where scale is decisive and time is of the essence.

There are already fragments of that machine on the table. The Listing Act and the 11 October 2027 T+1 date are not ends in themselves; they are pieces of a capital-formation pipeline that must culminate in thicker equity markets. The AI Act’s GPAI timeline is not a trophy; it is a synchronization point around which compute, power and data infrastructure must be built. The Commission’s “Grids Package” is not a press release but, potentially, a test of whether we can move from target-setting to corridor-building with the urgency that the IEA and the European Court of Auditors say is required. The Antwerp Declaration, signed by more than 1,300 firms and associations, voices industry’s side of the social contract: predictable rules, faster permits, cheaper energy, a truly unified market. The EIB’s Investment Report 2024/25, the ECB’s green-investment work and the OECD’s survey add the macro-financial scaffolding: you cannot finance a continent-scale industrial pivot on bank credit alone.

If there is a single sentence with which to close, it is this. Europe’s future now hinges less on inventing new doctrines than on building the continental machinery that can deliver the ones we have already chosen. Draghi’s review, the OECD’s 2025 Survey, the Commission’s 2025 Competitiveness Report, Bruegel’s energy-price work, I4CE’s State of Europe’s Climate Investment, the IEA’s Electricity 2025, Stanford’s AI Index 2025, ESMA’s T+1 timetable and Euronext’s European Common Prospectus, taken together, do not call for more lyrical policy. They call for prose: capital that moves across borders without being taxed by legal incoherence; corridors that are permitted and built on calendar time rather than geologic time; agencies that learn and correct in public. The world will not judge Europe by the elegance of its strategies, but by whether, by 2030, it has become less of a museum of beautiful plans and more of a workshop of realised ambitions.

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