Mario Draghi, former president of the European Central Bank (ECB), left, and Ursula von der Leyen, … [+]
Former European Central Bank head Mario Draghi’s report on Europe’s competitiveness calls for €800 billion in annual innovation investment, mostly from private venture capital. Experts have argued that tokenization could unlock trillions in private credit, including venture capital. However, the report is fixated on top-down approaches: traditional banking intermediation, a banking union, scaling banks, and centralized EU-led solutions. Draghi overlooks tokenization and other decentralized finance bottom-up approaches as part of the solution to fund Europe’s much-needed investment in innovation.
Competitiveness in Decline
Between 2008 and 2021, nearly 30% of European unicorns relocated their headquarters abroad, primarily to the U.S. During the same period, real disposable income in the U.S. grew at twice the rate of Europe’s. As Europe’s competitiveness and productivity continue to decline compared to the U.S., Draghi warns of an existential challenge, calling for growth through innovation. Europe needs significant investment in research and innovation, which could come from public or private funding or a combination of both. Since Europe already outspends the U.S. in public funding—0.74% of GDP versus 0.65%—the real issue lies in its underdeveloped private venture capital market, which lags behind U.S. funding levels by a wide margin.
Top-Down Approach
To close this investment gap, Draghi proposes mobilizing private credit, partly through joint EU debt, aiming to ‘unlock’ venture capital. However, the report seems to overlook key emerging technologies, such as tokenization, which experts argue could unlock trillions in venture capital and reduce reliance on traditional banks. Instead, the report focuses on traditional banking, scaling banks, an EU banking union, and centralized EU-led tech preferences and solutions, failing to harness decentralized technologies that could transform Europe’s approach and democratize innovation funding.
A Dated Strategy
Despite covering various sectors like digitalization, advanced technologies, and clean tech, the 397-page report fails to mention decentralized finance, tokenization, or other foundational shifts reshaping global finance. In fact, the word “bank” appears 56 times, while AI is mentioned 21 times, but tokenization isn’t mentioned at all. This omission seems to stand in stark contrast to today’s economic reality. As noted last week by John Schindler, Secretary General of the Financial Stability Board, tokenization, AI, and non-bank financial intermediation are the three forces transforming the future of finance. Yet, tokenization, decentralized finance, and crypto—often unpopular with central bankers—are conspicuously absent from Draghi’s vision.
Future of Europe’s Finance
The core challenge in funding innovation lies in increasing access to European venture capital, both from individuals and institutions. By ignoring decentralized finance and tokenization, Europe would risk missing an opportunity to modernize its financial system. These technologies could reduce reliance on traditional banks and public funding while unlocking more private venture capital through non-bank intermediaries.
Draghi’s emphasis on issuing joint EU debt to mobilize private credit for innovation feels more like an attempt to achieve a “Hamilton moment“—using financial measures to drive political integration—rather than exploring all available options for fostering growth.
Embracing Financial Transformation
If Europe is to seriously confront the “existential challenge” that Draghi outlines, it must adapt to the emerging financial reality of decentralized finance. The report’s reliance on scaling banks, centralizing control, and issuing joint debt feels outdated in today’s rapidly evolving digital reality. Europe’s future competitiveness hinges on embracing the financial technologies that are already reshaping the global landscape.
As John Schindler pointed out, tokenization and non-bank credit are at the forefront of financial transformation. By failing to recognize and integrate these shifts, Europe risks falling further behind, relying on models ill-suited to the demands of the digital age. Europe’s ability to compete globally will depend on adopting a financial system designed for the 21st century.
