Securing Europe’s economic and military sovereignty: productive capital as a strategic necessity
By Oliver Fiechter and Thomas Sasse
Europe is faced with a decision on direction: either it remains in the current system of capital market-driven dependence on the USA and the major banks or it develops its own sustainable economic and financial architecture.
The reforms outlined here offer the opportunity to systematically and into productive investments in an inflation-neutral manner. In this way, Europe can free itself from dependence on external investors, strengthen its economic resilience and establish itself as a technology and defence leader in the long term.
However, this reorientation requires a radical rethink of monetary policy, lending and capital allocation. Today’s structures prevent efficient financing of innovation and production. Instead, capital flows are channelled by the financial markets and large asset managers, who are primarily geared towards short-term returns – a system that runs counter to Europe’s long-term economic and security policy interests.
Capital allocation as a geopolitical power factor
Europe urgently needs productive capital both to guarantee the continent’s security and to enable European SMEs to develop and implement future technologies.
In the past, the European Central Bank (ECB) has moved in the slipstream of the Federal Reserve (Fed) by adopting US monetary policy measures with a time lag. However, this strategy is becoming increasingly problematic.
The US has specialised in directing capital flows and turned private financial institutions such as BlackRock, Vanguard and State Street into strategic players. Together, they manage assets totalling more than USD 50 trillion, equivalent to more than three quarters of US GDP, and channel the money created by the Fed into key military, technological and economic sectors. This gives the US massive geopolitical advantages, while Europe remains dependent on external financial flows.
The USA uses this model to secure technological innovation and military superiority, while Europe lacks an independent strategy for capital formation. The dependence on US investment capital means that European companies often have to relocate their research and production capacities in order to gain access to funding.
Critical future technologies are particularly affected by this. While the USA and China are specifically channelling capital into strategic areas, Europe remains underfunded in many of these sectors and dependent on third countries. This applies not only to microchips, but also to artificial intelligence, drone technology, cyber defence, high-performance computers, quantum technology and defence technologies.
The Russian war of aggression against Ukraine has shown that autonomous weapons systems, satellite communication and AI-supported surveillance technologies have long since become decisive factors in modern warfare. The USA was quick to drive forward the development of these technologies through the targeted deployment of capital. In Europe, on the other hand, there is no common financing strategy for military innovations, as capital allocation is largely left to the private financial markets.
Most critically, the Fed and BlackRock have worked together directly to capital flows in times of crisis such as 2008 or during the COVID-19 pandemic. BlackRock not only manages trillions in private assets, but was also tasked with implementing Fed programmes to buy corporate bonds and exchange-traded funds. This makes the
companies have de facto become an extension of the Fed, directing capital flows according to strategic criteria.
Whoever controls capital controls the future – and Europe is ceding this power to the USA.
Without targeted control of capital, Europe will remain vulnerable not only economically but also militarily.
Structural misallocation of capital as a core problem
Europe is not lacking in capital – the problem is that the available money is not being channelled to where it could promote sustainable growth and innovation. While small and medium-sized enterprises (SMEs) are struggling to obtain loans, huge sums of money are flowing into speculative financial markets. The strict capital requirements for banks under Basel III and IV have further restricted lending. Instead of financing productive investments, banks and institutional investors are channelling their capital into real estate, shares and complex financial products that promise high returns but do not create any real economic added value.
This imbalance has far-reaching consequences. SMEs, the backbone of the European economy, often do not receive the financing they need to invest in new technologies or production capacities. Instead, many companies have to look for capital in the USA or the UK – often on the condition that they relocate part of their business activities there. As a result, Europe is not only losing companies, but also technological expertise, innovative strength and added value.
Economists such as Richard Werner point out that the type of credit creation determines growth or crisis. In his model of disaggregated credit theory, he distinguishes between financial credit, consumer credit and investment credit. While financial loans for speculation on the markets and merely create bubbles, consumer credit leads to inflation without the
increase production capacity. Investment loans, on the other hand, are the key to sustainable growth as they create productivity and income.
But this is precisely where the problem lies: investment loans are underfunded in Europe. Banks are cautious for regulatory reasons and avoid supporting long-term investments. At the same time, debt in unproductive areas is increasing. The consequences are economic stagnation, growing social inequality and an increasing dependence on external capital.
Europe finds itself in a paradoxical situation: is an abundance of money, but it is not being channelled into the right channels. The question is not whether more or fewer loans are needed, but where they are channelled. A reform of capital allocation is overdue.
The ECB as a lever: decentralised capital formation for productive investments
If Europe wants to become economically independent, it must regain control over its capital flows. The European Central Bank could play a key role in this – not by simply printing more money, but by credit creation into productive channels.
So far, the ECB has mainly acted as a crisis manager: it has lowered interest rates, bought government bonds and pumped liquidity into the markets. However, these measures do not necessarily result in the capital being channelled to where it is most urgently needed – to companies that invest in research, development and sustainable production.
An alternative model would be the targeted promotion of investment loans by the ECB. One approach could be “Equipment as a Service” (EaaS). Instead of burdening companies with high investment costs for machines, robots, software or other means of production, a financing platform supported by the ECB would purchase the required equipment and licence it to the companies for a monthly fee. This means that SMEs only pay for the use of the equipment instead of having to raise a large amount of capital for the purchase.
The model is based on the fundamental idea that production capacities do not have to be owned by the company in order to enable economic value creation. Similar to the cloud IT world, in which companies no longer operate their own server infrastructure but book computing power and storage space as a service, industrial production could also be converted to a usage-based model. This would have several advantages: As companies would no longer have to make high initial investments, but only pay for usage, capital commitment would decrease and transformative technologies could be deployed much more quickly and across the board.
Such a system would not only be an economic step, but also a strategic one. While the USA uses asset managers such as BlackRock to channel capital in a targeted manner via centralised structures, Europe could use a modern, decentralised cooperation model that strengthens SMEs and at the same time avoids financial market bubbles. The ECB would no longer only have an indirect effect via interest rate policy, but would specifically steer investments in future technologies.
The crucial question is whether Europe has the courage to radically rethink its financial policy. The current situation is a dead end: banks are financing speculative bubbles while productive companies are struggling to obtain loans. An economy that wants to survive in the long term must actively manage its capital flows. The ECB has the tools to do this – it just has to use them.
Oliver Fiechter is the founder of the Theory of Economy 3.0. He is a publicist and expert in financing, innovation and strategic transformation. As managing partner of the investment company Kipuka, he develops alternative financing models for medium-sized companies and advocates an independent European capital market structure. He is a pioneer in the field of inflation-neutral capital formation and founder of Future Europe, an initiative for Europe’s economic sovereignty.
Thomas Sasse is a multilingual attorney specializing in corporate finance, asset management and international arbitration. He holds a doctorate in international business mediation and has served as managing director of global banks and companies in Tokyo, Singapore, New York and other financial centers. He advises the Bavarian Ministry of Economic Affairs, the City of Munich and the Indian Embassy.