Europe’s AI ambitions are running into a markets plumbing problem
The region lacks the depth of long-dated investment capital needed to fund required energy infrastructure
Europe’s ambitions to build out artificial intelligence, data centre and energy infrastructure are colliding with an awkward — and familiar — financing reality: the continent lacks the depth of long-dated investment capital needed to fund them.
The challenge is formidable. Europe may need to invest €3tn over the next five years in digital and energy infrastructure, according to EU estimates — and before defence and national security. Meeting that demand will require funding from every corner of the financial system: public markets, banks, governments and private capital.
The base case is uncomfortable: Europe’s gap relative to the US continues to widen. But a trio of developments — a pivot by private credit firms, regulatory recalibration and renewed international investor interest — could help shift the balance in favour of investors financing hard assets. For instance, there was a 40 per cent rise in private credit fundraising in the region last year, according to Preqin.
Europe’s difficulty is not a lack of savings. The failure is in financial plumbing, bureaucratic regulation and risk appetite. Europe’s banks are in their strongest shape in decades yet remain ill suited to finance assets with very long duration. Meanwhile European insurers are hemmed in by regulation. Securitisation markets remain anaemic. Bond markets and project finance can do a lot, but they can only go so far.
Nowhere is the financing problem clearer than the securitisation market which is a natural home for data centre funding. Europe’s pipes are badly clogged. Since 2018, securitisation of US data centre debt has totalled $63.6bn, according to JPMorgan — $27bn of that in 2025. The EU has managed just $0.8bn. Investors expect data centres to be the largest source of issuance in US markets in 2026. Meanwhile Europe has barely begun.
If Europe cannot fund even these strategic assets at scale, it is hard to see how it can keep pace more broadly. A key part of the problem is that insurers — the natural buyers of senior securitised tranches — have been straitjacketed by Solvency II capital rules which came into effect in 2016. European life insurers currently hold just 0.4 per cent of their portfolios in securitisations, compared with 17 per cent for their US peers. While well intentioned, the unintended consequence of Solvency II is Europe’s largest pool of patient capital is severely curtailed.
There are tentative signs of regulatory movement. Brussels is reviewing aspects of securitisation and insurance rules, and several member states are pushing for more flexibility to finance energy transition and digital assets. None of this is yet settled, and the current proposals still fall short of what the scale of Europe’s capital expenditure challenge demands. But as the penny drops about the magnitude of the investment gap, the pressure to go further is likely to intensify.
The scale of infrastructure financing will call for private credit to be part of the solution. Leading private credit firms were already pivoting away from mid-market and buyout loans towards financing the kind of hard assets needed for data centres, grid upgrades or renewable energy. US insurers, seeking long-dated, steady returns, are a driver of this development.
This is accelerating a quiet reshaping of Europe’s infrastructure funding model. Banks and private credit funds are starting to partner to originate and syndicate risk. Expect these collaborations to multiply as balance sheet constraints bite and investors search for yield with duration.
Banks will also look to recycle their capital to unlock lending capacity beyond infrastructure. Asset-backed lending is a €5tn market in Europe, with more than three-quarters of it held on bank balance sheets, according to Oliver Wyman estimates. Some of these assets fit well in investors’ portfolios.
None of this will be risk-free. It is hard to imagine Europe deploying several trillion of capital without some mishaps. But policymakers need to be clear headed that if the exposures are broadly diversified among investors, it will be far less risky than if concentrated just on bank’s balance sheets. Alternatively, failing to fund the investment will hold back Europe’s growth. As Ana Botín recently argued in the Financial Times, “low growth is now Europe’s biggest financial-stability risk”.
Europe cannot deliver on its AI, energy and industrial ambitions without deeper and more robust capital markets. For investors able to supply long-dated capital, the prize lies in financing, and earning durable returns from, the overhaul of Europe’s financial plumbing.