Is a new European renaissance possible?

The Renaissance period, which spanned the 15th and 16th centuries, stands out as a golden age of European innovation. Along with breakthroughs in the arts, medicine and world exploration, this transformative period brought us the printing press, the mechanical clock, telescopes and microscopes — and even the scientific method itself. 

But since the turn of the millennium, Europe has fallen behind, lagging its peers in both economic growth and innovative advancements. Simply put, stagnancy has been the defining feature of the European economy in recent years. 

But, in our view, it doesn’t have to be this way — Europe can start flourishing again. Here are five factors shaping its economic future and our view on whether a new European renaissance is possible: 

1. Deregulation 

Dismantling stringent and complex regulatory frameworks that can discourage innovation is a key first step to economic rebirth. Too often, European governments see anything new as a threat to be regulated rather than an opportunity. For example: 

• Climate change and green energy: Europe has made considerable strides in advancing its  energy transition, but a complex, uncertain and fragmented regulatory environment poses considerable barriers to rapid progress. 
• Artificial intelligence: The only AI-related area in which Europe has led the way is regulation. In June 2025, the European Union (EU) passed the AI Act, which consists of over 100 pages of dense legal text,¹ acting as a deterrent to private equity investment.  
• Health care and labor: Employee-protection laws in certain countries can disincentivize productivity and flexible responses to economic shocks. And the out-of-work benefits that some European countries offer hardly help keep the continent competitive — especially when combined with demographic decline, aging populations and falling fertility rates. 

Bottom line: The regulatory landscape has to change if Europe wants to cultivate innovation to stimulate growth. 

2. Innovation 

Beyond regulation, Europe’s capacity for innovation is constrained by its complex patent system and the way in which its research universities handle breakthroughs.  

In the U.S., patents are generally more widely applicable and more easily defended, which provides considerable incentives for innovators. By contrast, Europe’s narrower focus offers fewer prospects of reward. 

There is a similar disparity between the European and American innovation ecosystems. In the U.S., universities and associated startups are allowed to retain the intellectual property and patents they create with federal funding — thus incentivizing commercialization of new technologies. Individual researchers in the U.S. are also typically rewarded with profit shares that outstrip those available in Europe, encouraging the advancement of bold ideas. 

On top of that, U.S. universities tend to benefit from “clustering” — like in Silicon Valley and Boston-Cambridge — and also have sophisticated technology transfer offices that accelerate the commercialization of research. Add to this a much bigger venture-capital industry, and it’s easy to see how the U.S. has an edge. 

Bottom line: What innovation there is in Europe tends to be concentrated in traditional industries — automobile manufacturers, in particular — rather than in the new industries that are the crucible of so much creativity in the U.S. Practices, systems and mindsets all need an overhaul. 

3. Energy 

The third piece of the puzzle is energy. Here the questions involve supply, security, cost, Russia and the green agenda. Investments in renewable manufacturing capacity have been sluggish, and there’s an urgent need for an acceleration of the process to allow the continent to benefit from natural resources such as wind. Meanwhile, the rejection of nuclear energy and a longstanding dependency on Russia for oil and gas has left Europe to deal with an energy crisis. Currently, Europe faces steep electricity and natural gas costs, which have obvious consequences for its competitiveness. 

Bottom line: The deregulation of energy investment is an important step for Europe to become more competitive as it would allow the building of new infrastructure to proceed at pace and scale.  

4. Defense 

Europe’s historical lack of spending on defense has recently become a critical issue with the Ukraine-Russia conflict highlighting vulnerabilities in the continent’s military capabilities. With geopolitical tensions heightened, Europe now appears poised to reinvest in its own defense. Below are a few examples:

• EU: On March 4, European Commission chief Ursula von der Leyden announced a plan to increase defense spending by €800 billion over the remainder of this decade.  
• Germany: On March 21, Germany’s incoming chancellor, Friedrich Merz, passed a budget bill through the German parliament that removes the country’s “debt brake” from higher defense spending. This lays the groundwork for a package of €1 trillion to be split between infrastructure and rearmament. 
• NATO: At the June 2025 North Atlantic Treaty Organization (NATO) summit, the allies pledged to spend 3.5% of GDP on core defense and 1.5% security-related investments. Prior to this, projected increased defense spending was more uneven. 

Bottom line: The recent geopolitical conflict in Europe has highlighted the need for increased defense spending, which could greatly influence the continent’s economic picture moving forward. 

5. Demographics and productivity 

Population and productivity trends are closely linked. Europe’s workforce is set to shrink by 2 million people a year beginning in 2040.² So the continent needs to either import more people or close the gap through increased productivity. Immigration is politically fraught, however; it’s a solution for a growing economy rather than a stagnant one. 

To boost productivity, taxation on entrepreneurs and investment returns needs to be reduced. Europe’s system of taxation seems to stifle intellectual and economic creativity. By letting creators keep more of their spoils, we could have more spoils altogether. 

Bottom line: To offset demographic trends, technology offers the prospect of improved productivity — but only if Europe unshackles its innovators.  

Source: United Nations Data Portal Population division as of Dec. 31, 2024, population.un.org