Stalled growth, a strained planet: can Europe still afford the transition?
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Speed-read: As growth stalls and climate demands skyrocket, European finance must reinvent itself. Balancing profitability, impact, and social cohesion is no longer a luxury, it’s an urgent necessity. |
1. Europe slows down: the return of the “economic malaise”
Europe is once again freezing in near-zero growth. According to the European Commission’s latest projections, the eurozone is expected to grow by only 0.9% in 2025. Germany, the region’s industrial engine, is flirting with recession, while France and Italy barely hover above stagnation.
This slowdown isn’t cyclical; it’s structural. Europe faces:
- declining productivity,
- an aging population,
- continued energy dependency,
- and a chronic reluctance to invest in innovation and human capital.
Behind it all, the European social model, generous but costly, rests on increasingly fragile economic foundations. The burning question now is: how can Europe finance its social and ecological ambitions in an era of weak growth and record debt?
💬 “We can’t finance the transition without growth — but growth itself must now be compatible with the transition.”
This tension, seemingly unsolvable, defines the entire European economic debate today. Between the post-Covid “whatever it takes” fiscal largesse and Brussels’ renewed push for budgetary discipline, governments are walking a tightrope.
2. Sustainable finance: Between promise and paradox
Amid this impasse, many see sustainable finance as a potential lifeline. Green bonds, ESG funds, and now transition finance are mobilizing hundreds of billions of euros. But are these flows truly commensurate with the challenge, and, more importantly, do they deliver real impact?
Europe has taken a regulatory lead with the EU Green Taxonomy, the CSRD directive on non-financial disclosure, and the integration of ESG criteria into asset management. Yet too often, sustainable finance remains an exercise in compliance, not conviction.
Three weaknesses stand out:
- Greenwashing: companies “paint” their accounts green without genuine transformation.
- Lack of standardization: ESG labels and metrics remain vague and inconsistent.
- The rhetoric-action gap : genuinely transition-aligned investments still make up a small fraction of portfolios.
That’s where a new concept emerges: transition finance. Instead of excluding “dirty” sectors, it aims to accompany their transformation, financing the modernization of a steel plant, the decarbonization of maritime transport, or the energy retrofit of the building sector.
This more pragmatic approach acknowledges an inconvenient truth: you can’t decarbonize the economy by cutting 80% of industry off from financing. Yet it also raises a key concern: how do we prevent “transition” from becoming the new excuse for inaction?
3. Toward a new European financial and social contract
Beyond data and indices, this is a question of economic philosophy. Europe must redefine the connection between finance, the real economy, and social cohesion. Because behind interest rates, ESG scores, or recovery plans lies a deeper battle: the future of the European social contract.
That post-war contract rested on three pillars: growth, redistribution, and stability. Today, all three are wobbling:
- Growth is stagnating,
- Redistribution is increasingly costly,
- Stability is threatened by widening social and political divides.
Finance can, and must, become a tool for cohesion rather than a driver of inequality. That means acting on several fronts:
- Channeling private savings (notably the €10 trillion idling in European bank accounts) into projects of collective value, green infrastructure, housing, education.
- Rewarding patient capital, through tax incentives for long-term investment.
- Enhancing transparency and traceability in sustainable funds, ensuring every euro invested demonstrates measurable utility.
But this is not just about financial engineering. It’s also a political and societal choice, to accept that performance can no longer be measured solely in short-term returns, but in sustainable contribution.
🧩 The 21st-century challenge is not choosing between profit and planet, it’s inventing a model where one sustains the other.
4. The window of opportunity
The good news? The momentum is shifting. European institutional investors, increasingly attuned to the idea of double materiality (financial and societal), are realigning their portfolios. Governments are beginning to tie subsidies to measurable outcomes. And companies, under pressure from talent and consumers alike, are embedding sustainability into their core strategies.
But time is short. Each month of weak growth or delayed investment makes the transition more expensive and more complex.
Europe faces a clear choice:
- either undergo the global transformation,
- or finance it smartly, leveraging its strengths, institutional stability, deep capital markets, and social conscience.
Conclusion: The courage to invest differently
Europe no longer has the luxury of opposing economy and ecology, finance and society. Its future depends on the ability to align these forces, not pit them against each other.
The real question is no longer “Can we afford the transition?”
but rather: “Can we still afford not to invest in it?”