20 November 2025
To bridge Europe’s investment gap, we need both public and private funding. Well-designed EU investment programmes can act as a major catalyst for private capital. As this blog post shows, every euro invested by the EU is matched by private finance, thereby doubling its impact.
Europe is facing an unprecedented need for investment to support its green, digital and defence transitions. On current estimates, this will require additional spending of around €1,200 billion a year between 2025 and 2031. That is a significant increase from the €800 billion estimated just one year ago.[1]
To meet this challenge, public and private financing are both essential.[2] Even under optimistic assumptions, the combined national fiscal space available for additional government spending and the existing EU resources would still leave a substantial funding gap of over €100 billion a year. EU investment programmes can play a decisive role in bridging this gap. In this blog post, we look at how these programmes can help unlock private investment and boost productivity. Among other findings, we show that every euro invested by the EU is matched by private capital, more than doubling its impact.
The role of EU programmes
Amounting to just 1% of the total gross national income of all the Member States, the EU budget is modest compared with its national counterparts. Its effectiveness in supporting investment thus depends on its ability to harness additional resources. With this in mind, various budget instruments have been designed not only to finance public investment but also to mobilise private capital.
The European Structural and Investment (ESI) funds are central to these efforts. For over 25 years, they have served as the EU’s primary investment instrument. These funds help drive progress by supporting infrastructure, innovation and business development across the Union. ESI funds fulfil a dual purpose. First, they promote regional convergence by channelling more resources to less developed regions. Second, they enhance competitiveness by financing investments aligned with key policy priorities, such as fostering innovation, advancing digital technologies and accelerating the green transition.
Moreover, ESI funding is designed to leverage additional financial resources thanks to mandatory national co-financing. This ensures that EU investments are consistently complemented by domestic funds.[3]
“Crowding in” versus “crowding out”
When a government increases investment, the effects can ripple across the economy. Projects such as high-speed rail systems, digital networks and renewable energy grids can enhance productivity and stimulate additional private investment. This phenomenon of public investment attracting private activity is known as “crowding in”. However, large-scale public investment can also increase the demand for resources, potentially leading to higher prices and greater borrowing costs. This can discourage private sector initiative – a phenomenon referred to as “crowding out”.
The actual outcome ultimately depends on the economic setting and the quality of the public investment. Well-planned and carefully executed projects can yield lasting productivity gains that outweigh possible short-term pressures on demand. Conversely, poorly designed investment projects are more likely to raise the risk of crowding out, thus undermining the intended economic benefits.
Evidence from recent research
In a recent study, De Santis and Vinci (2025)[4] provide empirical evidence on the impact of ESI funds on private investment across EU regions between 2000 and 2021. Using advanced econometric methods, their research finds significant crowding-in effects. Over a two-year period, every euro of ESI funding generated €1.10 of private investment and €0.10 of business research and development (R&D) (see Chart 1). These findings underscore the effectiveness of ESI funds as a catalyst for private investment and innovation. European investment contributes significantly to long-term economic growth, while also advancing the EU’s green and digital transitions.
Chart 1
Impact of ESI funds on private investment and R&D
a) Private Investment | b) Business R&D |
|---|---|
(estimated effect of €1 of ESI funds) | (estimated effect of €1 of ESI funds) |
 |  |
Source: De Santis, R.A. and Vinci, F. (2025), “Private investment, R&D and European Structural and Investment Funds: crowding-in or crowding-out?”, Working Paper Series, No 3098, ECB, Frankfurt am Main, August. Illustrations replicate the results presented in Tables 4 and 5.
Notes: The estimation entails a local projection, regressing the change in ESI funding on the change in private investment and business research and development (both scaled by regional gross value added (GVA), with an instrumental variable approach. The change in predicted ESI funding is employed as the instrument. This is constructed, for a given region, as the average ESI funds absorption rate in a given year in regions with similar characteristics but located in other countries, multiplied by the ESI funds allocation to the region at the beginning of the programming period. The specification controls for previous-year regional GVA growth, the one-year lag of the dependent variable, contemporaneous changes in government spending (normalised by previous-year real GDP) and changes in each country’s ten-year sovereign yield, as well as year and region fixed effects. The top and bottom 2% of observations are winsorised. The sample covers 24 EU Member States over the period 2000-21. Confidence intervals are reported at the 90% level.
ESI funds boost firms’ productivity
A small share of ESI funds is allocated directly to firms. This gives us a unique opportunity to assess their impact on firm-level outcomes and see how effective the EU programmes are in improving firm performance.
So just how effective are ESI funds in enhancing investment and productivity?
An ECB paper by De Sanctis, Kapp, Vinci and Wojciechowski (2025)[5] looks at these questions, focusing on firms’ performance during the 2014-2020 programming period for EU funding. Their research reveals that ESI-funded firms steadily increased their capital stock by 15%. In other words, they continued to invest in and expand their fixed assets year after year. These firms also experienced long-lasting gains in productivity, which rose by 3% over four years (Chart 2, panels a and b). Moreover, the study finds that financially constrained firms increased their debt and capital to a greater extent. These findings suggest that ESI funds do indeed play a pivotal role in facilitating access to finance (Chart 2, panels c and d).
Chart 2
Impact of receiving ESI funds on firms’ outcomes
a) Capital | b) Total factor productivity |
|---|---|
(percentage) | (percentage) |
 |  |
c) Heterogeneity: impact on capital for financially constrained vs non-financially constrained firms | d) Heterogeneity: impact on leverage ratio for financially constrained vs non-financially constrained firms |
(percentage) | (percentage) |
 |  |
Source: De Sanctis, A., Kapp, D., Vinci, F. and Wojciechowski, R. (2025), “Unlocking growth? EU investment programmes and firm performance “,Working Paper Series, No 3099, ECB, Frankfurt am Main, August.
Notes: The estimation uses a local projection difference-in-differences approach to evaluate the impact of receiving EU funding through the ESI funds on firms’ outcomes, specifically changes in capital and total factor productivity. The control group consists of firms who have not yet received funding, with time measured relative to the year of first funding within the 2014–20 programming period. A coefficient of 0.01 corresponds to a 1% growth effect. Confidence intervals are reported at the 99% level. The regression includes controls for the lagged values of total assets, sales growth, current ratio, capital-to-labour ratio, sales-to-assets ratio and firm age, as well as year, sector and region (NUTS 2) fixed effects. The variable “finc” indicates financial constraints: “finc = 1” denotes constrained firms and “finc = 0” unconstrained firms. The leverage ratio is defined as the ratio of a firm’s debt to its total assets.
Policy takeaways
As we have seen, synergies between private investment and targeted public investment are critical to addressing Europe’s significant investment needs. ESI funds have proven to be an effective public investment tool, not only in driving infrastructure and regional development but also in enhancing firms’ investment capacity and productivity. Admittedly, there is still room for improvement, particularly in areas such as governance, the timely allocation of resources and the promotion of cross-border investment. And yet, the positive overall experience offers valuable lessons for future initiatives, and ESI funds can serve as an important benchmark when designing new programmes. As the EU prepares its 2028-34 budget, it is vital to prioritise investment programmes that crowd in private capital and boost productivity across Europe.
The views expressed in each blog entry are those of the author(s) and do not necessarily represent the views of the European Central Bank and the Eurosystem.
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See Bouabdallah, O., Dorrucci, E., Nerlich, C., Nickel, C. and Vlad, A. (2025), Time to be strategic: how public money could power Europe’s green, digital and defence transitions, The ECB Blog, ECB, 25 July.
While private capital remains a cornerstone of investment, the additional burden on national and EU budgets has risen sharply to €510 billion a year. It now accounts for 43% of total investment needs, largely owing to a heavier dependence on public budgets for defence spending.
The EU also uses other instruments to finance investment and innovation, many of which are based, to some degree, on the ESI model. The Next Generation EU programme, launched in response to the pandemic crisis, scaled up EU support for investment. The InvestEU programme, which started operating in 2021, aims to reduce the risks of financing innovative or long-term projects through the European Investment Bank and other partners by leveraging EU budget guarantees. The Horizon Europe programme, in place since 2021, supports frontier research and innovation that is often too risky for private finance alone.
De Santis, R.A. and Vinci, F. (2025), “Private investment, R&D and European Structural and Investment Funds: crowding-in or crowding-out?”, Working Paper Series, No 3098, ECB, Frankfurt am Main, August.
De Sanctis, A., Kapp, D., Vinci, F. and Wojciechowski, R. (2025), “Unlocking growth? EU investment programmes and firm performance“, Working Paper Series, No 3099, ECB, Frankfurt am Main, August.