Consider This: Europe in 2037

Just as Heraclitus argued that friction between opposing forces creates  a perfectly balanced system, today’s global geopolitical turmoil is the exact mechanism throwing Europe’s hidden, structural strengths into sharp relief.

Executive Summary

Most investors have treated Europe as a value trap: slow growth, fractious politics, an ageing population and a monetary union that never finished the job. In our view,  the consensus is dated and lazy. Europe is being reshaped  by six interlocking structural forces, several of which the market has not yet priced, and by a set of underappreciated strengths—genuine points of leverage, capacity or capital that rarely feature in the standard bear case.

Six Forces Are Converging Simultaneously

Energy. Europe has a credible path towards a resilient, structurally low-cost electricity grid that could transform industrial competitiveness and productivity. Climate change, digitalisation and geopolitical pressures are accelerating electrification. With renewables already generating 48%¹ of electricity, Europe is well positioned to strengthen energy security and benefit from structurally lower power costs.

Demographics. Europe is solidly “post-demographic dividend” ageing. While growth has been slow, its wealth, educational attainment, public health care and institutional depth position it to monetise longevity as an asset rather than simply absorb it as a liability.

Debt. Euro-area public debt is forecast to be near 90% of gross domestic product (GDP) in 2026; the reinstated Stability and Growth Pact is now colliding, in real time, with the fiscal demands of rearmament. This is the constraint that determines whether every other wave stays on schedule. However, the affordability of that debt is relatively good, at around 1.7%–8% of government revenues versus nearly 17%² for the United States.

Defence.³ European NATO members and Canada increased defence expenditure by nearly 20% in real terms in 2025. NATO’s commitment to spend 5% of GDP on defence and security by 2035 could lift annual European defence expenditure towards €800 billion by 2030, according to McKinsey. This public-sector commitment is already stimulating substantial private investment in domestic defence manufacturing, including new production facilities, supply-chain expansion and industrial repurposing (see Appendix).

Technology adoption. Europe holds 14 of the top 20 positions in global industrial robot density,⁴ positioning automation to offset demographic decline and supporting  the repurposing of civilian industry for defence. Its artificial intelligence (AI) strategy is shifting from regulation towards industrial adoption, creating opportunities in automation, enterprise AI, sovereign cloud, cybersecurity and power infrastructure. The adoption of the digital euro is driving financial sovereignty and capital market integration.

Reform. Since the 2024 Draghi⁵ and Letta⁶ reports, Brussels has pivoted from a decade of regulation towards simplification, a nascent Savings and Investments Union, cross-border “European champions” and (after Hungary’s April 2026 election) the first real opening in years to curb the unanimity rule. The proposal for a supranational regulatory domicile for businesses within the common market (the “28th regime”) could rapidly bring the benefits of regulatory uniformity.

For Investors, Several Broad Conclusions Follow

European risk-adjusted returns are likely to compare more favourably over the next decade than the consensus “structural decline” narrative assumes: a multi-year reappraisal, not a near-term re-rating. The dispersion across member states is probably the more investable trade than  a single top-down European view, long or short.

The single highest-value signpost to track is the resolution  of the ongoing EU reform programme, since it determines  the pace of nearly everything else in this paper. Energy and defence provide evidence of progress already and act as  a momentum multiplier.

An underappreciated fact in the bull case is that Europe is changing as Poland, the Czech Republic, Romania, Slovakia and Hungary are moving past the “convergence story” to become growth drivers. They figure among the most attractive growth markets in the EU, supported by reforms, manufacturing, productivity gains, EU funds and a strategic logistical position between Western Europe and Asia.

Time horizon: 2030 is the first inflection point (grid overcapacity, NATO capability reviews, fiscal-plan renegotiation); 2035 is when the defence-spending  ambition and demographic cost curve come due. Domestic politics remain the primary source of execution risk (delay) throughout.

In 2037, Europe is strong with a deep Eurobond market, a revitalised industrial sector and a powerful, independent military deterrent, still operating under the auspices of NATO.