By David Barwick – FRANKFURT (Econostream) – Europe’s difficulties in generating productivity-enhancing innovation reflect problems in scaling companies, financing them and providing adequate infrastructure rather than a shortage of talent or ideas, European Central Bank Governing Council member Joachim Nagel said Friday.

Speaking at a conference on trust and innovation in Dublin, Nagel, who heads the Deutsche Bundesbank, said Europe had significant strengths but was struggling to turn innovative companies into globally competitive businesses.

“I do not believe that the main obstacles are a shortage of talent or a lack of innovative ideas,” Nagel said. “But Europe is struggling to help innovative firms scale up and grow into globally competitive companies.”

Reducing regulatory and administrative obstacles in the European Single Market was one of three areas where policy could help, according to Nagel.

“Regulatory and administrative barriers should be identified and lowered where necessary,” he said.

Better access to funding was another requirement, Nagel said, arguing that Europe needed to advance its Savings and Investments Union and deepen venture-capital markets.

“In order to mobilize investment in innovative firms, we need to make further progress towards a savings and investments union,” he said.

Pointing to the disparity in financing available to European and U.S. technology companies, Nagel noted that artificial intelligence company Mistral had recently raised €3 billion while US-based Anthropic had raised $100 billion this year.

“Compared with the United States, Europe has a less developed venture capital market, which puts innovative European firms at a disadvantage,” he said.

Infrastructure represented the third major requirement, Nagel said, highlighting energy grids, information and communications infrastructure, education and basic research as important foundations for innovation.

In particular, reliable and sustainable energy networks were becoming increasingly important as artificial intelligence, cloud computing and quantum computing expanded, he said.

Nagel said governments should concentrate on creating reliable conditions for private initiative and intervene as enablers where clear market failures existed rather than attempting to drive innovation themselves.

“Europe’s innovation challenge is not a shortage of ideas. It is above all a challenge of scaling, financing and providing common European infrastructure,” he said.

“Policy can make an important contribution by providing a stable, predictable and innovation-friendly environment,” Nagel said.