1. Introduction: A sketch of current developments

Recent geopolitical developments, such as Russia’s war on Ukraine and intensifying U.S.–China techno‑economic rivalry have exposed the strategic nature of supply chains and technology platforms. For a deeply open economy like the EU, the policy challenge is twofold. The Union must sustain an open, rules‑based trading system, while building domestic resilience where vulnerabilities jeopardize economic stability or national security. Two distinct investment needs follow. The first is nurturing radical innovation through pre‑commercial research and equity finance for new firms able to scale breakthrough technologies. The second is securing strategic capacity and inputs by investing in established firms and by building and managing stockpiles of critical raw materials essential to defense production and clean‑tech manufacturing. For both, Europe requires funding scenarios that can mobilize capital at scale and act with speed; it also requires capital markets that reliably crowd in private investment.

This paper aims to provide a brief overview of how the European Union, and the United States (aim to) address the same kind of challenges, both in their own way.

2. Innovation and strategic investment in the EU

The issues identified above have long occupied EU policy debates, prompting initiatives ranging from expanded innovation programs and the EU Chips Act¹ to the Critical Raw Materials Act². However, as global competitors escalate R&D expenditure, potentially sidelining European initiatives, the Union must consider whether larger, more unconventional programs are required to remain competitive in the global race for innovation.

1. Current programs: The European Innovation Council

The EU’s 2021–2027 Multiannual Financial Framework (“MFF”) totals about EUR 1.2 trillion³. To mitigate the economic and social consequences of the COVID‑19 pandemic, the EU added the NextGenerationEU (“NextGen”) instrument, bringing the 2021–2027 MFF to roughly EUR 2 trillion⁴.

Within this budget, the EU established several R&D programs to support European innovation efforts such as the European Innovation Council (“EIC”)⁵, broadly analogous to US Advanced Research Projects Agency (“ARPA”) models. Although both aim to catalyze radical innovation, funding disparities constrain Europe’s impact. The EIC’s core research arm manages roughly EUR 250 million, whereas the U.S. Defense Advanced Research Projects Agency (DARPA) alone oversees about USD 4 billion⁶.

ARPA-type programs are designed to focus on radical, pre-commercial development in their sectors⁷. By contrast, the EIC also operates an investment arm intended to offset Europe’s comparatively shallow venture capital market, channeling about EUR 1 billion into promising start-ups⁸.

While significant, the EIC alone is insufficient to meet Europe’s innovation needs. A complementary approach now under discussion is the establishment of a European Sovereignty Fund.

2. An EU Sovereignty Fund to close the gap 

The idea of creating a European Union Sovereignty Fund (“EU-SF”) was first introduced by European Commission President Ursula von der Leyen in her 2022 State of the Union address⁹. Before assessing whether such a fund could be grounded in EU treaty competences, it is useful to outline the concept of a Sovereign Wealth Fund.

1. First: What is a Sovereign Wealth Fund?

A Sovereign Wealth Fund (“SWF”) is a state-owned investment vehicle managing national capital for long-term strategic or financial objectives. Other than pension funds however, a SWF generally lacks liabilities, making it a good vehicle with a long term, equity-focused horizon. As of January 2026, the global SWF ecosystem had USD 13 trillion under management¹⁰.

Besides functions like stabilizing a domestic economy or the creation of future generational wealth, SWFs increasingly become relevant in another area: Strategic investing. In this role, they tend to prioritize domestic projects to advance policy goals such as developing national champions or boosting employment.¹¹

2. The idea of an EU-Sovereign Wealth Fund

Although the notion of an EU-level sovereignty fund has circulated for some time, the debate has recently quieted despite its relevance. A central challenge is mobilizing sufficient resources without crowding out existing commitments under the regular EU budget. Politically, this is contentious; legally, it is pivotal, because a competitive instrument would likely require substantial borrowing.¹²

Under Art. 311 TFEU, the EU budget is financed from revenues from “own resources” and “other revenue”, with borrowing falling under the latter. The scope of both is defined by a unanimous “Own Resources Decision” (“ORD”) of the European Council, which delineates the Union’s revenue and thereby enables the issuance of EU debt¹³. The ORD underpinning NextGen marked a paradigm shift: at EUR 750 billion and designed to allow the EU to borrow on capital markets for the first time, it was expressly temporary and exceptional. While this procedure has been considered as covered under the European Treaties in the past due to NextGen’s temporary, exceptional character¹⁴, it is unlikely to support a durable, general‑purpose EU borrowing capacity for an EU-SF under the current Treaty scheme.¹⁵

Others propose relying on Arts. 173 and 114 TFEU as legal bases for a two-pillar EU-SF focused innovation and building a strategic raw-materials reserve.¹⁶ While those provisions may sustain the substantive programs, but they do not themselves resolve the borrowing question, which remains the linchpin.

In summary, NextGen offers an important precedent for EU borrowing, but it is distinguishable from the challenge of financing an EU-SF, both because of the scale required to create a competitive instrument and because the exceptional circumstances that justified NextGen’s borrowing are absent her

III. Innovation and strategic investment in the United States

While the EU‑SF has been under discussion for several years, the United States moved from announcement to execution within months despite operating as a deficit country. Reported transactions range from the acquisition of approximately ten percent of Intel’s equity for about USD 8.9 billion in August 2025 to the Department of Defense’s USD 400 million equity investment in MP Materials, signaling a redefinition of the SWF-playbook. This shift reflects not only a bottom‑up approach but also a strategic industrial orientation.¹⁷

These investments mark a paradigm shift for the SWF landscape and indicate a broader change in SWF policy. Whereas vehicles such as Norway’s Government Pension Fund Global (GPFG) are barred from domestic, strategic deployment in favor of diversified, lower‑risk global portfolios, explicitly strategic and domestic SWF investments, such as those emerging in the United States, remain relatively rare, though notable precedents exist (e.g., Ireland’s ISIF and Singapore’s Temasek).¹⁸

2. Conclusion

This paper contrasted the EU’s incremental architecture with the United States’ rapid, SWF‑like deployment of strategic capital. While the EU has expanded support in past years, the funding remains fragmented and modest compared with U.S. efforts. A European Sovereignty Fund could close this gap, but its viability turns on law and scale. Under Article 311 TFEU, durable, general‑purpose EU borrowing remains constrained; programmatic bases under Articles 173 and 114 TFEU do not resolve the borrowing linchpin. By comparison, the United States has executed targeted, equity‑based investments in firms and critical inputs, signaling a shift toward explicitly strategic, domestic objectives.

Europe’s challenge is to mobilize capital at scale and speed while preserving an open, rules‑based economy. Meeting it requires a clear legal foundation for any EU‑level vehicle. The choice is practical as much as legal: tailor instruments within current treaty limits, or confront the need for treaty change, to match the pace and focus now shaping the U.S. model and secure innovation and security inside Europe.

1 Regulation (EU) 2023/1781 of the European parliament and of the Council of 13 September 2023 establishing
a framework of measures for strengthening Europe’s semiconductor ecosystem and amending Regulation (EU)
2021/694 (Chips Act), available here: https://eur-lex.europa.eu/legal-
content/EN/TXT/PDF/?uri=CELEX:32023R1781.
2 Regulation (EU) 2024/1252 of the European parliament and of the Council of 11 April 2024 establishing a
framework for ensuring a secure and sustainable supply of critical raw materials and amending Regulations
(EU) No 168/2013, (EU) 2018/858, (EU) 2018/1724 and (EU) 2019/1020, available here: https://eur-
lex.europa.eu/legal-content/EN/TXT/PDF/?uri=OJ:L_202401252.
3 Relevant documents available here: https://commission.europa.eu/strategy-and-policy/eu-budget/long-term-eu-
budget/2021-2027/documents_de.
4 Council Regulation (EU) 2020/2094 of 14 December 2020 establishing a European Union Recovery
Instrument to support the recovery in the aftermath of the COVID-19 crisis, available here: https://eur-
lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:32020R2094.
5 For an overview compare Fuest/Gros/Mengel/et. al., EU Innovation Policy, 2024, pp. 20, available here:
https://www.ifo.de/DocDL/EconPol-PolicyReport_50-Innovation-Policy.pdf.
6 Compare Gros, A European Sovereignty Fund, 2024, p.11, who also provides a more in-depth overview over
further losses in friction along the innovation process.
7 Gros, A European Sovereignty Fund, 2024, p.11.
8 For an overview compare Fuest/Gros/Mengel/et. al., EU Innovation Policy, 2024, pp. 21–25, available here:
https://www.ifo.de/DocDL/EconPol-PolicyReport_50-Innovation-Policy.pdf.
9 “I will push to create a new European Sovereignty Fund. Let's make sure that the future of industry is made in
Europe”, quote from Ursula von der Leyen at her State of the Union Address in 2022, available here:
https://ec.europa.eu/commission/presscorner/detail/ov/speech_22_5493.
10 https://globalswf.com.
11 For a brief overview, see the article by the World Economic Forum on Global Cooperation – Sovereign wealth
funds are playing an increasingly important role in global development from 11.06.2023, available here:
https://www.weforum.org/stories/2023/11/sovereign-wealth-funds-are-playing-an-increasingly-important-role-
in-economies-everywhere/.
12 Argued by Gros, A European Sovereignty Fund, 2024, p. 12 in respect to the EIC Accelerator program which
could be financed through the prospective EU-SF, enabling additional resources for innovation.
13 See Bieber, in: von der Groeben/Schwarze/Hatje/et. al, Europäisches Unionsrecht, 2025, Art. 311 TFEU, para.
25.
14 See Bundesverfassungsgericht [Federal Constitutional Court], Order of Dec. 6, 2022, 2 BvR 547/21 et. al.,
available here:
https://www.bundesverfassungsgericht.de/SharedDocs/Entscheidungen/EN/2022/12/rs20221206_2bvr054721en.
html, but stressing the extraordinary character of the procedure. Disputing the legality under Art. 311 TFEU
entirely and presenting amendments to the European Treaties as a solution, see Waigel, Next Generation EU,
2023, pp. 151–155.
15 In that direction also Grund/Steinbach, European Union debt financing: leeway and barriers from a legal
perspective’, Working Paper 15/2023, p. 5.
16 Gros, A European Sovereignty Fund, 2024, p. 21.
17 For an excellent overview see also Ma, Intel, TikTok, and a US Sovereign Wealth Fund: What It Means for
Investors, 8/21/25, available here: https://blogs.cfainstitute.org/investor/2025/08/21/intel-tiktok-and-a-us-
sovereign-wealth-fund-what-it-means-for-investors/.
18 Despite being uncommon, Ireland’s ISIF and Singapore’s Temasek undertake strategic investments. See
IFSWF, Strategic Funds, available here: https://www.ifswf.org/what-is-a-sovereign-wealth-fund/strategic-funds.