Europe faces a critical shortfall in investment, estimated at up to €800bn annually for a decade, to fund defense, start-ups, and the green transition. While high-profile bankruptcies like First Brands have raised concerns about private credit standards, Mario Draghi's landmark report underscores a paradox: this very moment could be Europe's chance to expand private credit, but only if directed towards the right targets. The continent's reliance on bank financing is insufficient for its ambitious growth goals, pushing the EU to push its savings and investment union project to shift capital from savings to more productive uses.

Daniel Sachs of P Capital Partners highlights a stark mismatch. Private equity-backed firms, comprising just 5% to 10% of Europe's investable companies, consume 89% of the region's private debt capital. This allocation fuels leveraged buyouts rather than supporting SMEs and the real economy. Small and medium-sized European companies struggle to access expansion capital as banks remain conservative, hindering their ability to compete with US and Asian rivals. Ovzon's satellite venture exemplifies this; private credit enabled its launch, allowing refinancing later at lower rates, a path banks initially blocked.

The risk is Europe falling behind the US and China in innovation and growth due to inadequate capital markets. While private credit could help fill the gap, especially where banks hesitate, deeper European capital markets are paramount. As one asset manager states, 'Private credit could play a role, but so could a lot else. Above all, what we need is deeper capital markets in Europe, a way of getting cash from under people’s mattresses and doing something more productive.' Sweden's success in attracting listings, driven by a deep investment culture, offers a model Europe must emulate.