Europe’s Missing Middle

Why Europe Designs Revolutions Others Industrialise

It usually starts as a joke.

A Silicon Valley founder, flushed with venture capital and podcast confidence, smirks that Europe is finished. That it no longer innovates, only regulates. That its future lies somewhere between a museum and an Airbnb portfolio. A continent preserved rather than productive, staffed by disgruntled former engineers now repurposed as tour guides, baristas, and UX consultants for the global bourgeoisie—mostly flown in from places without attractive historical cities.

The line gets laughs. It always does. The punchline varies. Europe is an open-air retirement home. Europe is Venice with better broadband. Europe is what happens when you choose comfort over ambition. The place where the US National Security Strategy looks for impotents and finds them.

At first, Europeans bristle. Some in the Ruhrgebiet factory towns where there is little with even Airbnb value sink further into angst. Then they nod politely. Then they repeat the joke themselves, in a self-deprecating tone meant to signal realism rather than surrender. After all, isn’t there something to it? The unicorns are elsewhere. The fabs are elsewhere. The platforms are elsewhere. Europe designs the ideas; others industrialise them. The future arrives in Europe as a finished product, priced in dollars.

What makes the insult effective is that it feels true in fragments. Europe does innovate. Its labs are world-class. Its engineers are everywhere. But its technological revolutions rarely survive adolescence. Somewhere between prototype and production, between promise and power, something breaks. Factories don’t get built. Supply chains don’t lock in. Capital hesitates. Regulation lags or misfires. And the talent, slowly, leaves or really does use the savings to revamp a parqueted and high ceiling neoclassical apartment, decked with a Danish sofa and a Zsuzsanna Horvath pendant to rent out to the Chinese industrial bourgeoisie on vacation.

The mistake is to think this is a cultural problem. Or a lack of risk appetite. Or a generational failure. It is none of these. It is structural. Europe has built a political economy that excels at invention and early deployment while systematically neglecting the phase that matters most: the middle, where technologies either become industries or die politely.

Over the past two decades, the European Union has produced some of the most ambitious industrial strategies on the planet, poured hundreds of billions into research, innovation, and climate transition, and congratulated itself for being on the “right side of history.” European research institutions and firms were early leaders in lithium-ion battery chemistry, photovoltaic manufacturing equipment, wind turbine design, mRNA platforms, fintech infrastructure, and industrial automation software. Yet the capital-intensive scaling phase—gigafactories, platform dominance, and global standard-setting—largely occurred outside Europ

And yet, when the smoke clears, the pattern repeats: Europe designs the revolution, others industrialise it. Solar panels, batteries, electrolyzers, advanced materials, even parts of AI-enabled manufacturing—European labs lead, European engineers invent, and someone else builds the factories at scale.

This is a structural failure rooted in what Europe does not govern: the middle phase between technological validation and industrial scale. Europe has policies for invention and policies for deployment. What it lacks is a theory, and therefore institutions, for managing what happens in between. That missing middle is where industrial power is made or lost.

Across successive industrial strategies, Brussels has treated industrialisation as a linear relay race. First innovation, then demonstration, then markets, then scale. The baton, it is assumed, passes smoothly from public R&D to venture capital, from venture capital to private equity, from private equity to global competitiveness. If this fails, the explanation is always the same: not enough risk appetite, not enough venture capital, not enough entrepreneurial culture. The solution, inevitably, is more money and more exhortation.

This is market magic thinking. It belongs to Christmas and is alien to capital-intensive industrial transformation.

The assumption that validated technologies spontaneously induce infrastructure, regulation, financing, and organisational capacity has been disproven repeatedly. It works, sometimes, in software. It occasionally works in biotech. It fails systematically in sectors where scale requires synchronized movement across energy systems, logistics, permitting, standards, labour, and finance. Hydrogen, batteries, grid equipment, advanced manufacturing all live in this world. Europe’s problem is not that it does not innovate. It is that it abandons innovators at the moment when complexity explodes.

That moment deserves a name. Danish green investor Laurits Bach Sorensen calls it hypertransformation.

Hypertransformation is not simply “scaling up.” It is a phase in which firms face a nonlinear increase in complexity as they move from commercial validation to industrial production. Costs jump, margins compress, dependencies multiply, and time horizons stretch. What looked like a technology problem becomes simultaneously a regulatory problem, an infrastructure problem, an organisational problem, and a financial problem. Exposure in one dimension amplifies fragility in all the others.

To understand this properly, industrialisation must be treated as a multi-circuit system rather than a pipeline. Four circuits have to function together. The first is policy and regulation: permits, grid access, standards, liability, procurement, trade rules. The second is the value chain itself: access to inputs, complementary infrastructure, recycling systems, logistics, and downstream integration. The third is organisational: the internal transformation of firms from R&D-driven entities into operational manufacturers with professional management, labour systems, and international reach. The fourth is financial: the capacity to absorb capex-heavy investment cycles, delayed revenues, and working-capital stress through appropriately structured equity and debt.

Europe’s industrial strategies routinely address one or two of these circuits in isolation. Rarely are they synchronized. That is the missing middle.

The concept of hypertransformation matters because it reframes risk. The key question is not whether a sector is “risky” in the abstract, but how exposed a firm or project is across these four circuits simultaneously. A hydrogen company may have a proven electrolyzer, but if the pipeline network is delayed, regulation uncertain, and financing structured for software-style growth, failure is almost guaranteed. No amount of technological brilliance compensates for systemic misalignment.

A crucial analytical distinction here is between external and internal stressors. Value-chain disruption and regulatory timing are largely external to the firm. They depend on state capacity, infrastructure decisions, and collective coordination. Hypergrowth management and capex intensity are internal, though strongly conditioned by the external environment. This distinction matters because Europe consistently treats all four dimensions as if they were under managerial control. They are not. In capital-intensive green tech, firms are exposed to collective failures they cannot hedge individually.

This is why Europe suffers from not one but two valleys of death. The first lies between commercial readiness and profitable growth, where working capital dries up and conventional venture capital cannot cope with operational complexity. The second lies between profitable scale-up and public markets, where Europe’s fragmented and shallow capital markets offer little liquidity, pushing the strongest firms toward New York or Asia. These valleys reinforce each other. Weak scale-up finance starves public markets of credible issuers, while weak exit options discourage early-stage investors from funding capital-intensive growth in the first place.

The dark side of hypertransformation is interdependence. When one circuit fails, the whole system destabilizes. Yet European industrial policy has no machinery for governing this interdependence. It oscillates between micro-level innovation support and macro-level competitiveness rhetoric, skipping the meso-level where coordination actually happens. The result is institutional asynchrony that mirrors firm-level chaos. Fragmented governance, inconsistent incentives, and mismatched time horizons at the EU level reproduce themselves inside scaling firms. The micro and macro failures are structurally homologous.

Hydrogen is the clearest example. In the early 2020s, Europe dominated the global hydrogen project pipeline. Within a few years, many projects stalled or collapsed. Not because the technology failed, but because infrastructure and regulation lagged investment decisions. Denmark’s delayed hydrogen backbone, announced years after Germany’s, stranded domestic electrolyzer projects. This was not a market failure in the textbook sense. It was a coordination failure across time.

The battery sector tells a similar story. Europe has the technology for second-life battery storage. What it lacks is regulatory synchronization. Safety rules, certification regimes, and reuse standards evolve on political timescales that are incompatible with firms’ investment cycles. The result is paralysis, not because regulation is too strict, but because it is temporally misaligned with industrial reality.

At the macro level, policymakers talk about ecosystems and framework conditions. At the micro level, firms deal with cash-flow gaps, delayed permits, missing infrastructure, and organisational overstretch. These conversations rarely meet, yet they describe the same process from different angles. A viable theory of industrial policy must connect them.

China provides the most instructive contrast, not because it is authoritarian, but because it understands synchronization. Its electric vehicle strategy was never just about subsidies or protection. It was about stacking the entire value chain and coupling each layer to dedicated financial, regulatory, and infrastructural support. Provincial venture funds feed national growth funds. Infrastructure rollout moves in parallel with manufacturing. Standards, procurement, and demand subsidies operate as coordinated levers. This is not central planning in the caricatured sense. It is modular, recursive coordination.

Europe, by contrast, works through thematic silos. A Battery Alliance here, a Hydrogen Alliance there, a Critical Raw Materials Act on the side. Each initiative underfunded precisely when scale requires overcommitment. Each governed procedurally rather than strategically. The lesson is not that Europe should copy China’s political system. It is that Europe must learn to govern across sectors and across time, using what’s usable from China.

What China also has, and Europe lacks, is catalyst capital. Not just more money, but differentiated financial instruments aligned with specific stages of industrialisation. Thousands of government-backed niche funds, policy-bank lending, preferential green credit—all tailored to compress time and de-risk hypertransformation. Europe’s capital, by contrast, is either too generic or too light-touch. Massive deployment envelopes coexist with venture capital optimised for software. The middle is empty.

This also explains why European pension funds end up taking venture-style risks in flagship projects like Northvolt or green steel. The financial ecosystem offers no intermediate layer. Capital jumps from conservative mandates straight into hypertransformation, producing systemic fragility. A healthier system would mobilize Europe’s deep pool of entrepreneurial investors and business angels, embedding operational expertise into scale-up finance and spreading risk across portfolios rather than concentrating it politically.

None of this works without new institutions for joint planning. Hypertransformation cannot be managed by firms or regulators acting alone. Sectoral value-chain compacts are the missing piece. Not talk shops, but operational coordination platforms where regulators, firms, financiers, and labour institutions align infrastructure rollout, standards, skills, and capital in real time. Benefits must be tangible and sanctions credible. Europe’s IPCEIs failed not because cooperation is impossible, but because proceduralism strangled substance.

The broader point is simple. Industrialisation is constrained by its weakest circuit. A firm, or an economy, cannot advance faster than the least developed linkage between policy, technology, organisation, and finance. Europe’s repeated false starts reflect not technological inferiority but synchronization failure.

Europe does not need more innovation. It needs to fill its financial missing middle with real money.

That middle is where geoeconomic power is decided in the twenty-first century. It is where technological advantage becomes manufacturing dominance or dissipates into dependency. Without institutions to govern hypertransformation, Europe will continue to export ideas and import hardware, congratulate itself on values, and wonder why autonomy keeps slipping away.

Europe does not need to become China to learn from China. What it needs is to rediscover something it once knew how to do: coordinate. Not through CPC command, but through connective institutions that bind labs to lenders, regulators to builders, engineers to investors. Rebuild that connective tissue, and hypertransformation might yet become the opening chapter of Europe’s next industrial renaissance.

Seen from Palo Alto, Europe still looks like an aesthetic object. A place to visit, not to build. A civilization optimized for quality of life rather than power. The jokes will continue. They always will. The museum line, the Airbnb line, the retirement-continent line. They work because Europe has made itself legible as scenery.

To make this stop, the choice is not between becoming China or remaining Europe. It is between learning how to coordinate power in a democratic system, or continuing to outsource it while pretending this is a virtue. Europe has already crossed thresholds it once declared taboo. Just think of its confiscation of Russian central bank assets or raising hundreds of billions to kickstart the economy after Covid. It has already bent its rules when survival demanded it. The only question now is whether it will acknowledge that fact and build institutions to match—or retreat back into irony, tourism, and aestethicized self-parody.