The new European Commission came to office vowing to end overregulation and promote competitiveness. Its new Competitiveness Compass proposes policies to achieve this goal.
The Compass acknowledges, in the words of Commission President Ursula von der Leyen, that Europe must “fix our weaknesses to regain competitiveness.” With 70% of the new value created in the global economy over the next decade expected to be digitally enabled, Europe wants to stimulate innovation. The Compass calls for initiatives on green technologies, artificial intelligence, and quantum computing.
That’s all good – except the world is moving fast and Europe’s new Compass seems like a slow response. It was published just a week after Donald Trump returned to the White House, amid a surge of executive orders aimed at reshaping US policies to prioritize ‘America first’. Trump looks set to impose devastating tariffs. He believes the recent flurry of European digital regulation, the AI Act, as well as the Digital Markets Act and Digital Services Act, discriminate and are “a form of taxation” against American companies.
Europe is betting big on AI. It hopes to integrate the revolutionary new technology on top of traditional European strengths, manufacturing, automotive, energy, robotics, pharmaceutical, aeronautics, and financial services. There is public money, too. The European Commission is investing in open-sourced AI models being developed by 20 European companies, universities and supercomputing centers.
The comparison with US plans remains stark. US tech firms dominate the AI world. Trump’s ‘Stargate,’ the planned $500 billion investment in US AI infrastructure, is nearly 250 times higher than the EU’s budget for “AI Factories.”
Instead of pumping public money into tech, Europe should focus on regulatory simplification. Europe wants to reduce administrative burdens and complex regulations by at least 25% for firms and 35% for small and medium-sized enterprises. It will also come with a strategy to support startups and scaleups.
Yet simplification appears lacking when it comes to the European Union’s Artificial Intelligence Act. As deadlines loom, the new legislation – which aims to set a global standard for trustworthy AI – is generating major conflicts and complaints. Many needed guidelines for compliance remain absent, leaving AI companies scrambling and guessing to determine which practices are legal and which are banned.
Tech, both American and European, is impatient. It wants Brussels to be bolder – and scrap plans, or at least limit them, for several new laws in the pipeline. One is a new payment regulation extending fraud liability for e-commerce marketplaces and messaging services. A proposed Digital Fairness Act could add a new raft of obligations on digital platforms, putting them at a disadvantage to brick-and-mortar competitors. Additional rules will not make Europe more competitive.
Another European strength, fintech, faces further regulation, including comprehensive rules for crypto-assets and open finance. Sweden’s Klarna, a buy-now, pay later innovator for e-commerce, is worried, not just about new rules, but about the failure of European regulators to confront entrenched incumbents. After forcing banks to open their software interfaces to upstarts, the regulators have failed to enforce the rules. “Surprise, surprise the open banking API of European banks, continue to be broken, lack functionality and banks add as much friction as they can,” complains Klarna CEO and founder Sebastien Siemiatowski.
The United States and Europe are charting divergent paths on digital currencies. In a decisive move, President Trump issued an executive order halting the development of a digital dollar, expressing concerns over potential government overreach, threats to privacy and financial stability. Instead, Trump backs crypto-currencies. Europe is going in the opposite direction. It is pushing the creation of a digital euro, even though industry remains skeptical.
Europe now has a clear opportunity to remove regulatory barriers that hinder its companies – a promise that has often been made but never fully realized. As the simplification agenda progresses, it will be crucial to ensure lessons are learned from past (over) regulation. Otherwise, expect tensions with the US to mount and Europe’s tech performance to fall further behind its transatlantic ally.
Padraig Nolan is a Non-resident Fellow with the Tech Policy Program at the Center for European Policy Analysis (CEPA). He serves as Chief Operating Officer of ETPPA, a prominent EU fintech association. He is also an advisory board member of the Lisbon-based Europe Startup Nations Alliance. Padraig holds a bachelor’s degree in law and economics (University of Galway) and a master’s degree in European law (Utrecht University).
Bandwidth is CEPA’s online journal dedicated to advancing transatlantic cooperation on tech policy. All opinions expressed on Bandwidth are those of the author alone and may not represent those of the institutions they represent or the Center for European Policy Analysis. CEPA maintains a strict intellectual independence policy across all its projects and publications.
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