Carlo Stagnaro, Cécile Philippe, Piotr Oliński, Christian Năsulea, Giuseppe Colangelo, Patryk Wachowiec, William Hongsong Wang // 20 February 2025

The report "Digital Revival?" examines the European Union's struggle to foster technological innovation and compete in the global digital economy. As the EU grapples with regulatory complexity, insufficient capital markets, and growing technological dependence on the US and China, its ability to nurture homegrown tech leaders faces significant challenges. The report presents a critical analysis of current regulatory frameworks and offers recommendations for creating a more innovation-friendly environment.

The report identifies key structural barriers, including a €10.4 trillion market capitalisation deficit compared to OECD countries, limitations of pay-as-you-go pension systems, and regulatory constraints that discourage technological experimentation. It provides detailed assessments of major EU digital regulations, including the GDPR, Digital Services Act, Digital Markets Act, and AI Act, examining their impact on innovation, competition, and business growth.

Key findings of the report include:

• Europe's regulatory-first approach to technology creates significant barriers for start-ups and SMEs, particularly through high compliance costs and complex enforcement mechanisms.
• The fragmented implementation of GDPR across member states creates regulatory uncertainty and hinders cross-border data flows essential for AI development.
• Vague definitions in the DSA and AI Act risk over-regulation and could push organisations to develop new technologies outside the EU.
• The absence of robust private pension investment and a unified stock exchange significantly limits capital availability for tech innovation.
• Current regulatory frameworks, whilst intended to protect users and ensure fair competition, often have the unintended consequence of stifling innovation and economic growth.

The report calls for a fundamental shift in the EU's approach to digital regulation, emphasising the need to balance user protection with innovation-friendly policies. It advocates for simplified compliance pathways for SMEs, clearer regulatory guidelines, and reforms to increase capital availability for tech start-ups. These changes are deemed essential for reversing Europe's declining position in the global digital economy and fostering the growth of competitive European tech companies.