The EU is Headed for 'Slow Agony' Unless We Radically Change Course

After a year of preparation and countless interviews, Mario Draghi has presented his much-anticipated report on the future of European competitiveness. In the 400-page document, the former ECB president provides a detailed analysis of why the EU continues to lag behind the US and China. During the presentation, he starkly warned that the "EU is condemned to a slow agony" unless significant changes are made.

For those who don’t have time to read the full report, I’ve created a concise summary that includes key insights and my own commentary on some of the most critical points.

The report highlights the need for Europe to reignite its productivity growth and competitiveness in the face of slowing growth, rising dependencies, and a changing global landscape. It identifies three main areas for action:

• closing the innovation gap
• developing a joint plan for decarbonization and competitiveness
• increasing security and reducing dependencies

The report emphasizes the importance of a coordinated approach, involving both public and private sectors, to address these challenges.

1. Lack of innovation: Europe is lagging behind the US and China in terms of innovation, particularly in breakthrough digital technologies such as AI, cloud computing, and quantum computing.
2. Weak tech sector: The European tech sector is weak, with few large, successful companies, and a lack of investment in research and development.
3. Limited scale: European tech companies are often unable to scale up and compete with larger US and Chinese companies, due to a lack of funding and a fragmented market.
4. Dependence on US and Chinese tech: Europe is heavily dependent on US and Chinese tech companies, particularly in areas such as cloud computing, where US companies dominate the market.
5. Lack of technological sovereignty: Europe lacks technological sovereignty in areas such as security and encryption, making it vulnerable to external threats and dependencies.
6. Insufficient investment in research and development: Europe is not investing enough in research and development, particularly in areas such as AI and quantum computing, which are critical for future growth.
7. Fragmented market: The European market is fragmented, with different countries having different regulations and standards, making it difficult for companies to operate across borders.
8. Lack of coordination: There is a lack of coordination between different stakeholders, including governments, industry, and academia, which is hindering the development of a strong European tech industry.

Underlying causes: The report identifies several underlying causes of these challenges, including:

1. Over-regulation: Regulatory barriers are hindering the development of a strong European tech industry. Regulations are killing startups and SME's , Europe is self-defeating, and killing our companies.
   
   1. Regulatory burden: The report mentions that the regulatory burden on European companies is too high, particularly for small and medium-sized enterprises (SMEs). The GDPR is is estimated to have reduced the profit of SME's by 15%.
   2. Complexity: The report notes that the regulatory framework in Europe is complex and fragmented, making it difficult for companies to navigate.
   3. Administrative burden: The report mentions that the administrative burden on European companies is too high, particularly in areas such as data protection and cybersecurity.
   4. Lack of harmonization: The report notes that there is a lack of harmonization in regulations across different European countries, making it difficult for companies to operate across borders.
2. Speed: The current organizational structures and processes are coated with a tick layer of bureaucracy leading to:
   
   1. Bureaucratic hurdles: The report mentions that the bureaucratic hurdles associated with accessing research funds in Europe can be a major obstacle to innovation.
   2. Lengthy application processes: The report notes that the application processes for research funds in Europe can be lengthy and time-consuming, which can slow down the pace of innovation.
   3. Limited flexibility: The report suggests that the research funding system in Europe can be inflexible, making it difficult for researchers to adapt to changing technological developments.
   4. Administrative burden: The report mentions that the administrative burden on researchers and innovators in Europe can be overwhelming, particularly in areas such as grant applications and reporting requirements.
   5. Red tape: The report notes that the regulatory framework in Europe can be overly complex, leading to a significant amount of red tape that can slow down the pace of innovation.
   6. Lack of agility: The report suggests that the bureaucratic system in Europe can lack agility, making it difficult to respond quickly to changing technological developments.
3. Lack of a coordinated industrial policy: Europe lacks a coordinated industrial policy that can support the development of a strong tech industry.
4. Insufficient funding: There is a lack of funding for research and development, particularly in areas such as AI and quantum computing.
5. Lack of skills: There is a lack of skills, particularly in areas such as AI and data science, which are critical for the development of a strong tech industry.

Consequences: The report warns that if these challenges are not addressed, Europe will face significant consequences, including:

1. Loss of competitiveness: Europe will lose its competitiveness in the global tech industry, making it difficult for European companies to compete with US and Chinese companies.
2. Dependence on external tech: Europe will become increasingly dependent on external tech companies, particularly from the US and China, which will undermine its technological sovereignty.
3. Limited economic growth: The lack of a strong tech industry will limit economic growth in Europe, making it difficult for the continent to achieve its economic and social goals.

The report proposes several solutions to address the challenges facing the European tech industry:

Short-term solutions:

1. Increase investment in research and development: The report calls for increased investment in research and development, particularly in areas such as AI, quantum computing, and clean tech.
   1. Promote cross-industry coordination and data sharing to integrate AI into European industry.
   2. Encourage collaboration between industrial players, AI researchers, and the private sector to define problems across sectors.
   3. Develop AI verticals, such as AI-powered digital twins in manufacturing, by replicating factories and processes for AI application.
   4. Establish an "AI Vertical Priorities Plan" to accelerate AI development in ten strategic sectors (e.g., automotive, energy, healthcare).

My Comment: When I look at the EU's Alliance for Language Technologies (ALT-EDIC), which aims develop a central platform for European language resources and collect high-quality data sets, building on the Language Data Space, and compare it to initiatives like BigScience, which built a significant LLM (Bloom) in just one year with a budget under €5 million, it's clear that we are far from realizing what's possible in the digital age.

1. Provide EU funding and competition exemptions for companies participating in the plan, supporting model development and AI experimentation.
2. Facilitate data sharing across sectors for AI model training, safeguarded from antitrust enforcement.

My Comment: There is a clear contradiction in the EU's digital strategy. While initiatives like ALT-EDIC focus on leveraging open-source models to drive innovation and collaboration, the proposed Data Spaces are structured as controlled marketplaces with gatekeepers, limiting access and creating barriers. This approach undermines the open, decentralized ethos that fuels rapid progress in AI and technology, restricting the very collaboration and data sharing that open-source thrives on. By imposing gatekeepers, the EU risks stifling innovation and hindering the potential for broad, cross-sector advancements in AI and digital technologies.

1. Implement open-source frameworks and EU-wide coordination of national "AI Sandbox regimes" for regulatory experimentation and innovation testing.
1. Improve regulatory framework: The report proposes improving the regulatory framework to support the development of a strong European tech industry, including simplifying regulations and reducing bureaucratic barriers.
   1. Simplify research funding processes: The report proposes simplifying the research funding processes in Europe to reduce the administrative burden on researchers and innovators.

My Comment: Absolutely agree, and it’s even more concerning when research funds are used to replicate missing open-source components solely to achieve backward compatibility for companies looking to move away from hyperscaler cloud providers like AWS. Rather than focusing on patching over gaps, the EU should prioritize building a competitive, open-source-based technology stack that can be hosted by multiple independent providers. This would significantly reduce dependencies on dominant cloud services and foster greater resilience and innovation across the digital economy. Recently, Cristina Caffarra from the Competition Research Policy Network at the Centre for Economic Policy Research (CEPR) in London gathered experts, funders, policymakers, and practitioners at the EU Parliament to discuss the concept of a "Euro Stack"—a necessary step in establishing digital sovereignty and reducing reliance on non-European tech giants.

1. Increase flexibility: The report suggests increasing the flexibility of the research funding system in Europe to allow researchers to adapt to changing technological developments.
2. Reduce bureaucracy: The report proposes reducing the bureaucratic hurdles associated with accessing research funds in Europe to speed up the pace of innovation.

My Comment: This would require reducing the number of regulations, which, given the EU's frequent introduction of new Digital Acts, seems unrealistic. The growing regulatory complexity risks stifling innovation and fragmenting the digital ecosystem. Instead of adding more layers of regulation, the EU should focus on streamlining laws and, perhaps, developing free AI agents to help businesses easily navigate and comply with existing regulations. Such AI tools could reduce the burden of compliance, making the regulatory framework more accessible and fostering a more agile, competitive digital environment in Europe.

1. Enhance digital skills: The report calls for enhancing digital skills, particularly in areas such as AI, data science, and cybersecurity, to support the development of a strong European tech industry.
2. Support start-ups and scale-ups: The report proposes supporting start-ups and scale-ups, particularly in areas such as AI and clean tech, to help them grow and compete with larger US and Chinese companies.

My comment: Promoting EU-wide coordination of national AI sandbox regimes for regulatory experimentation and innovation testing is a commendable step towards fostering a more unified approach to AI development across Europe. However, when it comes to healthcare, data should not be constrained by national borders. The true potential of AI in healthcare lies in the ability to harness vast, diverse datasets from across the continent to develop more accurate, effective, and equitable solutions. If Europe aims to lead in this field, we must adopt a more ambitious vision: not just coordinating regulatory efforts, but actively dismantling barriers to data access and fostering an environment of open innovation.

To truly advance, Europe should prioritize opening as much health data as possible, in a secure and privacy-conscious manner, to fuel the development of cutting-edge AI solutions. This involves creating interoperable data ecosystems that allow researchers, innovators, and developers to access high-quality, representative datasets, accelerating breakthroughs in diagnostics, treatment, and disease prevention. Open data collaboration across borders is essential to ensure that AI models are trained on diverse and representative samples, reducing biases and ensuring their applicability across populations.

Europe should fund large-scale open-source initiatives aimed at building fully open-sourced large language models (LLMs) specifically designed and certified for healthcare. These LLMs would not only undergo rigorous testing and certification to meet the highest regulatory and ethical standards but would also remain openly accessible for commercialization at no cost. This would democratize AI in healthcare, enabling startups, research institutions, and healthcare providers to deploy advanced AI tools without the burden of expensive licensing fees, fostering innovation and improving patient outcomes.

By leading the charge in open-source, certified AI models, Europe can set a global standard for ethical, transparent, and high-impact AI in healthcare—one where innovation thrives and access to life-saving technologies is universal, not limited by cost or geography. This approach would not only position Europe as a leader in the ethical AI revolution but also ensure that AI-driven healthcare solutions are widely accessible, sustainable, and aligned with European values of equity and openness.

Medium-term solutions:

1. Develop a European tech strategy: The report calls for developing a European tech strategy that outlines a clear vision and goals for the development of a strong European tech industry.
2. Create a European tech fund: The report proposes creating a European tech fund to support investment in research and development, particularly in areas such as AI and clean tech.
3. Establish a European AI research center: The report calls for establishing a European AI research center to support research and development in AI and related areas.

My comment: Several large-scale collaborative AI research initiatives have been framed as a "CERN for AI," drawing parallels to the European Organization for Nuclear Research (CERN), which repositioned Europe as the global leader in fundamental physics after World War II, shifting the center of gravity from the US. Ursula von der Leyen's suggested in the past, that the Commission is seriously evaluating proposals calling for €100 billion over five to seven years, surpassing the entire €95.5 billion budget allocated to Horizon Europe, the Commission's seven-year research program.

My comment: Institutional innovation, driven by formal organizations with structured processes, is often slow, bureaucratic, and reflects pre-digital collaboration. In contrast, large open-source innovation connects decentralized efforts where individuals and organizations freely contribute to shared projects. In the latest LLM movement, open-source enables faster advancement, broader access, and more transparency, reducing costs and breaking away from the proprietary, siloed nature of institutional models.

1. Develop a European data strategy: The report proposes developing a European data strategy that outlines a clear vision and goals for the use of data in Europe, including data protection and data sharing.

Long-term solutions:

1. Develop a European industrial policy: The report calls for developing a European industrial policy that supports the development of a strong European tech industry, including measures to support investment, innovation, and competitiveness.
2. Create a European tech ecosystem: The report proposes creating a European tech ecosystem that brings together industry, academia, and government to support the development of a strong European tech industry.
3. Establish a European tech governance framework: The report calls for establishing a European tech governance framework that outlines clear rules and regulations for the development and use of technology in Europe.
4. Develop a European digital education strategy: The report proposes developing a European digital education strategy that outlines a clear vision and goals for digital education in Europe, including measures to support the development of digital skills.

Key principles: The report emphasizes several key principles that should guide the development of a strong European tech industry, including:

1. Technological sovereignty: Europe should aim to develop its own technological capabilities, rather than relying on external companies.
2. Innovation: Europe should prioritize innovation, particularly in areas such as AI and clean tech.
3. Competitiveness: Europe should aim to create a competitive tech industry that can compete with US and Chinese companies.
4. Sustainability: Europe should prioritize sustainability, particularly in areas such as energy and environment.
5. Inclusion: Europe should prioritize inclusion, particularly in areas such as digital skills and education.