In a latest released analytical report on future competitiveness, the EU admits that the EU faces major challenges in maintaining its economic competitiveness, especially in the digital field, which is significantly behind the United States and China.
The EU Lags Behind Its Global Peers in Digital Innovation
The report is based on the research findings of former ECB President Draghi, emphasizing that the EU lags behind its global peers in key areas of digital innovation. The report said that there are currently only 263 unicorns (startups valued at more than $1 billion) in Europe, while there are 1,539 in the United States and 387 in China. The report specifically mentioned that between 2008 and 2021, nearly 1/3 of the unicorns established in Europe moved their headquarters out, most of which moved to the United States.
The report believes that Europe’s business attractiveness is declining. Compared with the United States and China, Europe’s venture capital market is small, and venture capital accounts for less than one thousandth of economic output. Many innovative companies are constrained by limited access to capital, which often leads them to move to places with more favorable financing environments. The European Commission warned that Europe’s productivity – the value added created by one hour of work – still lags behind the United States, and China also has great potential to catch up. But on the positive side, the EU’s overall efficiency is better than that of the UK and Japan.
Factors Affecting The EU’s Competitiveness
The EU’s introduction of a number of new policies in the digital field has hindered innovation and has become one of the key factors in the EU’s gradual lag in the digital race. Nicolas Petit, a professor at the European University Institute, once bluntly criticized that “Europe has no superstar companies since the birth of the Internet.” After the EU passed the Artificial Intelligence Act, such controversy intensified. After the implementation of this bill, which is regarded as the most stringent in the world to manage emerging AI technologies, Meta CEO Zuckerberg took the lead and wrote a letter to the EU with Börje Ekholm, president and CEO of Sweden’s Ericsson, and nearly 50 company executives, researchers and industry organizations, warning that the EU’s heavy regulatory environment will cause Europe to face the risk of further lagging behind in the era of artificial intelligence.
In Brussels, Digital Europe, an organization representing the technology industry, expressed support for the bill, but also pointed out that the specific implementation of this complex bill will be challenging. In a joint open letter, the organization admitted that it is difficult to improve the current disadvantage of “only 3% of global AI unicorn companies come from EU member states” when both China and the United States are accelerating huge investments in this emerging field. In May last year, a research report released by the European Court of Auditors (ECA) also pointed out that there is an uneven development problem in artificial intelligence among EU member states. Germany and France have the largest investment in this field, but at the same time, there are still four member states that have not announced any AI strategy so far.
The competitiveness of the EU economy is also affected by structurally high energy and electricity prices. Europe’s electricity and energy prices are still two to three times that of the United States, which seriously weakens the competitiveness of the manufacturing industry. “The US economy is growing much faster than the EU, while Germany is stagnant.” The report said. The European Commission expects the economic growth rate of its member states to be 0.9% in 2025, among which the economy of Germany, the largest economy in the EU, may continue to stagnate. In 2024, the German economy almost “stood still” and barely avoided a recession. Economic growth forecasts for the next few years also show that Germany may lag far behind major global economies such as India, China and the United States.
Markus Faber, an economic policy expert at the German Christian Social Union, believes that the report is a warning to the EU’s economic policy. The issue of competitiveness must be the central theme of the European Commission’s future work. He believes that Europe is at serious risk of losing its prosperity.
The European Commission plans to propose a comprehensive legislative proposal at the end of February this year to curb the outflow of start-ups and strengthen technological strength such as artificial intelligence, thereby enhancing economic competitiveness and maintaining Europe’s prosperity. The measures planned by the European Commission may be a decisive step in enhancing Europe’s competitiveness. Previously, Draghi suggested that the EU needs to invest 750 billion to 800 billion euros a year to enhance competitiveness, equivalent to 5% of the EU’s GDP. These investments will focus on industrial coordination, digital innovation and regulatory simplification.
