Some of the most prominent European start-ups and venture capital firms have a vision that they maintain they can turn into reality in the space of a decade. They believe that Europe can have its first US$1 trillion start-up, employing more than 100,000 people at the cutting edge of technology, by 2035.
Getting there, according to the group known as EU Inc, requires a shift in how Europe works. They argue that the current regulatory and bureaucratic requirements imposed on them stifle the growth of domestic tech companies.
The group’s goals are not some fanciful redrawing of the continent into a version of Silicon Valley. They want to develop indigenous companies that aren’t held back by the lack of access to finance and overly excessive burdens that see many decide to relocate to America to grow.
Pushing at an open door?
Once upon a time, EU Inc would be easily dismissed. However, with an open letter signed by some really large firms, including Stripe and Wise, they might find that they are pushing at an open door. The issues they raise, of a Europe falling behind in the race to develop the global companies of the future, are very much being discussed at the highest levels.
In September Mario Draghi, the former president of the European Central Bank, delivered his long-awaited report into the health of Europe’s economy to European Commission president Ursula von der Leyen.
Individual countries often prioritise national interests over collective progress
As expected, the 400-page report laid out in stark detail how the gap in GDP between the US and the EU bloc has widened. US productivity has been driven by the growth of its tech industry, while Europe has grappled with stagnation following the global financial crisis, compounded by challenges such as the Covid-19 pandemic, the war in Ukraine and the energy crises.
Critical steps
Draghi sets out critical steps Europe must take to bridge the competitiveness gap with the US. The report says that to catch up requires annual investment of €800bn in key sectors, including innovation, research, sustainability and defence. Achieving this will require a shift towards a more integrated and dynamic approach, minimising regulatory barriers and fostering greater cooperation among member states.
While the EU benefits from a common currency and monetary policy, individual countries often prioritise national interests over collective progress, limiting the effectiveness of union-wide initiatives.
Will Draghi’s report languish in bureaucratic limbo or be acted upon?
Take financial services and banking as just one example. EU Inc said in its open letter that start-ups suffer from the fact that they do not get the benefit of being able to access a wider pool of investment. That runs counter to the goals of the Capital Markets Union (CMU), which was meant to unify European financial markets and encourage crossborder investment.
Slow progress
Despite the potential benefits of the CMU, progress has been slow. Protectionist sentiments persist, as evidenced by the German government’s opposition to the potential takeover of Commerzbank by Italy’s Unicredit. Such resistance impedes the consolidation of Europe’s banking sector, which could enhance efficiency and broaden access to capital for businesses.
Draghi’s report has many recommendations, from creating an advanced research projects agency, expanding the remit of the European Investment Bank, encouraging angel investors and using the vast power of European pension funds. All of this is needed and more. Will the report languish in bureaucratic limbo or be acted upon?
To ensure competitiveness, Europe must embrace bold reforms
It certainly needs to. The current economic climate underscores the urgency for decisive action now. The US continues to dominate in tech innovation, echoing past trends where transformative advancements reshaped its economy, driving wealth creation and improved living standards while Europe has struggled to keep pace.
To ensure competitiveness and avoid another prolonged period of economic stagnation, Europe must embrace bold reforms. This journey will necessitate a combination of financial integration, regulatory simplification and strategic investments in technology. The decisions made today will be pivotal in determining whether Europe can rise to the challenge or continue to lag.
