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17 October 2025

Europe Grapples With Innovation And Democracy Challenges

Despite ambitious digital laws, EU leaders warn that regulatory caution and external pressures threaten both technological competitiveness and democratic values.

Europe stands at a crossroads. With the world’s eyes fixed on its digital ambitions and democratic ideals, the continent faces a stubborn paradox: it has some of the most ambitious tech regulations on the planet, yet still struggles to translate these rules into real-world power and innovation. On October 16, 2025, this tension was laid bare at a high-level conference in Brussels, co-organized by the Open Markets Institute and Article 19, where policymakers, regulators, and experts gathered to debate the future of Europe’s digital landscape and democracy.

Over the past decade, the European Union has rolled out regulatory frameworks that are the envy (and sometimes the ire) of the globe: the Digital Services Act (DSA), the Digital Markets Act (DMA), and the General Data Protection Regulation (GDPR) are now household acronyms among policymakers and tech executives alike. These laws aim to rein in Big Tech, protect user privacy, and foster fair competition. But as civil liberties campaigner Johnny Ryan pointedly asked at the conference, “The question of the moment is whether Europe is going to be strong and independent or whether it is going to be a vassal.” According to Tech Policy Press, the laws may be on the books, but the EU’s leverage remains limited.

One of the core issues is Europe’s risk-averse regulatory mindset. Since 2016, the EU has officially embraced the innovation principle—a commitment to ensure that policy encourages technological advances that align with its environmental, social, and economic objectives. However, as highlighted by a recent analysis in Wake up, Europe. It’s Time to Get Serious About Innovation, this principle has failed to meaningfully influence EU regulation. The reason? The innovation principle lacks a legal anchor, a clear definition, and, crucially, awareness among officials. Five years ago, the EU’s own evaluation concluded that the principle was little more than a paper tiger, with policymakers neither equipped nor incentivized to implement it.

Instead, the precautionary principle has dominated. This philosophy dictates that new technologies presenting any hypothetical risk should be restricted—a stance that, as European business leaders have warned the Commission, “routinely stifles” innovation. The result is a regulatory environment where, to quote Mario Draghi’s damning report, “not a single new European company has achieved a market capitalisation over €100 billion in the last 50 years.” Even more alarmingly, between 2008 and 2021, 30 percent of European unicorns—start-ups valued at over $1 billion—relocated to the United States. Draghi’s diagnosis was clear: “self-defeating” regulatory burdens are driving innovation away.

This regulatory inertia is not just an economic issue—it’s a democratic one. Speakers at the Brussels conference, including EU Commissioner for Democracy, Justice, the Rule of Law and Consumer Protection Michael McGrath, former European Commission Executive Vice-President for Competition Margrethe Vestager, and German MEP Alexandra Geese, all agreed that legislation alone is insufficient. Vestager, in her keynote, argued that “enforcing laws is keeping the promises you gave.” She warned that the greatest threat to democracy today is not technology itself, but the concentration of digital power in the hands of a few dominant platforms. “Competition policy is not only an economic instrument but also a democratic safeguard,” Vestager said, referencing the ongoing Google AdTech case. “If regulators had banned conflicts of interest 25 years ago, we would be in a different world—and it’s going to get worse with AI.”

Commissioner McGrath put the stakes in stark terms: freedoms in Europe “are not guaranteed but must be actively protected daily.” He cited the growing threats of disinformation, cyberattacks, and attempts to undermine the rule of law—challenges that are only amplified by Europe’s dependence on US-based cloud infrastructure and AI technologies. This reliance, McGrath warned, leaves the continent exposed to political influence and potential sanctions from abroad, notably the United States, which has labeled European rules “Orwellian” and threatened tariffs in retaliation.

It’s not just about external pressure. Internally, the EU’s own institutions often fail to systematically consider the impact of regulation on innovation and competitiveness. Neither Member States nor Members of the European Parliament routinely use the Commission’s Better Regulation impact assessments, including mandatory competitiveness checks. As a result, amendments to legislation may inadvertently stifle innovation, and the EU’s ambitions to boost competitiveness remain unfulfilled.

Some conference participants, such as MEP Alexandra Geese, called for a more authentic debate around free speech, urging that Europe not be defensive in the face of US criticism. David Kaye, former UN Special Rapporteur on the Promotion and Protection of the Right to Freedom of Opinion and Expression, argued that Europe needs “an offense, a strategy, instead of just responding to attacks.” Meanwhile, Stanford scholar and former MEP Marietje Schaake captured the urgency: “This dependency [on US technology companies] was undesirable economically, but now it is also a threat to national security.”

So, what’s to be done? The answer, according to both critics and advocates, is twofold: institutional reform and a cultural shift. The proposal to create a European Innovation Protection Board (EIPB), as outlined in Wake up, Europe, would provide a supra-supervisory role over other EU bodies—such as the European Data Protection Board or the EU AI Office—ensuring that all regulatory decisions align with Europe’s innovation goals. The EIPB could even overrule decisions that fail to account for the impact on innovation, providing real legal force, accountability, and visibility across institutions.

But perhaps more fundamentally, Europe needs to change its mindset. Right now, new technologies are too often met with suspicion and a laundry list of potential risks. In contrast, the United States and much of Asia tend to greet innovation with excitement—and a sense of opportunity. As the conference made clear, a cultural shift toward embracing technological opportunities, rather than fixating on hypothetical risks, is essential if Europe is to remain competitive and protect its democratic values.

The risks of inaction are clear. Venture capitalist Roger McNamee warned that “Big Tech knows they're stoking a bubble that will end in a crash. They are not concerned. The crash will wipe out smaller rivals and weaken the governments that they want to control.” David Kaye echoed these concerns, noting that “the entire information environment is increasingly influenced not just by monopolistic platforms but also by the seemingly do-no-wrong AI industry that governments are cheerleading.” Jonathan Kanter, a former Biden administration antitrust enforcer, went even further: “Plutocracy is its own form of dictatorship. There is no such thing as a benevolent dictator. There is no such thing as a benevolent monopolist.” His advice to regulators: “Do something. Do not let the enormity of the problem paralyze action.”

As Europe launches the ‘Ideas for Europe’s Future’ series to explore how it can enforce tech laws, build independent digital infrastructure, and deliver on its AI ambitions, the message from Brussels is unmistakable: the challenge is not just writing rules, but asserting them—boldly, consistently, and with an eye toward both innovation and democracy. If Europe can shift its regulatory culture and institutional priorities, it may yet reclaim its place as a global leader in both technology and democratic governance. If not, the risk is falling further behind, trapped by its own caution while others race ahead.