On Wednesday, 23 April, two US tech giants received the first fines from the European Commission under the Digital Market Act: a €500 million fine for Apple for breaching App Store rules and a €200 million one for Meta for no-advertising charge on its consumers. These fines follow the 2024 surcharges for tech companies and pose a question: is the European Commission trying to ensure a better digital market environment for the EU consumers or is it unintentionally pushing out the companies to create room for the local business?
A significant portion of the digital technologies and services the EU needs are designed and manufactured abroad. Only 13 percent of high-value startups are based in Europe, and only three of the top 50 ICT companies are European. Moreover, key digital milestones, such as 5G coverage, cloud adoption by SMEs, and digital skills penetration, remain far below the targets set for 2030.
There are three main barriers to Europe’s progress: a persistent startup funding gap, fragmented capital markets, and an overly complex regulatory environment. While EU-wide investment in digital technologies has increased tenfold from €39.3 billion to €389.3 billion over the past decade, it still falls short of the US total of €1.1 trillion. Consequently, it is twice more difficult for the European startups to secure substantial venture rounds compared to their American counterparts. Therefore, more innovators keep moving across the Atlantic to seek better environment for their venture ideas.
Even those who manage to attract capital in Europe face an administrative hurdle. With 27 national rulebooks with different licensing procedures, VAT regimes, and reporting schedules, startups face overlapping obligations, repetitive filings, and unpredictable compliance costs. This regulatory maze slows startups down and makes it more difficult for them to stay flexible and responsive. For example, since 2020, the share of SMEs that use cloud services has grown by only 7 percent, far below the 75 percent goal. Similarly, digitalisation among smaller firms has grown by only 2.5 percent, nowhere near the ambitious target of doubling the number of high-value startups.
Recognising the drag on Europe’s tech ecosystem, in February 2025, the European Commission presented its 2025 Work Programme — a set of 51 policy initiatives in the ambition to build a strong, secure, and prosperous Europe. It includes a new Single Market Strategy with a proposal for a pan-European venture capital fund, harmonised VAT rules, and lower company formation fees, and the Digital Omnibus, which is expected to come into force in Q4 2025, with clearer cybersecurity laws and modernised frameworks for data sharing. Additionally, a Startup and Scaleup Strategy looks to establish a unified framework for IP rights and cross-border talent mobility.
However, these initiatives must be integrated into a comprehensive Europe-wide digital rulebook applied across all 27 member states. Imagine one compliance portal where all filings, licenses, and certifications are submitted online, with instant status updates and risk-based fees replacing manual paperwork. Or a mutual recognition mechanism ensuring that any approval granted in one member state is valid across all twenty-seven. Or a single digital regulatory network where fintech ventures, AI developers and quantum researchers can test innovations under one transparent set of rules, both for business incorporation, taxation and reporting, hiring talent, and dispute resolution. Together, these reforms would transform bureaucracy from an obstacle into a catalyst for growth.
This framework would demonstrate that high standards and rapid innovation are mutually reinforceable rather than mutually exclusive. Streamlined rules would also bolster Europe’s strategic autonomy in critical supply chains, particularly semiconductors. The European Chips Act and the Chips Joint Undertaking aim to mobilise over €43 billion and double Europe’s global market share to 20 percent by 2030. Yet, without administrative reform to match these funding commitments, new factories will face permitting limbo, and investment will flow to jurisdictions with clearer and more predictable frameworks.
Aligning financial support with regulatory simplification is the only way to catalyse the large-scale manufacturing capacity that is essential for technological independence.
Europe stands at a critical juncture. The disparity between its aspirations and reality lies not in the realm of ideas or research capabilities, but rather in the intricate administrative framework and its strained approach to the foreign competitors.
Since the Trump administration took office, the disparity in EU-US relations has reached the new heights. Still, as much as the tariff uncertainty deepens the divide, this transatlantic relationship needs to become stronger, especially in the digital and tech sectors. The risk of losing its brightest potential to the friends across the Atlantic goes hand in hand with the risk of losing a significant share of the biggest providers for the European consumer. And in the blink of an eye, China will risk to the occasion to take advantage of the opportunity to plant its roots deeper in the EU.
The window of opportunity is narrow as international competitors intensify their pace of progress. Europe must make a bold choice: either embrace radical simplification or resort to incremental adjustments. Ultimately, it must demonstrate its ability to be both a champion of high standards and a formidable force for innovation, solidifying its position as a global leader in the digital age.
B&K Agency has recently released its report Europe’s Digital Future. Strengthening Competitiveness and Security, offering a detailed analysis of the challenges and opportunities facing Europe in navigating the digital age. Explore the findings here.
Julia Kril is the Executive Director at B&K Agency.
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