I recently attended a discussion on Europe’s competitiveness. There was unanimous agreement that we are lagging behind in all applied technologies—perhaps with the sole exception of the pharmaceutical industry.
The reflexive response from the participants was: “We’ve created a fund for that.”
Too few startups? Create a startup fund.
Weak AI performance? An AI innovation fund!
Falling behind in space? Here’s a hefty Horizon Europe call!
But this strategy has at least three major problems.
1. The Scale Problem
The EU spends only a few tens of billions of euros per year from public funds to support innovation. Mario Draghi’s 2023 report calls for increasing the main public innovation instrument—the upcoming FP10 framework program—to €200 billion over seven years. Some member states add extra billions from their national budgets; others contribute almost nothing.
For comparison:
- Amazon plans $104 billion in capital expenditures in 2025.
- Alphabet: $75 billion
- Meta: $70 billion
- Microsoft: $89 billion
- Apple: $12 billion …
European public spending on technology is pocket change compared to the private investments of global tech giants. Success in technology requires projects that attract global capital—not bureaucratic grant funding.
2. The Incentive Problem
Funds distort motivations.
An American startup must satisfy investors. It needs to deliver a market-successful product that returns its investment with profit.
A European startup must satisfy grant conditions and the preferences of the politically appointed European Commission. It must deliver a product that fits the specific grant criteria—criteria that, at best, reflect vague bureaucratic notions of what “innovation” means. At worst, they include boxes to tick on decarbonization, inclusivity, gender balance, and fifty other unrelated items.
Instead of solving real problems or building scalable businesses, startups learn to write grant applications and optimize for compliance.
3. The Tax Problem
To finance all these funds, the money has to come from somewhere.
One proposal is the upcoming Corporate Resource for Europe (CORE) tax—a new EU-level tax on all firms headquartered in the EU with revenues above €100 million. So, when a business finally manages to succeed despite all obstacles and grow to a global scale, Europe makes sure to “reward” it with a higher tax burden.
It is nearly impossible for Europe to catch up technologically with the US or Asia. But it would at least be nice not to lose sight of them entirely. To do that, the EU needs to reform its single market, as we outlined in cooperation with Epicenter Network last year in the publication Market Force: Revitalizing the Single Market for the next 30 years. Yet no institutional reform will help without a change in Europe’s political culture. We must learn to support the market from the bottom up—through a high-quality business environment—not from the top down through endless funds.