Europe in the Intelligent Age 2025

Building scale. In 2023, the so-called “Magnificent Seven”37 US companies spent as much on R&D as half of all of Europe’s public and private sector R&D spending in technology and other areas combined.38 To allow for a similar scale, Europe could explore simplifying cross-border growth and supporting market consolidation, even as it continues its work to complete a single market. Two ideas being debated across Europe that could deliver impact: 1. Unleashing entrepreneurship: A 28th regime of uniform and radically simple business rules.39 Creating a harmonized, and investment friendly, framework across Europe by fully completing the single market is difficult and takes time. A greenfield approach may be faster and bolder. This could involve a coalition of the willing across Europe to develop common greenfield tax policies, labour rules and regulatory standards to create a unified environment that supports the growth and scaling of tech companies – effectively acting as a 28th regime alongside existing national frameworks. With such an initiative, an AI scale-up firm, for instance, could register one legal entity and have one set of labour market rules and stock option taxation – ideally investment-friendly ones – regardless of where in Europe its employees reside. It could also pay value-added taxes (VAT) at the EU level. And it could abide by one AI regulation without national-level additions – or even operate in an EU regulatory sandbox. Such a 28th regime could be broad in scope to make a difference for tech firms, but narrow in applicability – for instance, only allowing tech scale-up firms in specific domains to be eligible for this simplified treatment – to avoid hollowing out domestic standards built over decades of democratic consensus-seeking. 2. Scaling up: A pro-investment stance on European M&A. In investment-intense or winner-take-most industries, scale and commensurate investment returns are critical. This may require an approach that facilitates rather than limits not only cross-border but also in-country consolidation to drive the scale and profitability levels needed to accelerate investments. This could cover the critical technologies outlined above, but also infrastructure such as in advanced connectivity, as well as other industries such as banking and insurance. This may benefit from competition authorities prioritizing the anticipated impact of M&A on investments more than other metrics. Simplifying the regulatory and permitting environment to make Europe investible and more attractive to start-ups, scale-ups and large innovative firms and investors. Addressing this swiftly could include: 3. Speeding up: EU-wide, digital, time- bound approvals. Delays and complexity in permitting can be a major impediment to innovation. Implementing a fully digital, time- bound, single EU-wide permission process could help overcome such obstacles. Examples that emerged from discussions with business leaders include mandating that environmental assessment reviews for building permits (for such projects as semiconductor manufacturing sites or data centres) be processed within a set number of weeks. Another idea floated was to develop an EU-wide certification programme that could simplify healthcare regulatory approvals, helping to encourage cross-border collaboration and perhaps even stimulate competition, for instance, in clinical trials.40 4. Simplifying: Opportunity cost-based stance in regulation. Certainly, there are many unknowns and risks that new technologies – from AI to bioengineering – might bring, that call for careful oversight and have led to the precautionary principle in the EU. But amid accelerating global technological advancements and heightened geopolitical tensions, the risk of missing out is growing, too. Policy-makers could consider mandates for cost-benefit analyses that estimate and weigh the opportunity cost when devising new rules such as AI or data regulations as high as the risk of unintended consequences; institute time limits so rules eventually sunset if not renewed; and commit to one set of EU- wide regulations rather than directives entailing additional national layers of rules.41 Increasing innovation capital and investment. Long-term goals like attracting risk capital and implementing the Savings and Investment Union, as per Letta,42 remain crucial. But shifting existing capital at scale into innovation could provide a much-needed boost to Europe fast. The EU exported €450 billion in surplus savings in 2024, underscoring the opportunity to direct current European overseas investments towards EU innovation.43 Europe’s immediate focus could include the following initiative explored in previous reports: 5. Funding risks: Pension booster. Adjusting the allocation rules related to pensions would enable institutional investors to direct a larger portion of their assets into venture capital (VC) and private equity (PE) investments. This could potentially increase the pool of readily available capital for investments (“dry powder”) or total assets under management (AuM), which are currently four times higher in the US than in Europe.44 There will be concerns about the heightened risk to pension assets, and this risk would need to be calculated and managed. But such a shift could ultimately result in higher returns and higher retirement replacement rates over the investment horizons of such funds. Europe in the Intelligent Age: From Ideas to Action 17