An era of innovation-driven, Atlanticist European leadership

The European Union (EU) is at a strategic crossroads on techno-economic policy. As a new Commission and Parliament take office, it must choose between loyalty to the transatlantic alliance and strategic independence. It must also choose between maintaining regulatory hostility towards big tech companies or unleashing innovation in Europe. In its own interest and that of the free world, the EU should prioritize the scale and market-based policies necessary for innovation to thrive, while also putting more effort into the transatlantic alliance, which is essential to ensure the West does not lose to China in the 21st century.

The EU has been on the path of consistently heavy-handed competition policy and regulation for the past few decades. The latest iteration of this trend is the Digital Markets Act (DMA), which imposes excessive restrictions and costs, mainly on large US technology companies. DMA advocates suggest that it is necessary to crack down on anti-competitive abuses and protect small European digital businesses. However, as Europe’s productivity crisis continues, some political leaders seem to be taking a different view. For example, in a landmark speech at the Sorbonne University on April 26, French President Emmanuel Macron made it clear that Europe should take responsibility for evolving its competition policy, describing this as an ordo-liberal competition model, and called for more flexible competition rules to support the EU’s growth and create European tech industry champions.

Regulations like the DMA touch on the important question of how Europe fosters the innovation needed to drive long-term productivity growth, as well as core questions about Europe’s standing as a leading global power. Since World War II, U.S.-EU relations have been generally defined by a philosophy of Atlanticism, built on a common Western heritage and liberal democratic values, and by close transatlantic ties. But the DMA’s targeting of U.S. technology giants has already begun to strain U.S.-EU relations, following long-standing calls by European leaders such as President Marcon for greater strategic independence from the U.S. in the face of concerns about the rise of China, a perceived decline of the U.S., and the erosion of the rules-based international order.

Europe therefore has four paths to follow in charting its course for the 21st century. Let us think of this in a matrix of four squares, with various combinations of either Atlanticism or a strategically independent third pole on one axis, and either an ordo-liberal competition policy or an innovation-led national champion policy on the other (Figure 1).

Figure 1: Four paths for techno-economic competition policy in Europe

The first, pastoralism and Atlanticism, depicted in the top left quadrant, is the maintenance of the status quo. In terms of competition policy, Europe will continue to apply antitrust laws aimed at protecting small and medium-sized enterprises and consider regulations such as the DMA to set global standards for ensuring fairness with clear accountability for large technology companies, as made clear by European Commission President Ursula von der Leyen (2019-2024). At the same time, the Commission can strengthen Atlanticism, which was only reaffirmed by the strong transatlantic coordination in response to Russia's aggression in Ukraine and reflected in the US-EU joint statement late last year, upholding our commitment to a transatlantic partnership that benefits all and expressing our desire to deepen cooperation to reflect the pressing challenges and opportunities of our time.

The second approach, located in the lower right quadrant of the diagram, Europe as a third pole with its own champions would follow the lead of French President Macron and seek to loosen European competition policies and regulations to unleash Europe’s techno-economic power, but at the same time, like China, would see the United States as a competitor before being a partner. As President Macron explained in his speech at the Sorbonne, “we need to adopt different rules in industrial and competition policies.” Have you seen the US Department of Defense or the US Department of Energy funding emerging European players? I have seen American startups, which are supposed to be the product of spontaneous entrepreneurship, heavily subsidized by US institutional policies. We should do the same. We are competitors. In other words, Europe would see itself as neutral in the context of the broader US-China rivalry, not Atlanticism.

The third paradigm, the bottom left quadrant of the matrix, would maintain the status quo on European competition policy and hostility towards big companies, especially US ones, but would likewise increase strategic independence from the US and adopt a more neutral stance towards the US-China conflict. This might be preferred by some elements of the European centre-left and the Party of European Socialists, who see the DMA as an important piece of legislation aimed at increasing competition and fairness in the digital market by regulating big tech companies, but also argue that new policies and regulations may be needed to create a fairer digital environment for all. Moreover, some of the key leaders of this party, such as German Chancellor Olaf Scholz, called last year for a revitalization of the EU-China Comprehensive Investment Agreement, which would be a fundamental challenge to the Atlanticist geo-economic model.

The final option, the top right quadrant, combines pro-innovation EU competition and industrial policies with Atlanticism and the prioritization of the US-EU partnership. As former Italian Prime Minister and former President of the EU Central Bank Mario Draghi recently stated in his speech accepting the Carlos V Europe Prize, a more economic and less order-liberal approach to competition policy is preferable to promote European innovation and dynamism. Competition policy needs to promote scale by prioritizing innovation and resilience criteria in line with evolving market and geopolitical conditions and by condemning practices that raise consumer prices and reduce the quality of services. At the same time, as acknowledged by the Atlantic Council, both Draghi and Italian Prime Minister Giorgia Meloni have each been characterized as Atlanticists and clearly embody Atlanticism.[ing] A practical and clear values-based commitment to the transatlantic relationship.

Of these four options, Europe should embrace the latter: innovative, large-scale companies and Atlanticism. This requires curbing Schumpeterian scale-driven innovation competition, a key feature of Silicon Valley's success, and abandoning the ordo-liberal theory of competition that contributed to Europe's failure to produce its own leading digital companies. In fact, as Draghi noted in the same speech, if we exclude the technology sector, the EU's productivity growth over the past 20 years would be comparable to that of the United States, and the gap could widen further due to the rapid development and spread of artificial intelligence. It also requires scaling back the enforcement of problematic institutions, such as the DMA, that target leading American technology companies.

Moreover, the need for Atlanticism is more important than ever given the challenge that China poses to the West. ITIF President Rob Atkinson warns:

Even if the EU and the US reach a broad agreement on the nature of the China challenge, domestic efforts alone will not be enough. We need to join forces. And it must start with true transatlantic cooperation. During lunch with a senior Chinese government official in Beijing, I asked how the Chinese government would deal with growing resistance to China's unfair economic and trade policies. The official said he was not worried about individual countries or the G20. What he was really worried about was the G2, a strong alliance between the EU and the US. What kept him up at night was the threat that the G2 would unite and attack China.

Fundamentally, as the new Commission takes shape, Europe must make fundamental decisions. Faced with a stagnant economy, a productivity crisis, and China’s relentless pursuit of techno-economic dominance, the choices made today will determine the future of Europe and the West more broadly. Now is not the time for the EU to continue the status quo on competition policy, nor is it the time to embrace a third pole worldview that sees China and the United States as equal threats to Europe. Now is the time for Europe to prioritize policies that unleash innovation and recommit to the transatlantic partnership that is essential to Western leadership in the 21st century.

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