Although all the major economies have been affected by market instability, American-facing businesses are now navigating a more cautious investment environment, with forecasts indicating a potential recession or stagflation is on the cards. The turbulence effectively froze IPO activity, with the likes of eToro, StubHub, and Hinge putting listing plans on hold. That IPO window is likely to remain closed while volatility endures, leaving a long backlog of late-stage IPO-ready companies in limbo, and dampening liquidity across the ecosystem. 

Luring capital and tech talent

For European tech, this could be an inflection point. As U.S. policy shifts inwards, and its currency is set to further weaken, investors will continue to rebalance their portfolios. This made its mark on the relative stock market, with Europe outperforming the U.S. The comparative uncertainty facing other major blocs makes Europe a more appealing destination for capital and talent. It would be naive to think that companies that have announced New York listing ambitions will about-face and go public in London, Amsterdam, or Frankfurt. But if American markets are seen as a riskier bet once the dust settles, some of that liquidity will likely move toward Europe.

This also applies to private investments. Europe’s early-stage tech ecosystem has gained ground on the U.S. in terms of companies started over the past decade, but has lagged on later-stage and growth funding. This rebalancing could be the catalyst for more growth capital funnelling into European tech.

And Europe’s appeal as a tech hub isn’t by default. The region has made deliberate efforts to foster a balanced and values-driven approach to entrepreneurship. Its ecosystems, while still fragmented, have in just 15 years turned into a thriving startup scene. Strong roots in academia and research create fertile ground for innovation, while high-quality public health and education options are a draw for talent. 

That said, Europe has work to do if it wants to bring larger-scale investment to its shores. We still underpay senior talent compared to the U.S., and immigration for top talent remains cumbersome. This makes it harder to attract and retain those skilled professionals who drive innovation, and we too often lose our world-class graduates to higher-paying opportunities in the US. 

A more competitive Europe

There’s a growing consensus amongst policymakers and business leaders that Europe needs to become more competitive and less bureaucratic, and recent momentum signals that it is ready to strike while the iron is hot. The Draghi report—commissioned by the EU to address its competitiveness—called for an overhaul of Europe’s investment environment, advocating for streamlined regulation and better public-private coordination. Since its release last September, the European Commission unveiled its Clean Industrial Deal, intended to support its manufacturing and clean energy industries, and, as of yesterday, its Startup and Scaleup Strategy, which includes measures to boost public tech investment and simplify entry pathways for top talent.

If implemented with urgency, these efforts could reduce structural bottlenecks and enhance Europe’s appeal to global capital. There are also concrete plans to launch its ‘28th regime’: a startup-friendly legal model similar to Delaware’s, which has long served as a gateway for global companies entering the U.S. The goal is to reduce the friction that often delays new ventures in many parts of Europe, or prevents them from getting off the ground altogether. 

And it’s not just global trade changes that Europe could benefit from as it seeks to catalyze investment. In addition to rising import costs, the sharp pivot away from sustainable innovation will hamper U.S. green manufacturing. Europe has the opportunity to step into this vacuum of global clean energy leadership and reap the economic benefits that come with it. With its Clean Industrial Deal already in place, there’s an opportunity for Europe to double down on its ambitions to attract investment for its green industries. 

Investing in innovation

The landscape of global technology is unlikely to change overnight, and the U.S. will remain home to some of the world’s most dynamic tech hubs and deepest capital pools. As Europe seeks to sharpen its focus on competitiveness, it can take lessons from what made America the world tech leader in the first place: the enduring ability to attract world-class talent, streamlined regulation, and a large investment appetite for risk. Some of the largest European pension funds have almost no exposure to innovation investments, which is a great opportunity to change.

That certainly doesn’t mean Europe should compromise what has made many of its nations the happiest and most productive in the world. But it can certainly learn from the best while retaining its identity. This isn’t just about reacting to an economic shock or policy shift. It’s also about giving the continent the impetus to create smart policy that incentivizes investment and innovation. Rather than being caught up in global trade arguments, Europe must act as its own metronome if it is to seize the moment to become a technology world leader. 

The opinions expressed in Fortune.com commentary pieces are solely the views of their authors and do not necessarily reflect the opinions and beliefs of Fortune.

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