If someone told you that your current trajectory was taking you toward “slow agony,” you might sit up and take notice. Yet this is exactly the warning many have ignored following the publication of the Draghi report.
Formally known as The Future of European Competitiveness, the report was published in September 2024 and authored by former European Central Bank President Mario Draghi. Its findings are stark. Draghi, who also served as Italy’s prime minister, states that, without radical reform, the European Union is set to slip into economic and geopolitical decline.
However dire the warnings, they came as little surprise to European business leaders, many of whom have been grappling with stringent regulations, economic turbulence, and the demands of the AI age for years now.
Something must change. But in a market comprising more than 44 countries, and hundreds of companies that have been operating for over a century, making the necessary changes at speed is no easy thing.
Competitiveness crunch
Draghi’s report highlights several reasons why Europe’s competitiveness is faltering.
Although it focuses solely on the European Union, many of the bloc’s problems overlap with those of non-member countries, such as the U.K. The first major issue is Europe’s rapidly widening innovation gap. As the United States and China make leaps forward in high‑tech sectors such as artificial intelligence and quantum computing, many of Europe’s brightest startups are choosing to set up shop elsewhere, frustrated by the lack of funding. Recent research by Amazon Web Services (AWS) shows that as many as four in 10 European startups would consider relocating outside Europe to scale.
But the picture is more nuanced than a straightforward decline. “We see European AI adoption reaching a tipping point,” says Tanuja Randery, vice president and managing director of AWS EMEA. “We’ve reached a milestone with over half of European businesses using AI.” The issue, she explains, is not whether companies are adopting AI but how they are using it: “There are some companies that are experimenting deeply, embedding advanced AI into their processes—then you have those who are simply experimenting at the edge.” The challenge for Europe, she says, is that progress on deeper adoption “hasn’t really moved—it’s stayed pretty flat.”
Another reality plaguing the AI industry is the extremely high cost of energy in Europe. Electricity on the continent can be two to three times as expensive as it is in the U.S., with natural gas prices up to five times as high.
The situation is exacerbated by Europe’s vast and fragmented energy networks, with thousands of different providers across each of its countries, making it almost impossible to distribute renewable energy efficiently.
Then there is the subject of much heated debate: regulation. Draghi states that EU regulatory barriers constrain growth and advocates for simplification of the General Data Protection Regulation (GDPR) and EU AI Act; fewer reporting requirements for businesses; and a shift to more innovation‑friendly regulation.
Regulation meets reality
This is an opinion heartily shared by many European business leaders, including Erik Ekudden, chief technology officer at telecoms giant Ericsson.
“The EU set out with strong ambition in the area of consumer protection, but some of these regulatory tools are not helping,” Ekudden says. “You need to lead with innovation; you can’t lead with regulation. We have to dial back this inclination to regulate something before it’s even been innovated.” The ubiquity and strictness of regulation has real business impacts. AWS research found that, currently, 42% of IT budgets are spent on compliance alone.
For Ekudden and his colleagues at Ericsson, the issue is not just over‑regulation but a lack of consolidation across Europe. The existence of so many regional telecoms operators may be precisely what is preventing competitiveness on a global stage.
“In the U.S., there are basically three main operators,” explains Per Narvinger, Ericsson’s executive vice president of business area networks. “In India, there are two very dominant ones and two more. In China you have three. In Europe—I lose count.”
He points out that, like mobile networks, AI is an industry of scale. To train algorithms, you need a massive amount of data, and in a market as fragmented as Europe, “it will be both complicated and expensive for every small operator to do the same as large operators in other continents.”
For Yael Selfin, chief economist at KPMG U.K., this tension reflects something philosophically important and deeper than policy missteps. “Europe values stability, protection, and quality of life, whereas in the U.S. profit growth has a stronger value,” she says. “These values drive some of this discrepancy.”
What enables growth?
There are those, however, who do not see regulation as a stifling force. Shail Deep, chief operating officer for EMEA and APAC at global financial data and technology company Experian, believes that regulation is what enables great innovation.
“The first reaction [to regulation] is often, ‘Oh, there are more guardrails; how are we supposed to innovate?’” she says. “But if you think about regulation first, then when we start innovating, we can move faster… We won’t have to keep returning to square one because there were risks associated with a project which were not initially considered.”
For Deep, regulation such as the EU AI Act has brought vital clarity to companies in high‑risk industries, where consumer trust is paramount. “It gives our clients confidence in terms of how AI is being used,” she says. “We have a lot more explainability about our solutions.” This, too, has a direct business impact. “If clients trust us, there is more adoption of our solutions.”
She points to other areas across financial services where European regulation has allowed for greater clarity and safer innovation, including open banking and buy‑now, pay‑later systems.
“We have to dial back this inclination to regulate something before it’s even been innovated.”
Erik Ekudden, Chief Technology Officer, Ericsson
Speed is, of course, the crux of the matter when discussing European competitiveness. Although Deep believes regulation has largely been a force for good, she does think it could move faster. “Sometimes we come up with guidelines by having these long consultative periods, which take two to three years. We need to regulate faster.”
Competing the European way
The picture for European business is by no means bleak, however. The heritage some see as a drawback speaks to endurance and resilience. Ericsson is celebrating its 150th birthday this year, while Experian’s roots stretch back nearly two centuries. The average age of a Fortune 500 Europe brand is 109 years old. No company can survive that long without understanding the power of the pivot. The key here, again, is speed.
“In periods of rapid change, there is a lot of opportunity for companies that adapt fast, both in the adoption of technology and in entering new markets,” says Selfin.
Some, particularly those in heavily regulated industries, are embracing an “if you can’t beat ’em, join ’em” philosophy. The European pharmaceuticals sector is one of the continent’s most successful, employing around 900,000 people and generating a trade surplus of €200 billion. Many of pharma’s biggest players, including AstraZeneca, Novo Nordisk, and Novartis, have opted to design for regulation, not around it, and have been working with the EU on reforms.
The result of this collaboration is new legislation, which comes into force in 2026. The new rules are designed to profit both business and society by fostering greater innovation, improving patient access to medicine, and tackling major public health challenges. Perhaps the most business‑critical element is the introduction of EU pharmaceutical regulatory sandboxes, which will allow developers to test disruptive products not currently covered by existing regulation.
Looking beyond consolidation
For many organizations, the simple truth of the matter is that success for European businesses requires them to look outside Europe. “Individual European markets are relatively small,” says Selfin. “If you really want to scale, you need to look beyond.”
It is true too, however, that the diversity of European countries can create opportunities not only through merger‑led consolidation but also by creating mutually beneficial partnerships.
The European Commission’s Battery Alliance aims to create “an innovative, competitive, and sustainable battery value chain in Europe,” uniting businesses across the supply chain, from raw material suppliers to manufacturers.
Then there are longer‑lived examples. Airbus’s consortium model was established in 1970, bringing together aerospace players from France, Germany, Spain, and the U.K. to challenge U.S. aviation dominance. The result has been eight commercial aircraft models capable of competing with those of Boeing, which in turn has sent Airbus to No. 41 on the most recent Fortune 500 Europe list.
Building for many Europes
Europe’s fragmentation can also offer untold opportunities for innovation and creativity. Deep explains there is often one solution for all of Experian’s North American clients but multiple offerings for customers in different European countries. “Some of the solutions that work in Italy don’t get the same response in Spain,” she says. “That’s why we have such a rich portfolio of products and solutions that we offer to clients.” Indeed, Italy has proved to be one of Experian’s most innovative markets because of how the country has implemented EU regulations. “It puts clients on the same page as us regarding what is permissible,” she says. “This makes the cocreation of products much easier and helps us to move faster.”
Brands can also use Europe’s many markets as a testing ground for ideas which may resonate in non‑European regions. Ikea has long adapted its product range and store experience to meet local needs. When designing for the often‑cramped reality of living in cities such as Paris or London, it created a blueprint for space‑saving furniture that works just as well in tiny Tokyo apartments or modest New York City walk‑ups.
Above all, it is worth remembering the potential inherent in Europe’s businesses, whichever strategies individual players embrace to stay competitive.
Experts agree that Europe is well placed in terms of skills, technical knowledge, and businesses—both small and large—which continue to innovate in spite of the challenges. Randery’s view reflects this optimism. “Europe’s got a ton of momentum and a ton of opportunity,” she says. “But I’ll tell you this—we’ve got to act now.” The real question, then, is not whether Europe can escape Draghi’s “slow agony,” but whether it can accelerate without abandoning the stability that has long defined its strength.
Brain drain
Percentage of European startups saying they would leave Europe for the following reasons:
56%
Greater availability of funding elsewhere
50%
Ability to scale faster internationally
46%
Better access to global markets
45%
Lower operational costs
Source: Amazon Web Services, 2026
This article appears in the April/May 2026: Europe issue of Fortune with the headline “Is Europe too slow for the AI age?”
