As the European Union grapples with the challenge of staying competitive in the global tech landscape, it’s striking to see the Commission’s latest move: the Digital Omnibus package, a sweeping legislative proposal aimed at simplifying EU tech industry regulations. But beneath the surface of “simplification,” lies a more complex and consequential issue – one that threatens to undermine the very foundations of the EU’s digital regulatory framework.
Regulation: A Misguided Solution
The assumption driving the Omnibus is that regulation is the primary obstacle standing between European tech companies and global success. However, this assumption is not supported by evidence. As Columbia Law School professor Anu Bradford argued in a 2024 paper, the technological gap between the EU and the US is largely due to more fundamental issues, such as the absence of a genuine digital single market, shallow and fragmented capital markets, punitive bankruptcy laws that discourage risk-taking, and an immigration system that makes it harder to attract global tech talent.
Bradford’s argument dismantles the premise on which the entire Omnibus rests. If light regulation were the key to tech success, Europe should have produced its own giants in the years leading up to 2010, when Google, Meta, and Amazon built their global dominance. But it did not. The numbers tell the same story. According to the State of European Tech 2025 report, US startups attract funding at roughly 0.74% of GDP, compared with 0.35% for the UK and Ireland, the highest-performing European region. Nearly half of all late-stage funding for European deep tech spinouts still comes from outside Europe, predominantly from America.
The AI Act and the GDPR
The Omnibus proposes significant changes to the AI Act and the GDPR, two cornerstone regulations in the EU’s digital regulatory framework. The AI Act’s core obligations for high-risk systems would be delayed by up to 16 months, and a new legitimate interest basis would be created under the GDPR for companies training AI models on personal data. But these changes would only exacerbate the existing problems facing European tech companies.
For example, the AI Act’s delay would give companies more time to comply with the regulation, but it would also create uncertainty and undermine trust among stakeholders. The new legitimate interest basis under the GDPR would allow companies to train AI models on personal data without explicit consent, but it would also raise concerns about data protection and the potential for misuse. By weakening the AI Act and the GDPR, the Omnibus would create a regulatory environment that is less protective of citizens’ rights and less conducive to innovation.
The Consequences of Weakening Regulations
The consequences of weakening the AI Act and the GDPR would be far-reaching and devastating. European tech companies would lose a key competitive advantage, and the EU’s ability to regulate the digital economy would be severely compromised. The Omnibus would also create a race to the bottom, where companies would seek to exploit loopholes and undermine the regulatory framework. This would lead to a loss of trust among citizens, a decrease in innovation, and a decline in the EU’s global competitiveness.
Furthermore, the Omnibus would undermine the EU’s commitment to digital fundamental rights, such as the right to data protection and the right to a fair trial. The Omnibus would also create a precedent for weakening other EU regulations, potentially leading to a broader erosion of the EU’s regulatory framework.
Practical Solutions to Structural Problems
So, what can be done to address the structural problems facing European tech companies? The solution lies in addressing the underlying issues, rather than merely tweaking the regulatory framework. For example:
Develop a genuine digital single market
The EU needs to create a genuine digital single market, where companies can operate freely across borders and access a continent-sized market. This would require harmonizing regulations, reducing barriers to entry, and creating a level playing field for all companies.
Strengthen capital markets
The EU needs to strengthen its capital markets, making it easier for companies to access funding and for investors to invest in European tech startups. This would require creating a more favorable regulatory environment, reducing the burden of regulation, and increasing access to capital.
Improve bankruptcy laws
The EU needs to reform its bankruptcy laws, making it easier for companies to take risks and innovate. This would require creating a more favorable regulatory environment, reducing the burden of regulation, and increasing access to capital.
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Attract global tech talent
The EU needs to attract global tech talent, making it easier for companies to hire the best engineers and entrepreneurs. This would require creating a more favorable regulatory environment, reducing the burden of regulation, and increasing access to capital.
Conclusion
As the European Union grapples with the challenge of staying competitive in the global tech landscape, it’s clear that the solution lies in addressing the underlying issues, rather than merely tweaking the regulatory framework. The Omnibus package is a misguided attempt to simplify EU tech industry regulations, but it would only exacerbate the existing problems facing European tech companies. By weakening the AI Act and the GDPR, the Omnibus would create a regulatory environment that is less protective of citizens’ rights and less conducive to innovation. It’s time for the EU to take a step back and address the structural problems facing European tech companies, rather than merely patching up the regulatory framework.
Recommendations for Policymakers
Based on the analysis above, policymakers should take the following steps:
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Develop a genuine digital single market, where companies can operate freely across borders and access a continent-sized market.
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Strengthen capital markets, making it easier for companies to access funding and for investors to invest in European tech startups.
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Improve bankruptcy laws, making it easier for companies to take risks and innovate.
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Attract global tech talent, making it easier for companies to hire the best engineers and entrepreneurs.
By taking these steps, policymakers can create a regulatory environment that is more conducive to innovation, more protective of citizens’ rights, and more competitive in the global tech landscape.
