Innovation policy in the EU is based on Article 173 of the Treaty on the Functioning of the European Union (TFEU). It serves as the interface between research, technological development, and industrial policy. With the „New European Innovation Agenda“ of 2022, the EU is pursuing a comprehensive approach with 25 specific actions across five flagship areas: funding scale-ups, enabling innovation through experimentation spaces, strengthening innovation ecosystems, fostering deep-tech talents, and improving policy tools. The second Horizon Europe Strategic Plan 2025-2027 focuses on three key priorities: green and digital transitions, and a more resilient, competitive, and democratic Europe. This is important to know when we look at ongoing performances.
Funding Programs: An overview of the EU Landscape
The EU has launched various funding programs to support companies like Neuralfinity. With Horizon Europe, the EU has the world’s largest research and innovation funding program, with a budget of 95.5 billion euros for the period 2021-2027. The initiative aims to address pressing global problems such as climate change while strengthening the EU’s competitiveness. A key component of Horizon Europe is the European Innovation Council (EIC), which focuses on promoting radical technologies. With a budget of 10 billion euros, the EIC is particularly aimed at startups and small companies that want to drive breakthrough innovations.
If you look at current innovations such as those in the field of artificial intelligence, it could seem that Europe has fallen behind the USA and China in the global competition for innovation. Is that the reality? Let a European founder speak from his own experience.
A role model from Germany
An example of the European innovation landscape is the German company Neuralfinity, an AI startup developing the ModelEngine platform, which enables pre-training of multimodal AI models. Jannik Malte Meissner, co-founder of Neuralfinity, emphasizes the importance of EU supported projects for the company’s success: „The X2.0 program connected us with key players in the European startup scene and enabled us to participate in trade fairs like VivaTech.“
The X2.0 program is an EU initiative aimed at supporting deeptech startups in Europe. It focuses on helping 50 selected companies scale up by offering tailored, industry-specific growth programs. With a budget of €1.5 million for innovation and scaling services, X2.0 concentrates on five key areas: Manufacturing & Circular Economy, AgriTech, HealthTech & BioTech, Smart Cities and Sustainability, and Data & AI.
Innovation performance varies significantly across European countries, highlighting the diverse strengths and challenges within the EU’s innovation landscape. The European Innovation Scoreboard (EIS) 2024 offers a comparative assessment of research and innovation performance among EU member states, neighboring European nations, and global competitors. This tool identifies both the relative strengths and weaknesses of national innovation systems while pointing out key challenges that need to be addressed to enhance competitiveness. By providing interactive visualizations, country profiles, and comparisons of strengths and weaknesses, the EIS serves as a crucial resource for policymakers and stakeholders to better understand the dynamics of innovation across the region. On the global stage, this variability within Europe adds another layer of complexity as the EU competes with the United States and China, which continue to outpace it in terms of private sector R&D investment and high-tech innovation.
Europe in Innovation Comparison: lagging despite funding?
Despite these initiatives, the question remains whether the EU has indeed fallen behind in the global innovation competition. Statistics support these concerns: The Ifo Institute found that spending on research and development in the EU in 2021 was 2.2% of gross domestic product (GDP), while in the US it was 3.5%. In absolute terms, the US invested 730 billion euros, while Europe only spent 322 billion euros.
The gap is particularly stark in private sector investment in research and development: While companies in the US spend 2.3% of GDP on this, the EU share is only 1.2%. China has continuously increased its investments in this area, from 0.6% of GDP in 1995 to 2.4% in 2021 - also surpassing the EU.
Challenges for European Startups
Jannik Malte Meissner, co-founder of Neuralfinity, sees clear hurdles for European startups: „Compared to the US, startups in Europe struggle with a smaller and more fragmented ecosystem, making it more difficult to build networks and find investors.“
He particularly highlights European risk aversion: „European companies are often more hesitant when it comes to working with young startups. Many companies are reluctant to buy products or services from early-stage startups, even if they offer urgently needed solutions.“
Another problem is the concentration of European companies on so-called midtech industries, while US companies invest heavily in high-tech areas such as software, biotechnology, and pharmaceuticals. In the EU, similar amounts flow into midtech and high-tech industries, illustrating the lag in future-oriented sectors.
EU Regulations: Obstacle or opportunity?
The EU has created new regulatory frameworks with the general data protection regulation (GDPR), the Digital Services Act (DSA) and the Digital Markets Act (DMA) to promote a fairer digital economy. However, Meissner sees both advantages and disadvantages: „The GDPR was a big step that strengthened trust in European companies. However, many of the new regulations make life particularly difficult for startups and open-source projects.“
Particularly problematic is the vague wording in the planned AI Act: „The definition of Artificial Intelligence is unclear. It could be argued that any software falls under this definition, while at the same time technologies like deep learning are not covered. This uncertainty is a problem for innovations in Europe.“
Future perspectives: Ways to strengthen innovation power
Meissner advocates for a more integrative approach within Europe: „We need more regulatory unity in the EU. Building a startup is hard enough - additional bureaucracy through 27 different tax systems doesn’t help.“
He also calls for more courage to focus on future-oriented industries: „Innovation will happen, with or without Europe. If we want to be part of this change, we need to bet on technologies of the future - not cling to outdated industries.“
Despite the challenges, Meissner sees potential for Europe, especially in the field of Artificial Intelligence: „Some of our customers use models from OpenAI or Anthropic. But when startups that build on these models become successful, costs often rise. This presents an opportunity for European companies: We develop specialized models that are more efficient and cost-effective.“
What does that mean?
The EU has created a solid foundation for innovation, but there are still hurdles that hinder innovation potential. A comparison with the US and China shows that Europe is lagging in investments in research and development. To play a leading role in global innovation, Europe needs not only more financial resources but also a culture that promotes entrepreneurial risk-taking and reduces regulatory hurdles. The article shows that these regulations can also have positive effects. The base are the people like Jannik who stand behind their idea.
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