Wake up, Europe. It’s Time to Get Serious About Innovation.

In an era of intense techno-economic competition, particularly from China, the EU’s risk-averse regulatory mindset is contributing to its own decline. Reinvigorating Europe’s competitiveness will require the EU to create a regulatory environment that fully embraces innovation at all levels of policymaking.

In 2016, the EU adopted the innovation principle, which calls for EU policy to be “developed, implemented and assessed in view of encouraging innovations that help realise the EU’s environmental, social and economic objectives, and to anticipate and harness future technological advances.” Forming part of the EU’s Better Regulation initiative to reduce regulatory complexity, the principle aimed to encourage beneficial innovation, steer innovations towards promoting EU values, and balance predictability and adaptability. Almost a decade later, the innovation principle still exists on paper but has played no meaningful role in improving or even sharpening EU regulation.

Since its founding, the EU has prioritised the precautionary principle, the idea that government should restrict new technologies that present any hypothetical risk because it is better to be safe than sorry. However, as EU business leaders have explained to the European Commission, “innovation is by definition a risk taking activity” that the precautionary principle routinely stifles. The EU created the innovation principle to act as a counterweight.

Unfortunately, the innovation principle has failed to shape the EU’s regulatory playbook. Mario Draghi’s damning report to the Commission highlighted the state of European innovation capacity: In the last 50 years, not a single new European company has achieved a market capitalisation over €100 billion, and between 2008 and 2021, 30 percent of European unicorns relocated to the United States. The diagnosis was “self-defeating” regulatory burdens.

The EU’s own (and only) evaluation of the innovation principle over five years ago explains why it has failed: It lacks a legal anchor and clear definition, and officials and stakeholders are neither aware of it nor have the skills needed for proper implementation. For example, when the Commission became aware of regulatory gaps and barriers preventing the deployment of an innovative wastewater treatment technology that could have delivered economic and environmental benefits, it declined to amend the relevant rules because any changes might compromise safety. This justification reflects a broader mindset that treats potential risks as grounds for holding back technology, an approach that is impractical and incompatible with the Commission’s ongoing goals to use innovation to boost competitiveness.

The precautionary principle dominates EU policymaking, and not just within the Commission but across the European Council and European Parliament too. Neither Member States nor Members of the European Parliament (MEPs) systematically consider the Commission’s Better Regulation impact assessments on proposed regulation, including the mandatory competitiveness check, which means MEPs do not fully appreciate the effect of their amendments on competitiveness or innovation.

Europe’s challenge is institutional as much as cultural. The problem is not that all regulators oppose innovation, but that the EU has built a risk-adverse system where stifling innovation carries no political cost and no institution defends it. As a result, the impact on laws and regulations is always a secondary consideration, if policymakers consider it at all, and the EU’s ambitions to boost competitiveness through innovation remain unfulfilled.

The fix requires both the Commission and the European Parliament to embed the innovation principle at the core of policymaking. That requires giving the innovation principle the same consideration as the precautionary principle, ensuring it carries real legal force, accountability, and visibility across institutions.

For example, the Commission could establish a European Innovation Protection Board (EIPB) that provides a supra-supervisory role over other EU institutions, such as the European Data Protection Board or the EU AI Office, to ensure those entities align with European innovation goals. The EIPB could not only provide advisory services to the Commission and Parliament, but also overrule decisions made by other EU institutions that do not sufficiently account for the impact of their actions on innovation.

More fundamentally, the EU needs to embrace a cultural shift to focus less on hypothetical risk and more on tangible benefit. In Europe, new technologies are too often met with a recital of risks and fear of change. By contrast, in the United States and across much of Asia, the instinct is excitement—when will it be on the market?

A culture shift towards enthusiastic pursuit of technological opportunities will ensure regulation steers clear of preventing risk by avoiding it altogether, and instead properly balances risk and benefit.

The EU’s attempt at embracing the innovation principle has clearly failed. Many European policymakers continue to view emerging technologies as inherent threats. Unless the EU fundamentally reworks its policymaking process to elevate innovation as a primary objective, it will continue to repeat its regulatory mistakes—and fall further behind.

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