Draghi and the future of Europe’s online economy: time for action! ??????

Europe needs to urgently shift gears to become a more influential global player, especially when it comes to the online economy. The report data is clear on this:

• Europe hasn't spawned any tech company with a market cap over €100 billion in the last fifty years, while the US created all six of its trillion-dollar companies during this period.
• The EU has only three research institutions ranked among the top 50 globally, whereas the US has 21 and China 15.
• 30% of Europe's unicorns have left the EU since 2008 because they could not scale on the continent.
• It takes on average 19 months for the EU to agree new laws (+ multiple vetoes).. The EU now has around 100 tech-focused laws and over 270 regulators active in digital networks across all Member States.

This context sets the scene for some of the challenges related to the growth of European online businesses. Many of the specific regulatory challenges are not new, but give an important perspective. It’s consistent with what we hear from businesses of all sizes and the efforts from organizations dedicated to improving the state of the European online economy like the European Startup Nations Alliance (ESNA) and many others.?

There are 5 main challenges in the report that specifically echo what we hear from businesses around the EU:

• The fragmented regulatory environment in the EU has created significant challenges for SMEs, increasing compliance costs and often deterring smaller companies from expanding or continuing operations.?
• More than 50% of SMEs highlight regulatory obstacles as their greatest challenge, with the EU passing around 13,000 legislative acts from 2019-2024, resulting in 169 identified duplications and inconsistencies.?
• National transpositions of EU laws, such as GDPR, further complicate the landscape, with GDPR alone estimated to reduce profits for small tech companies by over 15%.
• The? lack of a fully integrated Single Market forces companies to navigate different regulations in each Member State, potentially leaving around 10% of GDP on the table.
• The bureaucratic hurdles in patent filing and inconsistent sector-specific regulations, such as those in the AI Act, amplify these challenges, particularly for startups and scale-ups.

At Stripe, we try to understand the online economy from the perspective of the businesses we serve. How does regulation enable or hinder their growth? What are the most pressing issues that need to be addressed? More importantly, we aim to always champion the online economy and provide a view of how businesses view regulation and provide pragmatic recommendations on what needs to be done in an effort to bridge the gap between founders and policymakers.

The recommendations in the Draghi report are absolutely a step in the right direction, and a reason to remain optimistic.

The challenges listed above are complex problems with complex solutions, but solutions that can absolutely be implemented, especially with the support and ambitions of the new Commission. For example, we were excited to read the recommendation around an EU-wide status for "Innovative European Companies", which would harmonize corporate law, insolvency, and key labor and tax aspects to provide businesses with a single digital identity valid across all Member States. The report also recommends appointing a new Commission Vice President for Simplification to streamline regulations and reduce overlaps, which is a really positive step. Additionally, developing a single methodology for assessing the impact of new regulations and implementing a revamped competitiveness test focused on SMEs are critical steps, although they must avoid causing regulatory delays. The 25% reduction in reporting obligations, aiming for 50% specifically for SMEs is very welcome and will be of great help for smaller businesses, but it’s still unclear what this means in practice.

Simplification is a key word here. European online businesses want to build, grow and scale on the continent. They want to benefit from the proposition of the Single Market in practical terms, and that?requires concrete steps: harmonizing complex regimes such as VAT, hiring and retaining the best talent via simplification of visas and stock options regimes, reducing red tape and simplifying access to funding, and more.

So what now?

EU businesses are very aware of the challenges affecting their growth and the Draghi report ensures that policymakers can fully understand them as well. This is definitely a step in the right direction, but the sense of urgency should be high. This cannot be “just another report” but should become a roadmap to transform Europe, making it easier to build and scale a business and support businesses that have limited resources to aspire to scale rapidly.?

We are optimistic that this report can build a solid momentum towards a new European online economy. But it’s critical to now act and support founders across the continent in pragmatic changes that can allow them to focus exclusively on their growth.

We regularly invite our European users to meet with policymakers in Brussels and hear from them directly, and I'm personally excited about the ability to continue to bring in their feedback through my work as an advisory board member at ESNA. We’re also developing a report that summarizes what learnings we can take away from some of the successful things Europe has done to craft policies that unlock entrepreneurship —PSD2 is a key reason why so many of the world's leading fintechs are European, and we should apply the lessons learned to other emerging sectors of the economy.?

If you're a business and would like to share directly with me what you think would unlock European growth, or was missing in the Draghi report, please reach out to me directly— [email protected]