How Fixing EU Single Market Gaps Will Foster Tech Innovation Across Europe
Main takeaways
- The EU digital sector sees little improvement in its ability to do cross-border business
- To be competitive with the US and China, the EU must reduce Single Market barriers
- Preventing over-regulation is crucial, but axing pro-innovation proposals, like standard essential patent (SEP) legislation, does nothing to boost competitiveness
The Single Market remains the EU’s greatest asset in achieving the economies of scale needed to drive innovation across the European continent, with 450 million consumers and 23 million companies, accounting for 17% of global GDP.
In the digital sector, however, despite numerous EU regulations aimed at enhancing cross-border synergies introduced by the European Commission and Parliament in the recent past, the promise of a truly integrated market still has not been fully realised.
Following Mario Draghi’s warnings about the “cascading effect on our competitiveness” of the incomplete Single Market, Commission President Ursula von der Leyen expressed her commitment to implementing these recommendations in the Competitiveness Compass launched in January, as well as the more recent Commission Work Programme for 2025.
Yet, commitment alone does not drive change. So, what needs to be done? A study by the European University Institute (EUI) on how to strengthen EU digital competitiveness offers research and actionable insights into how to achieve a functioning Digital Single Market.
1. Stop fragmentation of the Digital Single Market
Thirty-two years after its creation, barriers continue to undermine the Single Market. Instead of fostering growth, companies are often forced to navigate varying regulatory barriers, as Member States diverge in how they implement EU regulations, for example.
This is especially true in the digital sector, where dozens of new laws have been rolled out under the EU’s Digital Single Market Strategy since 2014 to facilitate cross-border e-commerce. But aside from good intentions, did they actually deliver? Based on the EUI study and other research, the answer is largely no.
Despite these reforms, European merchants still face significant barriers when operating across borders. These include inconsistent VAT systems, high delivery and return costs, difficulties in resolving disputes, and the need to adapt product labelling for each country. A Eurochambres survey confirms this, with 61.2% of businesses citing the “inaccessibility of information on rules and requirements” as a major barrier to the Single Market.
2. Prevent governments from undermining the Single Market
In recent years, companies have been increasingly forced to navigate different restrictions in national markets they try to access. The EUI study found that the share of e-merchants facing cross-border issues in the EU rose from 38% to 43%.
As highlighted in CCIA Europe’s Blueprint for Digital Innovation, Member States are diverging from key EU legislation, such as the Digital Services Act and Data Act, when transposing it into national law. Some countries are also pushing for discriminatory technical standards, another form of inter-EU barriers. This only stifles innovation and limits scalability, keeping EU tech firms artificially small – especially start-ups and scale-ups.
To reverse this trend, the new Commission must swiftly and decisively use its EU treaty powers to hold Member States accountable for actions that weaken the Single Market, such as gold-plating digital laws or imposing discriminatory requirements. If the Commission fails to do so, the EU risks further fragmentation with Member States pulling back behind national borders even more – ultimately weakening the Union’s global competitiveness.
3. Foster tech innovation by stopping over-regulation
The EU has also fallen into the trap of over-regulating technological advancements, often acting preemptively before a real threat even emerges. When European industries are perceived as lagging “behind” competitors from the US or China, too often policymakers tend to respond with more prescriptive regulations.
However, this approach is stifling innovation in Europe and not fostering growth. Indeed, the EUI study concludes that new laws have had little impact on solving core Single Market issues. This highlights the need for the EU to pause introducing additional layers of regulation and instead focus on evaluating and improving existing laws.
To tackle this, the authors of the EUI study recommend a critical first step: EU legislators must “slow down the pace of new laws” to give businesses and Member States time to properly implement existing rules. And when the final political deal deviates significantly from the original plan, the Commission should prepare an “addendum to the Impact Assessment” to evaluate potential impacts and halt new trade barriers.
4. Don’t axe proposals that improve competitiveness
But let’s be clear: opposing over-regulation does not mean rejecting all regulation. When market failures threaten Europe’s competitiveness and existing tools fall short, EU intervention isn’t just justified – it is essential. The patent crisis illustrates this point.
Despite mounting evidence of abuse, the Commission has abandoned efforts to ensure legal certainty around standard essential patents (SEPs), leaving innovative companies exposed to excessive licensing demands. Institutional inertia, combined with years of inaction on automatic injunctions, have transformed Europe into a paradise for patent trolls – protecting companies that prefer litigation over innovation.
The result? A system that suppresses the very technological progress it was meant to promote. Yet, instead of seizing the opportunity to modernise these outdated rules, the Commission recently axed SEP legislation from its 2025 Work Programme, keeping innovation stuck in the past.
Conclusion
The EU’s Single Market holds enormous potential to drive innovation and economic growth, with its integrated framework (in theory) offering businesses a platform to scale and compete globally.
However, the reality for the digital sector is far from ideal and the EUI study has made it clear: the solution is not adding more laws, but harmonising existing regulations, reducing friction across borders, and focusing on actual problems. The time to act is now.
