Europe stands at a crossroads. For more than a decade, the continent’s economy has stagnated while those of the United States and China surge ahead, especially in key emerging technologies such as artificial intelligence.

Europe has long struggled to produce leading digital businesses. While the United States and China have given rise to global tech titans such as Nvidia, Meta and Alibaba, the European Union’s contributions are scant. Of the world’s top 50 publicly traded tech companies, Europe, which accounts for approximately 15 percent of global gross domestic product, has produced just four.

This digital drought is a major contributing factor to the economic stagnation plaguing the continent. In 2008, the GDP of the United States was nearly equivalent to that of the eurozone. Today, the U.S. economy is approximately 75 percent larger, and the EU’s forward-looking GDP growth estimates suggest this troubling trend will continue.

This disparity isn’t due to a lack of talent among European entrepreneurs. Rather, it stems from a regulatory regime that suffocates innovation and deters risk-taking. The EU now has around 100 tech-focused laws and over 270 separate regulating bodies active in digital networks across all member states, creating a complex web of rules that make it difficult for startups to grow and compete globally.

The EU’s recent enforcement of its Artificial Intelligence Act places stringent regulations on AI practices and applications, threatening to further stifle innovation and deter investment in European startups competing in the AI race. Meanwhile, Chinese firms such as DeepSeek, Alibaba and others are rapidly advancing and rolling out efficient AI models that rival Western counterparts, including open-source models.

Sweeping regulations like the Digital Services Act (DSA), the Digital Markets Act (DMA) and the General Data Protection Regulation (GDPR) impose hefty compliance costs on businesses and undercut research-and-development spending.

The DMA adds insult to injury by empowering European bureaucrats to review all potential acquisitions by large “gatekeeper” tech companies, particularly those involving high-growth startups. Even European businesses are warning that the DMA threatens to stifle the growth of new enterprises and significantly slow digitalization across the eurozone.

The eurozone’s approach toward mergers and acquisitions further undercuts ingenuity. While the United States has long encouraged large companies to acquire promising startups — providing vital exit opportunities for venture capitalists and founders — Europe’s ambiguous “abuse of dominance” standards discourage such acquisitions. This leaves emerging businesses without potential buyers and deters new startups and the venture capital investment they need to thrive.

Navigating the EU’s tangle of red tape diverts resources away from innovation and ingenuity and towards administrative compliance. As a result, many European startups struggle to grow, leaving investors wary of pouring capital into a market hamstrung by regulation.

Börje Ekholm, CEO of Ericsson, has warned that the EU risks becoming “a museum” due to its regulatory approach.

Nicolai Tangen, head of Norway’s $1.6 trillion sovereign wealth fund, has expressed concerns over Europe’s lack of competitiveness in technology and innovation. He noted that while the U.S. is forging ahead in areas such as AI with minimal regulation, Europe has “no AI and a lot of regulation.”

Rather than addressing these structural barriers, EU policymakers have instead reverted to penalizing American tech companies operating within their borders. Companies such as Amazon, Google and Meta have faced billions of dollars in fines and stringent regulations. Not only does this approach deter domestic innovation, it stifles international collaboration and the flow of ideas and capital.

Meanwhile, China is rapidly advancing its technological capabilities, committing nearly $2.8 trillion towards dominating strategic technologies by 2030. President Xi’s “China Standards 2035” plan seeks to control the global governance of technology, enabling Beijing to censor and surveil opponents while reaping economic spoils.

To reverse these trends, the EU must adopt a balanced regulatory approach that fosters innovation, attracts capital investment and encourages risk-taking. This means streamlining regulations and increasing investment in R&D. Europe should also embrace the private sector as a strategic partner, stop punitive pursuits of American tech companies, and strengthen transatlantic ties to boost our economies and counterbalance China’s growing technological influence.

The stakes could not be higher.

Europe’s future prosperity hinges on its ability to shed its regulation-heavy approach and embrace the power and opportunity of innovation and ingenuity. With the future of global tech leadership hanging in the balance, the stakes could not be higher. For the sake of Western economic prosperity and national security, we implore European policymakers to focus their attention on bolstering entrepreneurs, not shackling them.

Kent Conrad represented North Dakota in the Senate from 1986 to 2013 as a Democrat. Saxby Chambliss represented Georgia in the Senate from 2003 to 2015 as a Republican. Sens. Conrad and Chambliss serve as advisers to the American Edge Project.