Is EU’s digital landscape overregulated – or is it the world’s safest?

While for many outside the political bubble, the EU might appear as a distant, elitist, and somewhat inaccessible institution, for those dealing with regulations on a daily basis it represents a dynamic ecosystem. Its lengthy legislative processes produce countless directives and regulations that shape the lives of European citizens. From a business perspective, these regulations have profound implications, influencing how companies operate within the EU’s vast single market and beyond.

Complexity of the regulatory framework

The most common critique is that the EU is overregulated, with an overwhelming volume of directives and laws that are seen as stifling innovation and burdening businesses with excessive compliance costs. Their initial aim was to level the playing field so that European businesses can compete with big tech companies on an equal footing; however, the outcome appears to be different. This regulatory challenge is particularly acute for innovative startups, including those that originated in online market places, social networking platforms or the ‘collaborative economy’ and grown into major players across various markets. These businesses, which initially thrived in a relatively unregulated environment, now face increased regulatory scrutiny.

In his recent report, The Future of European Competitiveness, former President of the European Central Bank, Mario Draghi highlights that European companies often struggle to navigate the growth stage due to a lack of financial support from private entities such as angel investors and venture capitalists. He notes that regulatory, fiscal, and legal differences among member states further hinder the ability of EU companies to scale up efficiently and fully capitalize on the advantages of the single market. Mr Draghi observes that the EU’s ‘extensive and stringent’ regulatory environment may inadvertently restrain innovation. As he emphasises, while the EU’s innovation capacity continues to lag behind that of the US, China’s innovation performance has more than tripled over the past two decades and is rapidly closing the gap with the EU. This disparity is largely attributed to a lower level of investment in ‘new to the company’ innovations, reflecting a slower rate of technology adoption in the EU.

Balancing safety and innovation

At the heart of the EU’s digital regulatory landscape are landmark frameworks such as the General Data Protection Regulation (GDPR) and the Digital Services Act (DSA), which have established the EU as a global leader in setting standards for privacy, safety, and digital accountability. Supporters of the EU’s regulatory approach argue that it sets a global benchmark for non-EU companies that wish to operate within the EU market.

In contrast to regions like the US, which grapple with fragmented and inconsistent consumer protection laws, the EU’s regulatory certainty provides both businesses and consumers with a unified framework that prioritises safety and trust. This legal clarity, if well implemented at the country level, creates a stable and predictable environment for businesses to operate across all member states while giving consumers confidence that their rights are protected throughout the EU.

GDPR has been praised for empowering individuals by giving them control over their personal data, with strict penalties for companies that fail to comply. On the other hand, the case of the Omnibus Directive and the Digital Services Act, like many other directives, poses a challenge for companies operating across different EU markets, as member states can interpret the laws differently and choose to expand the scope of the regulations.

As the EU continues to introduce new legislation in response to rapidly evolving technologies, such as AI, the question remains: can smaller businesses, without the vast resources and compliance teams of larger corporations, cope with the increasing regulatory burden?

Ms Von der Leyen’s second term

Ursula von der Leyen’s first term saw the adoption of major rules on digital transitions, including pioneering regulations on artificial intelligence, online content moderation, and platform competition. However, her Commission faced criticism for allegedly stifling innovation and widening the EU’s gap in digital and advanced technologies. In response, Ms von der Leyen’s political guidelines for the next European Commission emphasize the need for implementing and enforcing the digital laws adopted in the previous term. A key priority will be holding tech giants accountable for their substantial influence on society and the economy through the active enforcement of the DSA and the Digital Markets Act (DMA). Additionally, her agenda includes tackling challenges with e-commerce platforms to ensure a level playing field for consumers and businesses, supported by effective customs, tax, safety controls, and sustainability standards. Achieving the EU’s digital targets and building a true digital single market are viewed as essential steps for boosting productivity and competitiveness.

As the Polish presidency of the Council of the EU approaches in early 2025, attention is focused on how Poland will influence the new Commission and the future of EU digital regulation. The presidency aims to balance single market protection with reducing bureaucracy, with the Ministry of Digital Affairs pledging to avoid new legislative burdens and focus on implementing existing regulations. This pragmatic approach seeks to provide businesses with a stable regulatory environment, allowing them to focus on growth and innovation.

Future of the EU digital landscape

The digital transition is accelerating rapidly, and key challenges such as AI and cybersecurity are poised to transform industries across the board. The way the EU responds to these emerging technologies will determine whether it remains a leader in setting standards respected by major players or fall behind in the global race to become an innovation superpower.

The debate over whether the EU is the ‘regulator of the digital world’ largely depends on the perspective. From a consumer’s viewpoint, the EU’s strong regulatory framework is seen as a global model for safeguarding user rights and promoting ethical technology development. However, from a business perspective—especially for small European players—the regulatory environment can feel overly restrictive, setting compliance thresholds hard to meet without significant resources.

From a public affairs professional’s perspective, there is a need for effective dialogue between businesses and regulators to develop regulations that not only protect citizens but also consider the experiences and viewpoints of the business community. Striking this balance is crucial for establishing a framework that fosters both innovation and public safety.