Europe Dismantles Rules to Compete with US

In late 2025, the European Commission unveiled a sweeping legislative package designed to overhaul the bloc’s digital rulebook. The Digital Omnibus package proposes significant amendments to foundational laws including the AI Act, the GDPR, and several cybersecurity frameworks, all under the banner of regulatory simplification. This move has ignited a fierce debate over whether Europe is streamlining bureaucracy or strategically retreating from its hard-won position as a global standard-setter in tech governance.

Critics, including a coalition of over 100 civil society groups, argue the package represents a historic rollback of digital rights. The proposed changes are substantial: delaying core obligations for high-risk AI systems by over a year, creating a new legal basis under the GDPR for training AI on personal data, narrowing what constitutes personal data, and removing mandates for AI literacy among staff. These are not minor tweaks but profound shifts, driven by a growing anxiety over Europe’s perceived competitiveness gap with the United States and China.

The intellectual groundwork was laid by the Draghi competitiveness report of 2024, which highlighted Europe’s lagging productivity and suggested regulation was a contributing factor. The Commission’s Omnibus appears to be a direct response, operating on the assumption that reducing regulatory friction will allow European AI companies to thrive. However, this premise is fundamentally flawed. Evidence suggests Europe’s tech challenges are structural, not regulatory. Issues like a fragmented digital single market, shallow capital pools, restrictive bankruptcy laws, and barriers to attracting global talent are the real impediments.

As legal scholar Anu Bradford has argued, Europe’s tech gap with the U. S. emerged long before its modern regulatory framework existed. In the era before 2010, when giants like Google and Amazon rose, Europe had minimal digital regulation yet failed to produce comparable champions. The data reinforces this: European startups secure far less funding relative to GDP than their American counterparts, and a significant portion of late-stage capital for European deep tech comes from outside the continent. Many promising companies relocate to the U. S. not to escape rules like the GDPR, but to access its vast market, deeper capital, and unified customer base.

The Omnibus risks dismantling a regulatory architecture that became a unique source of European influence. The Brussels Effect saw laws like the GDPR become de facto global standards, shaping corporate behavior worldwide. This framework provided a values-based governance model that offered European firms a trust premium and positioned the EU as a leader in setting norms for emerging technologies. Weakening these rules before they are fully implemented sacrifices a distinct form of strategic advantage for a deregulatory race Europe cannot win.

Deregulation structurally benefits well-resourced incumbents, which are overwhelmingly American. Loosening rules does not create the capital markets union or the massive domestic scale that fueled U. S. tech dominance. It simply removes one of the few areas where Europe exercised clear leadership. The Draghi report itself did not advocate for tearing down existing rules; it called for smarter enforcement, reduced overlap, and major investments in research and integrated capital markets. The Omnibus, by contrast, follows a politically easier path that addresses symptoms rather than root causes.

Some adjustments within the package may be pragmatic, such as aligning deadlines with the publication of technical standards. The European Parliament has shown nuance, supporting certain delays but adding safeguards like bans on harmful AI applications. However, the overall trajectory is concerning. Analyses, including one from the Jacques Delors Centre, warn that these changes could increase legal uncertainty and create loopholes, potentially entrenching the market power of foreign tech giants rather than empowering European challengers.

The broader review, known as the Digital Fitness Check, signals this may only be the beginning, with the Digital Services Act and Digital Markets Act also in the crosshairs. Weakening these tools does not boost European competitiveness; it enhances the position of the very platforms Europe sought to regulate. This is not simplification but a form of capitulation to a worldview that equates fewer rules with more innovation.

Europe spent a decade constructing a coherent, enforceable approach to governing transformative technologies. Dismantling this framework to mimic an American model reliant on assets Europe lacks is not a viable strategy. It is akin to selling foundational assets for short-term relief, a move that ultimately leaves the continent weaker and less distinct on the global stage.