Europe’s Push to Close the Innovation Gap With US Is Barely Moving

Europe’s big comeback plan to close the innovation gap with the US and China is struggling to take off.

One year ago, former Italian prime minister and former European Central Bank chief Mario Draghi warned that the EU faced an “existential challenge” if it didn’t invest in advanced technologies like artificial intelligence.

In his landmark report, Draghi said Europe had missed the boat on cloud computing and quantum, but argued it still had a shot at leadership in generative AI and other frontier industries.

A year later, the follow-through looks underwhelming, according to a new Deutsche Bank report published on Tuesday.

Only 11.2% of Draghi’s vision has been implemented

The new Deutsche Bank analysis finds that Brussels has made little progress on Draghi’s 383 recommendations.

The report cited a new analysis by the think tank European Policy Innovation Council, which found that 11.2% of Draghi’s recommendations have been fully implemented — and even counting partial progress, less than a third of the agenda has been delivered as of September 4.

The audit also revealed striking sector gaps: transport and critical raw materials are ahead, while energy and digitalization remain badly stalled by politics, regulation, and fragmented ownership.

“Overall progress is mixed — no game changers, but some substantial reforms,” the bank summarized in its note.

Defense booms, tech still lags

The EU has moved fastest in defense, with Germany hiking spending from 74 billion euros, around $87 billion, in 2024 to about $128 billion next year. Brussels is also rolling out a loan plan of $176 billion for member states to ramp up arms production.

Innovation, meanwhile, has fared worse. Deutsche Bank said the EU’s effort had “limited progress in closing the innovation gap with the US.”

While the bloc has announced an InvestAI initiative to mobilize about $235 billion for AI, including tenders for AI gigafactories, most measures are still in their infancy.

A forthcoming “Apply AI” strategy aims to encourage business adoption of AI, but corporate use of AI across Europe remains patchy, the bank said.

The report also warned that Europe continues to lack scale-up financing, cloud and data infrastructure, and patent commercialization, leaving it far behind Silicon Valley and China’s tech ecosystem.

Cutting red tape helps, but not enough

The European Commission has launched so-called “Omnibus” proposals to streamline rules for small and medium-sized enterprises and cut reporting costs. These proposals could save about $10.5 billion.

A new legal initiative planned for 2026 could let startups opt into a pan-EU regulatory framework to bypass fragmented national rules.

But Deutsche Bank cautioned that such initiatives remain incremental and politically fraught.

Structural reforms in taxation, pensions, and labour markets — all flagged as critical by Draghi — are stuck at the member-state level, where rising far-right politics and fiscal constraints block consensus, the bank said.

The Deutsche Bank report concludes that a year on, the EU has shown urgency in areas where national interests align, like defense and bureaucracy-cutting, but innovation remains Europe’s Achilles’ heel.

The European Commission didn’t immediately reply to Business Insider’s request for comments.