Abstract
The European Union has positioned itself as the global leader in regulating digital space via the Digital Services Act, Digital Markets Act, and AI Act. Although the aim has been to improve consumer protection and ensure fair competition, these Acts collectively threaten to undermine the competitiveness of the EU globally. Based on the Draghi Report’s call for a new growth agenda, this article proposes a shift towards a clear, competitiveness-based digital strategy founded on liberal principles, open markets, and balanced regulation. It proposes an ‘Omnibus Digital Competitiveness Package’ to simplify the EU’s digital rulebook, to include a principles-based framework for digital regulation, competitiveness tests as a conditionality, lighter compliance procedures for SMEs, and improved institutional coordination. In sum, it is essential to ensure that digital rules promote rights and market equity while also encouraging innovation and entrepreneurship in order to decrease fragmentation, enhance legal certainty, and unleash a more vibrant digital economy.
Introduction
The European Union has positioned itself as a global pioneer in digital regulation, enacting landmark frameworks such as the Digital Services Act (DSA), Digital Markets Act (DMA), and a proposed Artificial Intelligence Act (AI Act). These initiatives reflect a rights-driven, consumer-protective ethos aiming to make online spaces safer, avoid monopolistic practices by Big Tech ‘gatekeepers’, and set rules for emerging technologies. Such measures have earned the EU a reputation as a ‘regulatory superpower’ (Bradford, 2024).
However, this ambitious rule-making also poses a crucial question: is Europe’s rush to digitisation inadvertently weakening its capacity to innovate and compete in the world? In his 2024 competitiveness report, former Italian Prime Minister Mario Draghi warned that ‘[t]he EU’s competitiveness will increasingly depend on the digitalisation of all sectors and on building strengths in advanced technologies, which will drive investment, job and wealth creation’ (Draghi, 2024b). But the European digital economy – from small entrepreneurial start-ups to established technology companies – is frequently confronted with the chaotic spread of duplicative or overlapping regulations and burdensome compliance measures that can suppress innovation instead of nurturing it.
The EU must shift away from ad hoc, fragmented digital regulation and embrace a more principled, competitiveness-based approach to tech regulation. Such an approach, built on liberal principles of open markets, proportionate action, and individual empowerment, would ensure that protecting users and enabling fair markets does not stifle Europe’s digital dynamism. The article starts by analysing the EU’s current digital regulation and showing how good intentions in regulation can have unintended consequences for innovation and development. It proceeds to describe the ways in which the EU can make its digital strategy more effective through 1) decreasing regulatory fragmentation and the overall compliance burden; 2) enforcing greater coordination among institutions and among Member States; and 3) putting competitiveness and innovation at the centre of digital policy. Its foundation is a proposed ‘Omnibus Digital Competitiveness Package’ that would harmonise and future-proof EU technology regulation within a principles-based framework. Instead of demanding complete deregulation or a ‘race to the bottom’ in respect of rule-making, the goal is smarter regulation – laws that deliver public interest outcomes in a proportionate, innovation-supportive manner. By calling for wiser regulation in favour of resilient markets, the EU can maintain vital rights and balance in markets while unleashing entrepreneurship and innovation. In doing so, the ‘Brussels effect’ (Bradford, 2024) of EU rule export can be transformed from a pattern of overregulation into an international standard worth emulating. The stakes are high: Europe’s ability to remain a centre of digital innovation – and close its growing gap with the US and China – hinges on achieving the right balance (Guinea & Sharma, 2025).
Europe’s ambitious digital rulebook and its unintended consequences
In the last decade, the EU has implemented an unprecedented set of digital laws. The DSA (Official Journal of the European Union, 2022), adopted in 2022, establishes overall standards for online platforms to regulate illegal content, reduce the danger to society, and enhance transparency. The DMA, in force as of 2023 (European Commission, 2022), places a vast array of ex ante ‘dos and don’ts’ on a few very large online platforms that have been considered gatekeepers, with the aim of encouraging competition and equality in digital markets (Năsulea & Năsulea, 2025). Simultaneously, the draft AI Act (Official Journal of the European Union, 2024) seeks to be the first horizontal regulation on AI globally, adopting a risk-based approach to establish conditions on (or prohibit entirely) certain AI systems. In isolation, each of these legislations is tackling valid concerns of the public – ranging from consumer protection and privacy to fair competition and ethical use of technology. Together, they demonstrate the EU’s commitment to shaping the digital future by imposing high levels of regulation.
But while they have their merits, these broad brushstroke rules also have staggering compliance expenses and place limitations on European companies engaging in the digital economy. EU legislators have now passed close to 100 technology-oriented legislative acts with thousands of pages of provisions and restrictions (Guinea & Sharma, 2025). While each particular rule might impose a fair burden, collectively they constitute a daunting thicket of duties while also negatively impacting the continent’s competitiveness. For example, the lobby group Computers and Communications Industry Association (CCIA) Europe, whose members include Alphabet, Meta, and Apple, recently urged the EU to halt the implementation of the AI Act, claiming that it risks jeopardising the continent’s AI aspirations (Reuters, 2025).
Crucially, massive compliance costs and complicated obligations will most likely weigh most heavily on small businesses and start-ups, although the latter may not be the immediate object of regulation. Established Big Tech companies can simply dispatch battalions of engineers and lawyers to secure compliance – usually paying regulatory fines as an additional business cost. Conversely, a youthful small or medium-sized enterprise (SME) or start-up may struggle to comprehend complex new data processing regulation, content moderation, or algorithmic transparency rules. This has an innovation-squelching effect: investors become more risk-averse towards European technology companies, and entrepreneurs become more risk-averse in launching new services, lest they inadvertently trigger one of the many new legal landmines. As noted by CCIA (2024), ‘Europe is drowning in a patchwork of new digital rules that hamper its competitiveness’. The report concludes that the regulatory burden on the tech sector in Europe is now ‘truly excessive and self-defeating, hurting the economy’ (CCIA, 2024).
Multiple analyses highlight the way in which well-intentioned legislation can cause harm by discouraging innovation and competition. Stagnaro and Năsulea (2025) explain that while EU digital regulation ‘aims to protect users and promote competition’, it imposes cumbersome tasks which can hinder economic vibrancy. In a few instances, firms have even been discouraged from experimenting with new technologies or exploring new business models due to fear of contravening unknown rules. For example, the General Data Protection Regulation (GDPR) enhanced user data protection but considerably increased the cost of data-driven innovation. There is empirical evidence that since the introduction of the GDPR, some European companies have had to erase or forgo valuable data assets – EU companies kept 26% less data on average than their US counterparts two years after the GDPR – and reduce computing facilities by approximately 15% (Demirer et al., 2024). This reduction in data consumption has had ripple effects: new app adoption rates in Europe fell by half, and the business landscape became even more skewed in favour of major incumbents (who had the resources to adapt and comply) at the expense of start-ups. In short, an overly restrictive data policy can assist in discrediting the very ‘digital endowments’ (such as data and skills) that companies require in order to succeed in the digital economy.
The early deployment of the DMA is similarly providing cautionary tales. The DMA aims to encourage competition by stopping Big Tech gatekeepers from employing their ecosystems in an anti-competitive manner. But its sweeping prohibitions – such as strict prohibitions on merging user data across services and favouring one’s own products on app stores – can paradoxically strangle valuable integrations and innovative features. Indeed, some US technology companies have suspended or slowed their rollout of new services and products to Europe because they were unsure how the DMA would be implemented (Năsulea & Năsulea, 2025). Consumers in Europe therefore risk experiencing innovation later than elsewhere (or never), leading to the EU providing a ‘second-class digital experience’ (Năsulea & Năsulea, 2025). Besides, when vague, broad-based rules are unclear about how to conduct business, firms will err on the side of caution and only enact humble compliance policies rather than more visionary innovations. This leads to the development of a culture of regulatory uncertainty in which firms refuse to take risks, enter new markets, or introduce new technologies out of fear that the rules will change or that their actions will not be compliant (Năsulea & Năsulea, 2025). This hesitancy is especially damaging for smaller European firms and start-ups: if expanding into the EU market means navigating a constantly evolving set of regulatory requirements, often differing in scope and enforcement between Member States, many of these potential innovators will simply opt out or shift their efforts to more predictable environments. In the long run, this regulatory fragmentation undermines Europe’s strategic goal of fostering homegrown tech champions and building a truly integrated digital Single Market.
To conclude, more regulation is not necessarily better regulation. While the EU’s assertive digital rulebook tackles legitimate concerns, its overall effect can be one of regulatory overload (Schneider, 2024). Europe’s information and communications technology sector already contributes less to the EU economy in comparison with the US tech industry, and technology diffusion has been said to be slower in Europe than it is in the US (Guinea & Sharma, 2025). And if Europe’s policy response to tech underperformance is mainly to impose more rules, it might be addressing the symptoms rather than the disease – or worse still, a cure with side effects of its own. The following sections look at two of the most significant aspects of this challenge – fragmentation and institutional coordination – before moving on to how wiser, leaner regulation might enable the compatibility of Europe’s twin goals: digital leadership and high standards.
Fragmentation and overlap: The costs of a patchwork approach
One of the most problematic aspects of the current EU digital strategy is regulatory fragmentation. Ironically, as Brussels is implementing ever more pan-European regulations for harmonising the digital market, we encounter fragmentation in different laws, in national jurisdictions, and in regulatory authorities. This not only multiplies compliance complexity, as outlined above, but also hinders the uniformity and efficiency of the rules themselves. Addressing this problem is key to a more streamlined digital regulatory agenda.
Fragmentation across laws
EU digital regulation has been historically authored in silos, each focusing on a distinct topic, for example, content liability (DSA), platform competition (DMA), data protection (GDPR), AI (AI Act), data governance and sharing (Data Governance Act, Data Act), or cybersecurity (NIS Directive, Cyber Resilience Act). Specialisation is beneficial, but it has led to overlapping or conflicting requirements for companies. To take just one example, a platform using AI to detect and remove harmful content may be required under the DSA to act swiftly to eliminate illegal material, while the GDPR demands strict safeguards for personal data processed in that process, and the AI Act mandates transparency in algorithmic decisions. These legislations were not written as components of one set of laws, so they may not necessarily mesh. Definitions and nomenclature (e.g., what constitutes ‘harmful content’ or ‘high-risk AI’) will vary between statutes, and compliance processes will typically be stand-alone. Such non-interoperability of regulation raises transaction costs. A firm cannot impose ‘compliance once’ and meet all regulatory requirements; it will need to have several concurrent compliance programmes. The lack of a comprehensive, principles-driven system means that companies must approach each new law as a new compliance project, constructing what has been referred to as a cottage industry of compliance rather than actual innovation. Merging and streamlining these needs, where feasible, would eliminate duplication and uncertainty. As this article will recommend, an Omnibus Digital Act creating a single master framework would merge these parallel tracks into a more integrated whole.
Fragmentation across borders
Despite EU-level laws which, in principle, are the same everywhere, enforcement and implementation often vary between Member States, leading to a de facto patchwork. Under the GDPR, for instance, national Data Protection Authorities (DPAs) (EDPB, n.d.) are responsible for enforcement, leading to divergent interpretations and differing priorities. Some DPAs – such as Spain’s – have taken a more proactive and stringent approach, while others are under-resourced or less assertive, creating an uneven playing field. This inconsistency has long been a concern among digital operators and commentators (Stagnaro & Năsulea, 2025). The European Data Protection Board (EDPB) was supposed to encourage a harmonised application of the GDPR, but operational discrepancies persist (Granmar, 2021). In the same way, the DSA appoints national Digital Services Coordinators (European Commission, n.d.) alongside the European Commission’s oversight for very large platforms, while the DMA is implemented centrally by the Commission but does not prevent Member States from applying national competition tools in parallel.
Despite the DMA’s theoretical aim of establishing an EU-wide harmonised regulation of the digital platform, its enactment has not eliminated fragmentation. Most Member States, including Belgium, France, Germany, Hungary, and Italy, had enacted their own digital competition regimes prior to the adoption of the DMA. Instead of reserving enforcement in a single European regime, the DMA has established yet another layer (Kiss, 2023) of regulatory complexity by requiring gatekeepers to navigate both EU-level rules and pre-existing national laws. In particular, Germany has made its abuse-of-dominance rules more effective by revising its competition law (Martinez, 2022), while France introduced a series of sector-specific regulations targeting abuse of economic dependence – rules that can apply to firms outside traditional dominance thresholds. Such overlaps increase the risk of dual-track enforcement: companies may be subject to parallel investigations at both EU and national levels for the same conduct, raising legal uncertainty and potential ne bis in idem (double jeopardy) concerns. As Buttaboni, Colangelo, and Floridi (2025) put it, although the DMA aims to unify digital platform regulation, the result may be an even more fragmented landscape as redundant regulatory actions multiply. Without stronger coordination mechanisms, the European Commission’s voice on digital policy risks being diluted by 27 competing national interpretations.
Fragmentation of oversight and expertise
A related issue is the dispersion of regulatory oversight among many bodies. European regulation of the digital space is overseen by a mosaic of regulators – data protection regulators, competition regulators, consumer protection bodies, audiovisual media regulators, telecom regulators (for some online communications), as well as recently established ones such as the AI Office and the European Board of Digital Services (proposed by the DSA). Each one has its own mission, culture, and level of expertise. This can result in siloed decision-making, where a single regulator is only thinking about its own mandate without thinking about the broader implications for Europe’s digital competitiveness. It can also result in turf wars or gaps. Take, for instance, an issue involving both competition and privacy (e.g., digital ads dominated by a few players). Who takes the lead? The new response can be through simultaneous action by a competition authority (either under the DMA or under competition law) and a data protection authority (under the GDPR) – a redundant procedure for the regulator as well as for the regulated party. Other issues might fall through the cracks if no single authority has clear jurisdiction. Inadequate institutional coordination not only burdens businesses with duplicate audits and penalties but could lead to conflicting findings or ambiguous regulation.
Any attempt to render the digital agenda more rational must address this fragmentation head-on by harmonising and rationalising rules, creating mutual mechanisms between EU and national institutions, and even possibly consolidating control functions for the digital economy (Freshfields, 2025). The next section discusses how greater coordination and governance can help reach that goal, paving the way for our subsequent proposals on more integrated regulation.
Towards better coordination and governance in digital regulation
If Europe’s digital competitiveness rests on a delicate balance, two key threats undermine it: regulatory fragmentation and the lack of institutional coordination. Fragmentation occurs when divergent national laws and enforcement practices dilute the EU’s efforts at harmonisation, while the lack of institutional coordination refers to misalignment both among EU institutions themselves and between the EU and its Member States. In a digital landscape shaped by the rapid interplay of economics, technology, and society, reflexive, piecemeal governance cannot keep pace with innovation. In order not to stifle growth, the EU must build a more coherent and responsive regulatory framework – one that ensures both horizontal coordination (between EU institutions and agencies) and vertical coordination (between the EU and Member State governments).
Breaking down silos in Brussels
Within the EU institutional set-up, digital policy matters span Commissioners’ and Directorates-Generals’ (DGs) portfolios – ranging from DG CONNECT (communications networks, content, and digital economy) and DG COMP (competition), to DG JUST (justice, data protection) and others such as DG GROW (internal market) or DG FISMA (financial services and capital markets union) (Jaursch, 2024). Over the past two years, significant digital documents have at times been dealt with in parallel by various Commission offices (for example, the DMA by competition authorities, the DSA by digital single market authorities, the Data Act by internal market authorities, etc.), frequently based on conflicting guiding principles. A more holistic approach would ensure that competitiveness and innovation interests are always considered by all digital-related proposals, irrespective of the lead DG (Draghi, 2024b). One proposal is to create an inter-service ‘digital competitiveness taskforce’ in the Commission to screen and coordinate key digital regulation projects. This would reflect how the Regulatory Scrutiny Board reviews impact assessments but with the express remit to ask whether new regulations would further Europe’s agenda for innovation and competitiveness. The recent creation of a Commissioner for Competition and Digital (a dual role) has helped bridge perspectives, but more can be done to institutionalise collaboration. As Draghi’s (2024a; 2024b) report recommends, the Commission should develop a single methodology for assessing impacts on competitiveness across all its departments and apply it systematically in impact assessments for new proposals. This would ensure that, for example, a new AI transparency requirement is vetted not just for ethics, but also for its economic effect on start-ups.
Strengthening EU–national coordination
Since the enforcement of online regulations is usually national, there must be increased coordination across government levels. Drawing inspiration from the financial sector (where the EU established coordinated supervisory methods for banks), the digital space might benefit from an EU Digital Coordination Council where national regulators and EU policymakers regularly meet to reconcile interpretative discrepancies and exchange best practices. For example, under the DSA, there could be national Digital Services Coordinators who convene under the Commission umbrella to enact a single requirement of what is ‘illegal content’ or ‘systemic risk’ across platforms, to prevent divergence. Equally, while the DMA is top-down, there may be official avenues for national competition authorities to contribute to gatekeeper investigations (avoiding the current situation of simultaneous national legislations). The goal should be ‘consistency in enforcement’ (Șerban, 2024), that is, a simple expectation that is placed on companies across the Single Market. If an unacceptable practice (such as app store self-preferencing) is identified, that finding – and any necessary remedy – should be the same whether a company operates in France or Poland. Greater use of regulations (directly applicable EU legislation) rather than directives has already helped, yet pre-emptive coordination is needed so as not to contribute to gold-plating or varying national interpretations. Strengthening bodies such as the EDPB (for data protection) or creating new coordination institutions for platform regulation can help.
Policy coordination at the political level
Along with regulators and agencies, coordination at the political decision-making level also needs to be more robust. The European Parliament and Council are frequently called upon to fine-tune Commission proposals to introduce more complexity or cover up simplicity (since several committees and Member State ministries are involved). Having clear innovation and competitiveness guidelines supported at the top level (e.g., by the European Council or as part of an inter-institutional agreement) would help structure this process. Since February 2025, the European Commission’s legislative reforms have pledged more rigorous scrutiny of the effects on SMEs and competitiveness of proposed legislation, including changes introduced by the European Parliament and the Council during the legislative process (European Commission, 2025a). In fact, the Competitiveness Council (comprising Member State ministers) could take a more active role in vetting digital proposals coming from other Council formations, to ensure they align with the EU’s growth agenda. In January 2025, the Commission initiated a ‘Competitiveness Compass’ (European Commission, 2025b) to track competitiveness development, a very welcome initiative. Setting digital metrics (e.g., success in scaling up as a start-up, spending on tech research and development) within the compass and correlating them with tests of regulatory fit would create a feedback loop: whenever a regulation is shown to to have a detrimental effect on key measures, it should trigger a review or rewrite.
Improved institutional coordination is not bureaucratic refinement – it is a key component of smarter digital regulation. It helps prevent contradictory rules, reduces redundant enforcement, and ensures that protecting users and markets goes hand in hand with fostering innovation. With heightened coordination in place, the EU will be much better placed to deliver the sort of comprehensive reform package the following section suggests: one which aligns principles and practice across the board throughout the digital regulatory landscape, with a focus on improving the EU’s competitiveness.
A competitiveness-focused agenda: Proposals for smarter digital regulation
How can the EU redesign its digital regulatory approach to better balance innovation with oversight? This article proposes a single set of reforms, referred to as the ‘Omnibus Digital Competitiveness Package’, to streamline EU digital regulations and anchor them in competitiveness principles. It would be analogous, in intent, to recent high-level proposals such as Enrico Letta’s (GIDE, 2024) proposal for a European Code of Business Law to clarify the Single Market’s legal framework. Just as Letta’s report points out that Europe’s patchwork of business rules limits growth and that a single code is needed to ‘directly address the current patchwork of national rules’ (GIDE, 2024), so too could the digital world reap significant benefits from simplification. The suggested omnibus bundle would not abolish the hard-won protections of the DSA, DMA, GDPR, and so forth but would consolidate and harmonise them, using common guiding principles and mechanisms to future-proof the entire digital legislative spectrum. Some of the highlights of this competition-led framework are presented below.
A single, principles-based framework for all digital laws
At the core of the omnibus package would be a unifying Digital Regulation Framework Act that creates essential principles – such as proportionality, subsidiarity, technological neutrality, and innovation friendliness – according to which any existing or future digital regulation would be designed. This would function in pretty much the same manner as a ‘Digital Constitution’. It would be based on liberal values: regulators would step in only to the extent necessary to meet legitimate objectives (proportionality), leave space for Member States to act where necessary (subsidiarity), refrain from specifying or tilting towards particular technologies or business models (tech neutrality), and specifically take account of effects on innovation and competition. For instance, a condition may require that, where more than one path to a policy objective exists, the least restrictive path to innovation or entry to a market is taken. This is in line with the methodology promoted by Năsulea and Năsulea (2025): ‘[R]egulators must avoid creating artificial barriers to entry, for example through excessive administrative and compliance costs.’ The principle should be as versatile as possible, particularly in unstable markets. By adopting such a principle, the EU would bind itself to smarter rules by design. A real-life example of this is the United Kingdom’s approach to AI regulation. Rather than immediately adopting detailed and burdensome legislation like the EU, the UK issued a pro-innovation AI White Paper that outlines high-level principles to be applied by existing regulators (Drake et al., 2023). The UK deliberately chose not to introduce new AI-specific legislation or create a new regulatory body but instead opted for guiding principles to be enforced through its existing institutional framework (KPMG, n.d.). While the UK model may not be directly replicable in the EU context, it demonstrates the advantages of flexible, principle-led governance. An EU digital framework could similarly promote a culture of openness to innovation by ensuring that regulatory definitions – such as those for illicit content or high-risk AI – are precise and narrowly tailored, so as not to discourage legitimate activity or innovation through legal uncertainty.
A ‘digital competitiveness test’ for new and existing rules
In line with Draghi’s recommendations, every new EU digital regulatory proposal should undergo a rigorous competitiveness impact assessment before adoption (Draghi, 2024a). This ex ante competitiveness test would quantify expected cumulative costs for businesses (especially start-ups and SMEs) and weigh them against the anticipated benefits for consumers or society. Crucially, it would require regulators to consider alternatives or mitigating measures if the proposal risks unduly burdening innovation. A structured process – developed after industry and independent expert consultation – would ensure consistency in this exercise. For instance, if an impact assessment says a draft AI Act requirement will cost start-ups X millions and push back AI deployment by Y years, lawmakers would have to justify why it is still worth it or fine-tune the proposal (e.g., introducing phased obligations or exempting small companies). It must also consider how EU proposals compare with those in other leading markets: if no other major economy imposes a similar regulatory demand, is the EU certain it wants to be the exception – and what would that mean for competitiveness? As a policy brief noted, Europe’s regulatory framework ‘should be measured against world leaders’ with a view to having a superior business environment to that of rivals, not an inferior one (Guinea & Sharma, 2025). Apart from ex ante screening, there must be an ex post regime of monitoring – that is, a sunset or review period for significant regulations – to check, three to five years later, whether the regulations are having an effect or if they cause too much collateral harm to innovation. Any such adverse consequences (e.g., dramatically lower market entry, product delay, or excessive compliance burden) should initiate regulatory retrenchment or correction. In practice, this could mean establishing regular competitiveness tests of the whole digital acquis, perhaps under the direction of an unbiased panel. The Draghi Report suggests something along these lines: using ‘committees of industrial operators’ to assist the Commission in evaluating draft act impacts and delaying or revising initiatives which are most challenging from an innovation perspective or have disproportionate effects on SMEs. Such a mechanism would bring real-time business insights into the legislative process, acting as an early warning system against overregulation.
Simplified compliance for start-ups and SMEs
One of the keys to smarter regulation is to acknowledge that one size will not fit all. As part of the omnibus package, there need to be provisions to facilitate compliance by smaller firms so that Europe’s entrepreneurs are not choked by regulation aimed at restraining the tech giants. Based on existing frameworks, for example, SME exceptions or phase-ins, we recommend the following provisions.
- A one-stop-shop EU digital regulatory help centre, where start-ups can access information on all EU digital rules applicable to them in a single location: this help desk (perhaps run by the Commission or an EU agency) would function across regulatory spaces to respond to questions such as ‘If I roll out a new social media app, which EU rule do I need to comply with on day one?’ Currently, a small business may need to work, for example, with the DSA, GDPR, platform-to-business (P2B) Regulation, and others independently – or employ costly lawyers to do so. An integrated help desk would reduce barriers to knowledge and facilitate newcomers through requirements without inadvertently alienating them.
- Harmonised duties and one reporting window: wherever possible, duplicate regulatory duties should be harmonised and amalgamated. For example, if two pieces of legislation both require an annual transparency report on online services, there needs to be a provision for producing a single, bundled report that meets all requirements. The EU could create a central e-reporting portal for digital services, where companies upload compliance documents (risk assessments, algorithmic transparency reports, etc.) once, fulfilling obligations across multiple Acts. Draghi’s report urges the use of AI-powered software and a single, multilingual interface (Draghi, 2024b) to lower compliance and reporting costs for SMEs. Standardised templates, de minimis reporting requirements, and ‘report once, use many’ registries would greatly reduce the paperwork burden for small participants.
- Proportionate regulation and sandboxing: regulators must impose graduated regulation on start-up companies, prioritising advice and warning rather than penalties for initial or trivial infringements, and introduce ‘regulatory sandbox’ frameworks that allow start-ups to test innovations under flexible and supportive supervision. The EU’s draft AI Act already includes sandboxing; this ethos can be extended to scale so that new digital business models have space to experiment in Europe and are not confronted with the entire risk of regulation at once.</BL>
More broadly, the goal is to make Europe an open environment where tech businesses can start and grow – not a compliance minefield. Where a rule is discovered to be most burdensome for SMEs with minimal additional value (e.g., certain expensive audit rules), the omnibus solution must authorise the Commission to suspend or amend such rules for small participants – something analogous to what financial regulators do with ‘proportionality thresholds’ for small banks. By establishing an environment in which innovators thrive in Europe instead of fleeing from it (Fintech Intel, 2025), the EU will be better positioned to take advantage of its pool of talent and research. As highlighted in the report ‘Strengthening EU Digital Competitiveness’, Europe launches more start-ups than the US, yet they often fail to scale due to limited access to capital and a fragmented regulatory framework (CCIA, 2024). While capital market reform lies beyond the scope of this article, regulatory streamlining does not: a clear and predictable rulebook makes it more likely that investors will back European tech ventures.
Mandatory innovation impact assessments and global benchmarking
Each significant digital regulation should have an innovation impact assessment in place to consider how it will influence technological innovation, business models, and European competitiveness globally. Policymakers need to balance lost opportunities for innovation against likely benefits to society before restricting technologies such as AI or facial recognition (Csernatoni, 2025). Most importantly, the EU needs to benchmark its proposals against those of other world stakeholders. If the EU enforces tighter rules than those in the US or China, this inadvertently helps foreign competitors who face fewer restrictions. An additional concern is that overregulation – for example, data usage limits under the DMA – would harm EU- and US-based platforms while Chinese tech firms – operating in a large, protected domestic market with fewer constraints – can continue to gather data at scale, improve their systems, and expand internationally with a competitive edge (O’Brien & Kitamura, 2024). Innovation impact assessments would help identify these trade-offs – for example, delayed deployment of AI tools or the risk of brain drain to more innovation-friendly regions. If a proposed rule places a heavier burden on European firms than similar rules elsewhere, the EU must either justify that burden clearly or mitigate it through international coordination or targeted support for EU-based companies. This is not about abandoning European values but about pursuing them wisely – without shutting out innovators. To that end, the Omnibus Digital Package should formalise global regulatory benchmarking so that Europe leads not through overregulation but through high standards others are inspired to follow.
To complement changes in material, the omnibus package would also have to contain changes in governance to enhance coordination and enforcement. A suggested Digital Single Market Board – comprising national authorities and Commission staff – would be given the authority to overcome differences in enforcement, coordinate joint investigations, and allocate a lead authority in cross-border cases, building on the one-stop-shop concept of the GDPR. The package must also define the balance of powers between EU and Member State powers by reasserting that EU law harmonises the space in an all-encompassing manner in fields such as the DMA. This would discourage Member States from creating similar laws that distort the Single Market. National regulators who seek to tackle platform issues must be incentivised to do so within the EU context, not outside it. To that end, the omnibus act might incorporate pre-emption rules and accelerated infringement proceedings and would give Member States a more proactive role in concerted enforcement. Increased coherence would send a firm message to businesses that digital norms will be enforced similarly throughout the EU. Such legal certainty is crucial for mass innovation and low compliance costs.
Learning from other models: Balancing rules and innovation globally
While developing a more competition-focused digital strategy, the EU can also learn from the way other administrations balance regulation and innovation. While Europe’s values and political environment are unique, observing other models is useful to understand what works in digital governance. A comparative approach would demonstrate that overregulation or even premature regulation is risky, while less strict, targeted steps at times can achieve what is needed with fewer adverse side effects. It would also emphasise that the final aim of the EU should not be to advertise a maximalist regulatory framework in its own interest, but rather to establish a smart benchmark which others would want to follow because it would instil confidence as well as foster growth.
Japan’s targeted platform regulation
In 2024, Japan passed the Special Digital Platform Competition Act, legislation prompted by similar concerns to those behind the EU’s DMA – namely, the dominance of app stores and mobile operating systems by a few powerful players. However, Japan’s law differs markedly from the DMA in both scope and method. While the DMA imposes dozens of obligations on a wide category of gatekeepers offering core platform services – including app stores, search engines, browsers, operating systems, social networks, and others – Japan’s legislation is focused on a narrow set of harmful practices by just two firms, Apple and Google, specifically related to their app store and payment operations (Martinez & Lee, 2024). It prohibits forms of self-preferencing, such as requiring developers to use the platform’s own in-app payment system, and compels these platforms to allow alternative payment options for users. In practice, this gives consumers in Japan greater choice and potentially lower prices, as developers can bypass platform commissions and offer more flexible services.
Crucially, Japan adopted a dialogue-based enforcement mechanism: instead of immediate top-down obligations, regulators work directly with platforms to implement compliance. This approach not only reduces burdens on SMEs but also avoids unintended side effects, such as security risks from sudden policy shifts. For example, one concern with overly aggressive regulation is the forced introduction of app sideloading – installing apps from outside official app stores – which can increase exposure to malware or insecure software. Japan’s collaborative method allowed regulators to push for change without compromising user safety or overburdening smaller businesses.
By mid-2025, this lighter-touch approach had already produced tangible outcomes: Apple and Google revised their policies to comply with the new rules, allowing greater payment flexibility for developers (Sharwood, 2024). While the market effects were still emerging – as competition takes time to respond – Japan’s focused and cooperative strategy (Walle, 2024) stands in contrast to the EU’s broader and more rigid regulatory model.
Japan’s approach may be more effective precisely because it targets specific problems and actors without imposing complex, one-size-fits-all rules. It fosters competition, avoids overregulation, and preserves room for innovation – all while achieving several of the DMA’s objectives through a less burdensome and more adaptable legal framework. In this light, the EU may consider fine-tuning the DMA by concentrating enforcement on genuinely core platform services (e.g., dominant app stores or ad platforms) and introducing a cooperative compliance regime for engaging with firms before imposing obligations.
Ultimately, the insight is that narrowly tailored rules – focused on clear market failures – can be more enforceable, effective, and innovation-friendly than broad frameworks that risk overreach. Europe, of course, has a larger internal market and a greater ambition to shape global standards. But in evaluating the DMA’s success, the EU could benefit from asking whether a more targeted, proportionate approach, similar to Japan’s, might deliver similar outcomes with fewer unintended consequences and less regulatory drag.
The United States’ market-driven yet litigious path
In contrast to the EU, the US has thus far refrained from ex ante digital regulation such as the DMA or DSA in favour of leaving implementation up to antitrust enforcement and sectoral legislation. Privacy is still patchwork at the state level, while platform liability remains controlled by Section 230 of the Communications Decency Act (US Department of Justice, n.d.). The US strategy has been characterised as ‘wait and litigate if necessary’ – with the Department of Justice and state attorneys general spearheading active antitrust enforcement against Google (search and ad tech) and Meta (prior acquisitions). This method lowers up-front compliance costs, so start-ups can expand without DMA-type weights. It does not pre-select winners and losers, intervening only when clear harm to competition is demonstrated. However, litigation is slow, and major cases often take years to resolve – giving dominant firms ample time to consolidate their market position in the meantime. Legislative attempts to update competition law, including the American Innovation and Choice Online Act, have been blocked in Congress. Technically, the US has a more laissez-faire or ‘techno-libertarian’ approach, which ‘reduces security threats and costs to SMEs but is weak at counteracting entrenched gatekeeper power’. US critics argue that in the absence of regulations such as the DMA, Big Tech is largely unregulated. The US model, in contrast to the EU’s, highlights the strengths of speed-driven, market-led enforcement – but it also reveals the risks of under-regulation, where harms may go unchecked for too long. Some scholars credit this permissive regulatory culture in part for US tech superiority (Johnson, 2025).. The EU will not copy a US-style across-the-board strategy, especially in the light of its social priorities such as privacy and fairness, but there is a sensible middle ground to be pursued – perhaps through the merging of focused ex ante rules with improved antitrust measures. EU initiatives such as the DMA have provoked transatlantic tensions, as some US policymakers have framed them as ‘anti-American’, provoking fears of trade retaliation (Năsulea & Năsulea, 2025; Winterton, 2025). A win–win approach should be the focus of a competitiveness-driven strategy that encourages innovation and equity across the world. Otherwise, excessive regulation would look protectionist, closing off the EU instead of extending its impact globally.
The UK’s ‘pro-innovation’ regulatory philosophy
Since Brexit, the UK has positioned itself as a more agile regulator of digital markets than the EU. A key example is the Digital Markets, Competition and Consumers Bill (UK Parliament, 2024), which will establish a dedicated Digital Markets Unit (DMU) to oversee large digital firms – similar in intent to the EU’s DMA, but structurally different in approach. In contrast to the DMA’s fixed and uniform obligations applied to all designated gatekeepers, the UK model is designed to be less prescriptive and more tailored. The DMU will impose firm-specific conduct requirements on companies granted Strategic Market Status, allowing regulators to target the most harmful behaviours of each firm individually. This adaptive framework enables the UK to respond more flexibly over time, potentially focusing enforcement more precisely than the EU’s one-size-fits-all rulebook.
The UK also emphasises procedural fairness and consultation in its digital regulatory approach. The DMU is required to consult stakeholders when developing codes of conduct and has the flexibility to amend them, fostering ongoing dialogue with industry. In the area of online content regulation, the UK’s Online Safety Bill took a notably different path from the EU’s DSA. While both aim to address harmful online content, the UK originally proposed rules for so-called legal but harmful content – content that is not illegal but is still considered damaging to individuals or society (such as cyberbullying, the promotion of eating disorders, or suicide ideation material). In practice, this meant that platforms could be required to take steps to limit exposure to such content, especially for children, even though the content itself did not break any laws. However, due to significant backlash over free speech concerns, the UK government softened this provision, making the obligation voluntary rather than mandatory for adult users. This shows the UK’s preference for a more flexible and responsive model, as opposed to the EU’s more uniform, rules-based approach under the DSA. The UK’s experience is a lesson in flexibility and experimentation. Smaller than the EU, yet still eager to entice tech investment, the UK seeks to make clear that it will be ‘firm but flexible’ – ruling lightly where practicable and describing itself as more agile than rival countries in acting fast to respond to innovation by changing its rules. The EU can use outcomes in the UK (and elsewhere) as natural experiments: if the UK’s DMU can police Big Tech with fewer generalised commitments, it might trigger reforms to the DMA when it is next updated in a couple of years’ time. And if the UK’s light-touch approach to AI yields a thriving AI industry without apocalyptic tragedies, that should pressure the EU to advance the rollout of its AI Act. At the same time, the EU should beware of a light-touch stance failing to avert harms (i.e., where prudent regulation is required).
Other innovation-friendly practices
Globally, several nations have encouraged innovation testbeds and regulatory sandboxes in fintech, health tech, and so forth to allow businesses to test new services under the regulatory oversight of authorities with interim exemptions. The EU can adopt more widespread deployment of sandboxes (the AI Act encourages them, and fintech sandboxes have been introduced) in more areas, thus making it a mainstream regulatory practice. This would show that Europe is experiment-friendly and not enforcement-centric only. Moreover, countries such as Singapore are likely to be among the front-runners in ease of doing digital business due to streamlined rules and open government promotion. The EU could study how other countries, some with high standards (e.g., Singapore), become innovation hubs. It is often the result of regulatory transparency, speed, and cooperation with businesses. Europe’s response can often be slow and lumbering; accelerating adaptation would help.
In view of these global strategies, it is clear that Europe must have balanced ambitions. It is commendable to be a digital rule-setter in the sense that rules keep markets and consumers secure. However, rules can become too burdensome, and in this Europe is a cautionary tale rather than a trendsetter. The so-called Brussels effect – that is, the EU exporting its standards globally – appears to be losing traction as several countries are actively choosing alternative paths. This suggest that the EU model is not compelling, at least for now. To lead by example, the EU might need to implement regulation that achieves outcomes for society without suffocating innovation. If it can succeed in this, then the Brussels effect is set to be an innovative force.
Conclusions
The European Union is at a turning point in digital policy. The path it is on presently involves a nascent system of new rules that, for all their good intentions, threaten to smother innovation and leave Europe lagging its more flexible competitors. The alternative path requires strategic rebalancing: simplifying and trimming the EU’s digital rulebook to make it not only a regulator, but also a world leader in digital innovation.
This article contends that more intelligent regulations can power more robust markets. A competitiveness-oriented approach – firmly rooted in liberal principles, innovative impact assessment, reduced complexity for start-ups and SMEs, and institutional coordination for more effective institutions – can render Europe’s digital governance future-proof. These reforms, proposed as an Omnibus Digital Competitiveness Package, directly respond to the Draghi Report’s call to action.
To thrive, Europe needs to understand that liberal values and digital sovereignty rely upon technological and economic strength. A new European model of digitalisation – which is conceived not to export rules for their own sake, but to drive expansion and attract innovators – can rescale the Brussels effect into an internationally respected benchmark. The potential pay-off is clear: a dynamic Europe where AI start-ups thrive, consumers are protected, and regulations are adapted to fit the context. With a shift of political will and regulatory mindset, the EU can lead the way – delivering a digital world that is principle-led, proportionate, and prosperity-driven.
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