The European Union is intensifying efforts to strengthen its global competitiveness by reinforcing its innovation ecosystem, which currently lags behind that of the United States and China. A recent assessment by the European Parliamentary Research Service (EPRS) highlights structural barriers that hinder the growth and scaling of innovative companies across Europe.
According to the report, innovative firms in the EU face four key challenges: limited risk appetite in financial markets, difficulties in attracting skilled talent, high costs of failure and restructuring, and significant fragmentation in legal frameworks across Member States. These constraints reduce Europe’s ability to support high-growth companies and scale breakthrough innovations.
The European Commission is therefore considering the introduction of a 28th regime, a new EU-wide legal framework designed to simplify rules and create a more favorable environment for innovative companies. The initiative aims to complement existing policies, such as the Savings and Investments Union, by addressing structural barriers to growth.
One of the major issues identified is the fragmentation of capital markets, which limits access to EU-based financing. As a result, 82% of scale-up deals in the EU involve a foreign lead investor, increasing the likelihood of relocation. Approximately 12% of innovative European companies ultimately move abroad, most often to the United States.
The report also underlines investment gaps in key strategic sectors such as artificial intelligence, biotechnology, clean technologies, and defense. For instance, clean tech development—critical for achieving climate neutrality by 2050—requires substantial additional investment, estimated at over €1 trillion per year, with a large share expected from private funding.
The proposed 28th regime could introduce a single set of EU rules covering company law, insolvency, taxation, and employment. This would reduce administrative complexity, lower the cost of failure, and accelerate company creation and scaling processes. Digital-by-default company formation and standardized procedures are among the key elements under consideration.
The potential economic impact is significant. The analysis shows that reducing the time required to start a business could substantially increase venture capital investment. Moreover, aligning EU scale-up success rates with those of the US could boost the number of European scale-ups by up to 45%.
For Horizon Europe projects such as Rotate, these developments are particularly relevant. Strengthening Europe’s innovation framework can accelerate the deployment of advanced technologies, support industrial value chains, and enhance access to critical raw materials. This is essential for achieving Europe’s strategic autonomy and advancing the green and digital transitions.
