“All we do is regulate while they innovate,” “our labour markets aren’t as flexible,” “our best founders should move to San Francisco.” Flick open social media and this constant barrage is right there, both from US and European tech and ‘growth’ communities. As I argued earlier, discussion about European tech only ever seems to circle around the negative impact of its regulatory environment. But Europe has also got a lot of things right, and the opportunity to build the best tech ecosystem in the world is still open.

First, Europe has done a lot to focus on the two other — besides regulation — supply-side foundations of any great tech ecosystem: capital and talent. 

The former has seen countless funding pots, initiatives and pledges created to ‘create European champions’ using public money. The same is true in the UK.

On the latter, we have reached the limits of what the politics will allow, certainly in the UK in the context of the post-Brexit immigration debate. New Prime Minister Andy Burnham is yet to grasp the nettle on immigration, but will have to soon. In Europe, despite a renewed migration crisis (see Ceuta) the first ever EU Visa Strategy from the start of the year is a statement of intent. But again — politics constrains the scale of change that can be achieved.

Regulation, meanwhile, remains the Cinderella. By leaning into the narrative that all we do is regulate, we have absented ourselves from doing the hard work on how differently, and how effectively, we can regulate new technology, including AI. There is a mass of headroom to rethink what regulation is for, how we make it and how we can leverage it to create a distinctive European ecosystem that makes it a far better place than the US — or China, or anywhere else — to found and scale a disruptive tech business.

Within Europe, the UK has a particular opportunity here. Although Brexit has delivered less regulatory freedom than its proponents promised, and recent politics suggest a return to closer alignment with the EU, the UK is indeed more autonomous than the EU27. As I argued back in 2024, the UK has made a strikingly poor effort to take that opportunity thus far. But the opportunity has not gone away yet.

Now, Europe may not ‘win’ on frontier AI models, to the extent that the framing of a race is even the right one. Where Europe, including the UK, can win is on the deployment of AI into complex, inevitably highly regulated sectors.

Here, the correct framing is not one of regulation as red tape but as market infrastructure. Or, to put it in software terms, regulation is the operating system for frontier start-ups.

In this context, ‘Europe regulates’ means that Europe builds the regulatory infrastructure needed to get the best ideas to market as quickly as possible while squaring off the inevitable and unavoidable political considerations as quickly as possible.

Novel foods, medical devices, space launch, quantum cryptography, small modular reactors, defence tech: just a few of the sectors where the right regulatory approach is a critical ingredient alongside the best global talent and abundant capital. We need teams of the very best technical operators, policy thinkers and engaged politicians to go deep in designing bespoke, flexible, risk-tolerate regulations to allow testing, iterating and then rolling out of new breakthroughs, at scale.

Estonia comes the closest to this kind of regime with its Accelerate Estonia unit, which is dedicated to supporting novel technologies get to market. Its strapline “making illegal things legal” inverts of the usual paradigm which insists that start-ups should bend themselves around outdated rules to get to market. Instead, they find ways to flex laws to accommodate new tech, such as for unmanned aircraft development and testing.

Sadly, the Draghi report was largely silent on rethinking the way we regulate, instead opting for predictable recommendations around cutting ‘red tape’ and the administrative burden of regulation — which is important, but of far less significance for Europe’s tech future. Founders we invest in and work with do not mind a degree of compliance — what they cannot tolerate is the absence of regulatory pathways to market.

But the Estonia model is spreading nonetheless. The UK announced plans for a similar approach earlier this year. The AI Growth Lab would act as a kind of cross-economy sandbox, to allow new AI-based approaches more flexibility and the powers to make rule changes permanent if they support innovation. It would build on the existing Regulatory Innovation Office, which is doing good work in identifying outdated rules and acting as a front door for frontier start-ups in regulated markets.

We are in a window in which the capabilities of frontier AI are becoming clear, but how they will reach into complex, regulated markets is not. The opportunity for the UK and Europe as a whole is to invest in building the regulatory architecture to answer that question — to leave start-up founders in no doubt that it is the continent on which to build their business.

But this needs urgency, which is where the Rhine Group and Europe 2031 are spot on. Every day, I speak to a start-up founder building a complex, ambitious company in a sector where waves of capital and talent crashing against the cliffs of regulatory inertia, whether in authorising new start-ups under existing regimes or designing entirely new ones.

It also needs investment from both sides. For their part, founders and tech operators need to engage much more seriously in regulatory policymaking. The EU Inc. campaign shows what can be achieved when committed voices from the tech world engage constructively. Heckling policymakers for not producing the perfect system while declining to co-author that system is a failure.

Finally, while it is a project that would benefit from the sponsorship of the European Commission, it is not one that requires it — nor the multi-year timelines that come with any meaningful reform at EU level. A group of member states, including Estonia and ambitious others, along with the UK, could come together to co-design approaches, share what works and provide start-ups with a hugely appealing ecosystem: a set of usefully diverse but regulatory-aligned markets tied together by a common objective to facilitate start-up success across which to test and scale. Perhaps creating this coalition could be an early task for the Rhine Group.

By making Europe’s regulatory capabilities work for frontier start-ups, we can invert the decades-old trope and finally break free of the stigma that is holding back our tech ecosystem. ‘Europe regulates’ could be an asset, not a liability.