At Davos, Roberta Metsola coined two key words for the EU: ‘Realistic Optimism’

This year´s World Economic Forum Annual Meeting in Davos took place under the theme “Collaboration for the Intelligent Age”.  Discussions spanned geopolitical shocks, economic growth, and a just energy transition, but one topic stood out: Europe’s economic competitiveness.  In contrast to the US’s confidence and China´s rise in AI, concerns loomed over Europe’s sluggish performance in productivity and technological innovation.  While the Draghi report of last September gained traction, there seemed to have been little urgency for immediate change.

The prevailing narrative suggests that Europe is losing ground to the US in tech innovation and to China in manufacturing.  The launch of China’s AI model DeepSeek and the US’s substantial AI investments have intensified the discussion, pushing Europe into a perceived race it cannot win. However, this perspective is deeply flawed.  It assumes that competitiveness and innovation can only be measured by economic growth, investment figures, or AI supremacy.  But at what cost?

Europe’s approach to technology and economic development is fundamentally different from the US and China.  Unlike Silicon Valley’s cutthroat model, European tech hubs, like Paris, Berlin, Stockholm, Amsterdam and London, thrive on sustainable innovation, efficient capital deployment, and stronger social infrastructure. In comparison to Silicon Valley, Europe offers lower operational costs, better work-life balance, and government-backed research, which creates an ecosystem fostering long-term resilience rather than short-term profits. In that equation, Europe´s social model with social safety nets including healthcare and labour protections is to be seen as a key selling point and not a hindrance.

Europe´s deep-tech ecosystem excels in innovation with distinct success models which focus on sustainability, and robust digital infrastructure positions it well to tackle pressing global issues such as climate change, ageing populations and energy efficiency.  With that, Europe sets itself apart from other ecosystems.  Thus, instead of copying Silicon Valley, Europe should embrace its own strengths and build a competitive edge based on its lived values such as fairness, sustainability, and social well-being.

A similar approach should perhaps be taken to the AI debate at Davos that highlighted Europe’s lag behind the US and China.  Some argue that Europe must match the US’s $500 billion AI investment plan to stay competitive. However, it could be argued that Europe should not aim to “win” the AI race on Silicon Valley’s terms but rather set its own rules and follow its own playbook.

Instead of desperately trying to catch up, Europe should rethink the role of AI in its economy and society. More AI does not necessarily mean better outcome as it could exacerbate wealth concentration and social disparities. Europe must differentiate between exploitative profit-driven digitation, as is currently being unleashed in the US, and AI, which is genuinely benefiting Europe´s economic and social well-being. The continent’s advantage lies in ethical AI governance, privacy protection, and human-centred innovation, which are areas where it is already leading.

Now, on 29^th January, a week after Davos, the European Commission President Ursula von der Leyen introduced the Competitiveness Compass, a strategic framework to “restart Europe´s innovation engine”.  This framework aims to implement the Draghi report´s recommendations into three pillars focusing on productivity through innovation, competitiveness with decarbonization, and reducing dependencies, increasing resilience and security. Most importantly, these pillars shall be built on the five solid foundations of simplification, skills and quality jobs, better coordination, financing, and bringing down barriers in the single market.

Additionally, the Competitiveness Compass proposes a voluntary 28th legal regime, which seeks to streamline regulatory processes across the 27 national legal regimes in the EU.  This approach seemingly challenges the notion that regulation is Europe’s Achilles’ heel, demonstrating that smart regulation, which is designed for long-term stability and fairness, can be a competitive advantage rather than a burden.

While for some this initiative is a welcome sign for political will in the global innovation race, others have raised concerns that it will set back the EU´s progress in sustainability, particularly with view of the Omnibus proposal of sustainability reporting.

Nevertheless, with the fresh input of the Competitiveness Compass, it is to hope that Europe builds on its unique strengths rather than forcing it into an unwinnable competition.  Against the media’s portrayal of Europe as an innovation laggard and a failing competitor, Europe has the chance to redefine competitiveness on its own terms and to position itself as an alternative leader.  The question should not be whether Europe can outpace the US or China but rather what kind of economy does Europe want to build.  With its deep-rooted values in democracy, human rights, and sustainability, Europe has the potential to lead in ethical technology, green innovation, and inclusive economic growth.

At Davos, Roberta Metsola, the President of the European Parliament, defined the next four years with two words: “Realistic Optimism”.   With global power dynamics shifting, there is no doubt that Europe must harness innovation, but the goals should not be blind technological acceleration but strategic, value-driven progress.