The European Union is trying to engineer a digital revolution. Through its European Strategy for Data, EU officials hope to create a “single market for data,” knitting together governments, businesses, and individuals into a shared system of industrial and personal data. The goal is an innovative, sovereign digital ecosystem that can rival the United States and China. The problem is, the strategy is built on a series of faulty assumptions—and it risks setting Europe back even further.
The EU’s plan rests on two major pieces of legislation. The Data Governance Act, in effect since 2023, and The Data Act, set to apply starting in September 2025. Together these will require providers of “connected” devices to give the data they create to users and third parties—often competitors—sometimes for free and always under EU oversight. The EU wants this data to be in European “data spaces” that will manage and distribute the information.
But the plan overestimates the value of simply moving data around and underestimates what truly drives innovation. The EU assumes that lack of data is what holds back European tech firms. In reality, overregulation is the bigger problem—and the EU’s strategy doubles down on it.
The most prominent example is the EU’s General Data Protection Regulation (GDPR), which took effect in 2018. Intended to protect users by giving individuals greater control over information about them while harmonizing data control laws across the EU, it has instead stifled business development. After GDPR’s implementation, the rate of new app development for the Google Play Store in Europe fell by 47.2 percent. Investment in European tech startups dropped more than 20 percent. And European tech company revenues declined by two percent.
The strategy also contains a flawed understanding of how data is created. EU leaders often talk about data as if it simply exists—raw material waiting to be unlocked. But the most valuable data is produced by companies that invest heavily to collect, store, and analyze it. A report cited by the EU, from the International Data Corporation, highlights the growth in data volume—but specifically points to data created by companies in sectors like e-commerce, cloud services, and telecommunications. The EU appears to see this privately generated data as a public good to be redistributed.
That redistribution has consequences. If companies know that their data must be shared—especially with competitors—they will have less incentive to invest in collecting it. And data quality will decline. For example, an equipment manufacturer might switch from standardized computing systems—which produce data that others with similar equipment can easily use—to proprietary setups. In short, the EU’s policy could make data more available in theory, but less useful in practice.
Underpinning this strategy is a belief popular among regulators: that large platforms benefit from “data network effects,” where more users lead to more data, which improves the product and attracts even more users. From this view, incumbent firms’ data advantages form an insurmountable barrier to entry.
But academic research increasingly challenges this view. The value of data depends not just on quantities, but also on quality, uniqueness, and how it’s used. Europe’s new data rules risk degrading those very attributes. Data sharing erases distinctiveness. Mandating data transfer without regard to competitive incentives will depress investment. And layered regulations like GDPR, the Data Act, and the Digital Markets Act add complexity and dimmish the economic freedom that enables innovation.
These new data policies make an already difficult situation worse. Europe’s poorly developed venture capital (VC) ecosystem holds back business formation. And its electricity prices, some of the highest in the world, make AI training centers costly. That helps explain why Europe has far fewer data centers than the US—only about 100 per $1 billion of GDP compared to 186 in the United States. High energy costs, limited VC capital, and over regulation, including restrictive labor laws, make Europe an unattractive place to build data infrastructure.
The EU data strategy will not work. Europe’s businesses are not underperforming because they need government help. They are underperforming because they lack room to grow. If the EU wants its digital economy to flourish, it should spend less time redistributing data and more time removing the shackles that keep its businesses from competing on a global stage.
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