Core Insights - Europe is lagging behind the US and China in high-tech innovation, primarily due to a lack of appropriate policies and systems to stimulate breakthrough innovations, resulting in a focus on low to medium-end incremental innovations [1][3] R&D Investment and Focus - European R&D investment is overly concentrated in mature medium-tech industries, with 45% of EU corporate R&D funds directed towards automotive, chemical, and telecommunications sectors, while only 45% is allocated to high-tech industries [3] - In contrast, the US allocates 85% of its R&D funds to high-tech sectors such as software, pharmaceuticals, and biotechnology, leading to faster economic growth and higher productivity [3] - The EU's R&D expenditure as a percentage of GDP is only 2.2%, significantly lower than the US at 3.5%, and also below China and Japan [4] Structural Issues - The historical reliance on traditional industries, particularly the automotive sector, has hindered the transition to high-tech innovation in Europe [5] - The lack of a true single market and a comprehensive innovation financing ecosystem in Europe is a significant barrier to stimulating high-tech breakthroughs [6] - Fragmented capital markets in Europe result in a scarcity of debt resources and venture capital, which are crucial for R&D funding [7] Policy Recommendations - There is a need for Europe to adopt a more balanced approach between competition policy and industrial policy, similar to the US model, particularly in key areas like defense, climate, AI, and biotechnology [7] - Establishing a long-term funding mechanism for laboratories and a technology-neutral, mission-oriented innovation policy could help drive disruptive innovations in Europe [7]