AI: Why Europe is falling behind, and how it can catch up

Published 16 July 2026 · europe

Europe trails the US and China in artificial intelligence. Economist and Nobel laureate Philippe Aghion says better research funding, venture capital and AI innovation can

Europe trails the US and China in artificial intelligence. Economist and Nobel laureate Philippe Aghion says better research funding, venture capital and AI innovation can help it catch up. Philippe Aghion is an expert in creative destruction. That's the term economists use when innovations disrupt whole industries and create new ones. Think steam engine, assembly line production and the IT revolution. Or now, artificial intelligence (AI). For his groundbreaking research on how technological innovation can drive long-term economic growth, Aghion, who is French, was awarded the Nobel Prize for economics in 2025, together with Canadian Peter Howitt and Israeli-American Joel Mokyr. Philippe Aghion, Nobel laureate in economics 2025 and professor at College de France, INSEAD and London School of Economics Image: A. Becker/DW "More than ever, AI will bring creative destruction," Aghion told DW on the sidelines of this year's Brussels Economic Forum. "There will be job destruction. And there will be job creation. If you manage creative destruction the right way, it's an engine of social promotion." The importance of embracing change To illustrate the benefits of creative destruction, Aghion points to the difference in economic growth in the European Union (EU) and the US. For decades, they developed in lockstep. But when the IT revolution happened — the personal computer, the internet and everything that goes with it — the US fully embraced the changes. Europe not so much. As a result, the gap widened. Today, per capita gross domestic product in the US is nearly twice that of the EU. With AI, Europe is at risk of repeating the mistake all over again. "We need to wake up," Aghion warned. The US and, to a lesser degree, China are far ahead when it comes to AI development. Firms like OpenAI, Anthropic, Google, Meta, Microsoft and many others are investing billions into the development of large language models (LLM) like ChatGPT, Gemini, Claude or DeepSeek, a Chinese model, and the computing power needed for these models.

Finding strength in EU data protection Europe produces excellent research but has historically struggled to scale startups and attract the same level of venture capital as the US. European models like the French Mistral are the exception to the rule. While it might be hard or even impossible for Europeans to catch up in the area of LLMs, Aghion argues they should bring AI to their traditional strengths like health. "We have fantastic health data in Europe, much better than in the US. And there will be fantastic AI health applications. We can develop a lot of specialized AI," he said. Four tech giants alone — Amazon, Alphabet, Microsoft and Meta — plan to invest $650 billion in data centers in 2026, according to Bloomberg Image: Noah Berger/REUTERS And if done well, the European penchant for regulation could turn out to be a strength, for example in data protection and privacy. "I believe there will be a demand for a more ethical AI, an AI that avoids some dangers," Aghion said. "People want to be protected. To have some regulations will make us even more attractive." How Europe could catch up in AI Some business leaders agree. Thomas Saueressig, vice chair of the Board of Directors of SAP, Europe's biggest software company, wants to see AI used outside the confines of LLMs, to put traditional European industries "on steroids." "Take our capabilities in manufacturing, for example: We could use physical AI and bring it to the next level," Saueressig said in DW's business podcast "The Dip." "We need to use this technology to leapfrog our existing model into the future. In uncertain times, the biggest risk is not to take a risk." But to do that, Europeans need to do their homework, insists Nobel laureate Aghion. "First, we need to create a better research environment, with more long-term financing of research," he said.