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Europe’s digital borders frustrate Europe’s companies — and its consumers.

The Internet started life as a borderless, anonymous space. Today, borders are back with a vengeance, most obviously in countries that actively block parts of the web. It’s blatantly evident every time a video is “not available in your country,” and every time a business that could otherwise provide its services globally over the Internet doesn’t because of local regulations.

Borders can be a good thing — they clarify jurisdiction and give legal certainty — but they also fracture and divide markets. Europe today has more borders in the digital world than in the physical world. Beginning with Jacques Delors’ Single European Act, the EU has progressively removed direct and indirect barriers to the free movement of goods, services, people and capital. Digital development has outpaced the regulators with such speed that the ability to provide borderless services is now hamstrung by national and local legislation that have newly become major obstacles to growth.

Europe has the ability to succeed in the digital economy. European countries top the charts in innovation and create great tech companies: Over the last decade, Europe has had almost as many “Unicorns” — billion dollar startup exits — as the US (30 vs 37), but when we look at the top 20 tech companies by revenue, only one European company, SAP, makes the list.

Europeans create innovative, promising companies, but they lack the firepower of an integrated single market to help them grow into 50-billion euro companies. The cumulative weight of territorial copyright laws, variances in contract laws, consumer protections, and sector-specific regulations — even the high cost of sending parcels short distances across national borders — inevitably introduces a slow, grinding friction into the market.

This hits small European companies particularly hard. Large multinationals can afford to localize and comply. In many sectors, Google has higher market share in European countries than it does in the US. The result is that European startups often face a choice — grow slowly in Europe or expand quickly in the US, where complying with federal law and (usually) just one state’s regulation suffices to access 320 million customers.

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The annual cost of Europe’s fractured digital market is an estimated €340 billion per year.

On May 6, the European Commission will present its digital single market strategy, a set of consultations and  legislative proposals covering copyright, VAT arrangements, contract rules, parcel delivery, media services, consumer protection, the telecommunications market, privacy, e-government services and other areas. Bundling a large number of proposals together should help achieve the political momentum to pass all of the necessary legislation in a few years. As we start to work through these legislative packages, there will be two major obstacles.

First, Europe has an undercurrent of protectionism and envy of American success. Some policymakers have concluded that the dominance of large US tech companies will last for some time to come, and that European regulations should explicitly favor European companies. This is shortsighted — monopolies and market dominance in the digital economy are quick to fade, which companies such as Nokia and Myspace know all too well. Creating and maintaining a competitive edge means going head-to-head against the best in the world; not only do you need the best European companies, but you also need to attract the best global businesses to your market.

Second, building a successful digital single market will require national governments to pool their regulatory authority. The most flexible way to regulate in the quickly-changing digital era is through centralized regulatory authority, something the EU embraces in areas like aviation safety or trade, but not digital sectors like telecoms or cybersecurity.

The difference that consolidated regulatory authority makes becomes clear in a comparison of the two sides of the Atlantic. The EU has been negotiating rules on net neutrality for nearly two years as part of the telecoms single market package, and a final agreement has not yet been reached. At the same time, the US government just changed its rules on net neutrality almost overnight, following concerted pressure from consumer groups, civil society and tech companies. Once public pressure had mobilized and coalesced, it took the Federal Communications Commission just a few months to agree to changes to its rulebook, and publish 400 pages of technical guidelines. With a single regulator empowered with broad powers, the US acted far more swiftly.

Governments have good reasons for not wanting Brussels regulations to dictate everything — often, it’s better done at home. But we must accept that the strategies that worked in the analogue world don’t work today. The EU tends to move toward unified regulation by slowly bringing national regulations to the same level. This could work in the pre-Internet world, when companies expanded gradually from one European country to another. But in the digital world, where you can introduce your operation to the whole of Europe overnight, 28 similar rules still present 28 different sets of obstacles, each with its own nuances that you must learn all at once. Where Europe cannot fully harmonize, we need more mutual recognition — allowing a company that follows the rules and regulations of one member state to operate throughout the EU by complying with those rules alone.

Finally, as we legislate the proposals of the digital single market strategy, we should look for regulatory opportunities. The US, for instance, remains fragmented and overregulated in many sectors, such as banking, health care and education. Europe should not aim to play catchup, but to create a more unified and predictable environment that attracts the best businesses and entrepreneurs across the globe.

Luukas Kristjan Ilves is counselor for digital affairs at the Estonian permanent representation to the EU, where he is leading the digital agenda of Estonia’s presidency of the Council of the EU in 2018. He has worked for Neelie Kroes, the previous European Commission vice president for digital agenda, and has held various positions in the Estonian government in the areas of cybersecurity and e-government.