The 'they don't realize what regulation does to entrants' explanation is implausible.

The bureaucrats are not naive and are perfectly aware that these kinds of laws produce incumbent protection [0],[3]. Even if they don't directly intend it each time, analyse a big amount of EU policies and see that they produce incumbent protection by effect (although there are some notable counterexamples, such as DMA; but DMA targets more established external companies even harder; so even here small player advantage seems to be just a secondary effect of protectionism against external competitors like Alphabet, Apple, Meta, ByteDance, which are dominant).

My hypothesis is that they're not bothered, because why would they? EU elites don't have a strong dependence on creative destruction, at least for the Franco-German axis. Elites are established beyond belief and can extract value in other ways (see below), e.g. in Germany it takes '6 generations for descendants of a bottom-decile household to reach mean income' [1].

So just kill or discourage anyone trying to penetrate the barrier, the really successful ones will open on, say, NYSE anyway and won't bother them [4]. EU can afford this strategy because it still has enough of a middle-class to control a consumer market that China/USA can't ignore, so they can extract value from both external companies (compliance costs, fees) and citizens (taxes, higher prices) because of the immobility of that consumer market [2]. So instead of removing structural barriers to entry, they just leave much of that structure intact and build compensating institutions on top of it (grants, EIC funding)

[0] TOOL #22. THE "SME TEST": https://commission.europa.eu/document/download/5d2011d7-5470...

[1] 'Mobility patterns...' https://www.oecd.org/content/dam/oecd/en/publications/report...

[2] https://academic.oup.com/book/36491

[3] 2 Fostering competition..., e.g.: 'Industrial and labour market policies have tended to favour incumbents and hampered the reallocation of resources to young and innovative firms, weighing on allocative efficiency and slowing down structural change' (https://www.oecd.org/content/dam/oecd/en/publications/report...)

[4] https://www.elibrary.imf.org/view/journals/001/2024/146/arti... e.g. 'Looking at EU startup exits through IPOs, two-thirds occurred outside the EU in 2023'