I agree with some reservations about this being completly generalised. There are still some successfull companies that rewards good players. But yes, there are very few and most of the rest are stuck coasting at a glacial pace, doing stuff that are not very competitive on so many levels it is impossible to describe succintly.
I would also argue that it is not just about the software industry. Many EU industries have become extremely uncompetitive on so many level.
Even when you are ready to pay more for EU made products, it is not easy to find something that is decently competitive and not just a pale copy of better offerings.
It is clear that the EU has become too collectivist but they are still stuck blaming capitalism (just like the soviets I guess).
In France, even old big players that were once at the top and/or were (semi)public organisation have fallen very hard or have been scandalously sold piecemeal to foreign actors.
The problem is not even that they are governement funded but it really is rooted in the collectivist organisation model that gives too much power to politics and very little lattitude to consumer/key actors choice.
Those systems become necessarily corrupted because they rely too much on human behaviors and most humans are fundamentally corrupt.