I was recently talking to a friend in Spain about a startup idea and he said no way could he join a startup (in a senior role) because if it failed his career would never recover.

AFAICT it really is the attitude pushing so much innovation out of the EU and not the legal environment much less the competition. The newer members like Hungary and Romania seem to have a lot less of this problem (but more of other problems like stable business environment and predictable rule of law).