This discussion paper by McKinsey Global Institute reveals that Europe's ability to capture the full potential of AI varies significantly across sectors and countries. With the exception of some Scandinavian countries and the United Kingdom, Europe lags behind the United States in readiness for AI. It highlights that to scale up and close the gap with the world's AI leaders, Europe will need to focus on five priorities: (1) continued development of a Europe-wide, vibrant ecosystem of deep tech and AI startups; (2) acceleration of digital transformation and AI innovation among incumbent firms; (3) progress on the digital single market; and (5) bold thinking about how to guide societies through the potential disruption.