ESA does have grants for funding reusable rocket development (ArianeGroup and Isar both got funding for that). Uhh... who knows how successful those programs will be.
To be fair to both Isar and RFA (which are both much more in the 2010s New Space mold), the equivalent rockets (Falcon 1, Electron, etc) weren't reusable either. EU firms are playing catch up, I think its fair that they take some amount of incremental steps through.
As people have generally noted, the market for stuff that Isar and RFA are building (1-2 ton to LEO) is actually really small. I think both companies are banking on building expertise and confidence and then trying to iterate relatively quickly to something Falcon 9 class with re-use.
The American competitors like Relativity and Stoke get to bootstrap off of all the work that SpaceX (especially) and Blue Origin (less so) have done to give a more credible path to immediate re-use.