Canada

but the answer they were looking for is just France.

Leif Erikson did not establish Vinland in 1000 AD to suffer this kind of disrespect.

Seriously - the far northern tip of Newfoundland island has archeological remains of a viking settlment that carbon-dates to somewhere around 990–1050 CE.

It lasted for anywhere between twenty and sixty years, and while it appears that Vinland was still heavily dependent on supplies from Greenland and Iceland, it was definitely a settlement and the Norse are well-established as definitely European. It had permanent dwellings, and permanent communal work buildings, including a smithy, a carpentry shop, and boat-repair facilities.

There is arguable case, but intangible intent, that it may not have been a long-term attempt at colonizing North America, but the question on the test wasn't asking about colonizing Canada - just who gets to claim the "first European settlement."