A digital decalogue from Southern Europe for the next EU legislature [Promoted content]

Decline is not an inescapable fate and prioritizing digital innovation would be a safe bet to keep that destiny at bay. With this spirit, PromethEUs, a network of Southern European think tanks, has launched 10 digital priorities for the next EU legislature.

Stefano da Empoli, President of I-Com. 

In a rare display of unanimity, economists explain that total factor productivity is responsible for a large part of long term growth. This means that the latter is primarily explained by innovation rather than the mere accumulation of labor and capital. Innovation can be interpreted more or less extensively but it is clear that digital technologies play a sizeable role in affecting it. In a 2020 scientific paper, Robert J. Gordon and Hassan Sayed showed that most of the 1995-2005 US productivity revival was driven by ICT-intensive industries producing market services and computer hardware while, on the other hand, in the same period, the EU experienced a slowdown in growth due to scarce ICT investments, a failure to capture the efficiency benefits of ICT, and performance shortfalls in specific industries including ICT production. Since then, EU countries have kept losing technological and, consequently, economic ground to the US and China. In a recent speech, Isabel Schnabel, Member of the Board of the ECB, reminded that “at the turn of the millennium, Europe was operating at the global technological frontier, but today many euro area firms are laggards. Compared with many of their global peers, they invest less in both physical capital and research & development, and they are less productive”. 

In view of the upcoming European elections and the debate driven by the reports on the Future of the Single Market and on the Future of EU Competitiveness, to be released in the next weeks and months, the PromethEUs network of think tanks, made up of Elcano Royal Institute (Spain), I-Com – the Institute for Competitiveness (Italy), the Institute of Public Policy – Lisbon (Portugal) and IOBE – the Foundation for Economic and Industrial Research (Greece), has produced a position paper analyzing the role played by digital innovation and transformation and related policies and regulation in driving EU growth and launching a decalogue of digital policy proposals for European institutions’ next mandate.

Thanks also to EU funds (in particular, those allocated by the Next Generation EU Programme), Southern EU economies have been performing above the EU average over the last two years. However,  apart from its temporary fiscal and macroeconomic impact, the most important achievement to be expected from the NGEU Programme should be to accelerate the digital transition and permanently increase innovation and competitiveness. 

Today, artificial intelligence (AI), and especially generative AI, is set to spark productivity and growth across sectors and economies worldwide but, again, EU Member States are showing obvious vulnerabilities. 

According to the most recent study carried out by the PromethEUs network, Europe is significantly underperforming in terms of AI patents. According to WIPO, out of the top 167 universities and public research institutions for patents, only 4 are in Europe. Out of these 4 European public research organizations, the highest-placed is the German Fraunhofer Institute, which is ranked 159th, while the French Alternative Energies and Atomic Energy Commission (CEA) is in 185th position. At the same time, European startups received just $1 billion out of the 22 billion that VCs have invested in generative AI since 2019, making up less than 5% of this sum to Europe. 

However, Europe’s fate could be reversed by sound policies and regulation.

According to PromethEUs’ decalogue, first of all, the budget of EU initiatives such as the Digital Europe program should be markedly revised upward. The current budget (less than €10 bn over 7 years in 5 different technological areas) does not even match individual investments by the world’s largest companies in one single technology such as generative AI (e.g., the money provided by Microsoft to OpenAI in early 2023). But investments from the EU and its Member States also need to be more closely coordinated. For instance, the coordinated plan for AI, started in 2018, should be resumed and strengthened, as well as its governance (with a sanctioning mechanism for non-complying MSs set in place). 

Moreover, public procurement should finally become an industrial policy tool, by rules defined at EU level. For frontier technologies to be developed, centralized or at least coordinated mechanisms could be envisaged in order to accelerate the time to market process.

Red tape at EU and national levels should be reduced, especially for startups and other entities expanding internationally. The scaling-up process should be facilitated, with regulatory and administrative fast track mechanisms in place for startups and innovative SMEs, to be encouraged to operate outside their country of origin. After the flood of new regulations produced in the last couple of legislative mandates, streamlining EU digital legislation would be an essential step, making it simpler and increasing consistency. In this respect, the provision of Consolidated Texts, gathering and reconciliating the existing legislation, could be extremely helpful for everyone (such as regulated subjects as well as regulators).  

As well, accelerating and completing the Capital Markets Union cannot be deferred, being the current national scale of financial investment in innovative companies, a factor that limits the growth of European startups but also of EU financial institutions such as venture capital and private equity funds.  

New forms of private-public collaborations should be put in place for the upskilling and reskilling of SMEs’ management and personnel, supplying tools easy to use (e.g., multimedia courses, available in every language). 

In the European Data Strategy, presented in 2019, sectoral dataspaces available at EU level were rightly envisaged as an essential tool. Unfortunately, the outgoing mandate has achieved too little, due to many unforeseen circumstances and national/local obstacles. The implementation process underlying sectoral dataspaces needs to be greatly sped up and current obstacles effectively removed.    

Furthermore, interoperability and open digital ecosystems should be driving principles to be cherished in the clear interest of European organizations, on average smaller than their US or Asian counterparts.  

Finally, multilateral digital diplomacy fora and bilateral agreements should be actively promoted by EU institutions and a single Commissioner should be entrusted with this mission.   

Decline is not an inescapable fate for Europe. Prioritizing digital innovation would be a safe bet to keep that destiny at bay.