Over the summer break, questions about how to boost the EU’s competitiveness remained in full swing. The Commission’s draft EU budget proposes a European Competitiveness Fund, and there has been much speculation about the content of the upcoming Cloud and AI Development Act (CAIDA).
Here at CERRE, September will see the launch of the first paper from our Competitiveness Forum. It highlights how the EU’s ‘competitiveness problem’ is primarily about innovation. In an era where other countries are undermining the concept of comparative advantage using tariffs and subsidies, maintaining an edge in innovation will be more and more important.
The paper asks how the EU can reconcile competitiveness and innovation with concerns about Europe’s economic security and digital sovereignty. In the short run, economic growth will require boosting the use and diffusion of (mostly foreign) technologies throughout the EU. In the long run, the two priorities can align. But much of Europe’s industrial policy pits the two priorities against each other. Industrial policy is too often aimed at protecting incumbent firms and sectors from the need to embrace disruptive innovation. And digital sovereignty projects, like the GAIA-X initiative, are often pursued with insufficient scrutiny about whether and how they can enhance the EU’s overall economic growth.
The paper proposes a better way of designing EU digital industrial policy to marry competitiveness with greater sovereignty. This would involve identifying and protecting niches where it is essential for the EU to maintain sovereign solutions, keeping European markets open but imposing regulatory obligations to mitigate the risks of relying on foreign technologies, and providing targeted public funding for sectors where the EU could gain a global lead in innovation, to reduce the one-sidedness of its dependencies.
These ideas will be crucial inputs as Commission staff head back to their desks and continue their work on the Cloud and AI Development Act and other competitiveness initiatives. CERRE’s work is increasingly focused not just on regulation but on how EU policy can boost growth – and restore Europe to the innovation frontier.
