European Union
Europe’s Choice – Will We Start to Properly Compete?
On 18 July, the now-re-elected President of the European Commission, Ursula von der Leyen, unveiled comprehensive proposal and vision for her 2024-2029 tenure, titled Europe’s Choice. Part of this proposal includes a section to make Europe competitive and prosperous on an international stage, while retaining its sustainability initiatives and doing so amidst global market volatility. The proposal identifies several structural challenges, including unfair competition, high energy costs, labour shortages, and difficulties in accessing capital.
Her plan emphasises the importance of completing the Single Market, the greatest success story of the European Union, in critical sectors, including services, energy, defence, finance, and the digital realm. The goal is to provide SMEs with easier access to broader markets, fostering growth and innovation. The proposal also includes a revised competition policy to better support companies scaling up globally, prioritising innovation and resilience in merger assessments, to prevent market concentration and its negative impacts on consumers.
Playing by the rules when others do not
Regulatory simplifications form a cornerstone of the proposal (and are the generic bane of doing business in the EU in the eyes of detractors), with each Commissioner tasked with reducing administrative burdens and enhancing the coherence of implementation. The initiative includes appointing a Vice-President for Implementation, Simplification, and Interinstitutional Relations to oversee efforts to consolidate and codify legislation, eliminating overlaps while maintaining high standards.
A significant aspect of the proposal is the introduction of a 28th regime, designed to create an EU-wide legal status for innovative companies. This initiative, part of the Startup Europe program which has been evolving since 2011, aims to streamline and harmonise the regulatory framework across Member States, addressing the complexities posed by the current patchwork of national regulations and the stark consequences thereof – in particular when comparing the opportunities that businesses have in the United States.
To protect small midcap firms from predatory acquisitions, the proposal suggests regulatory adjustments, ensuring these companies are not hindered by burdensome regulations. Future legislation is to be crafted with a focus on SMEs, incorporating an SME and competitiveness check to avoid unnecessary administrative burdens.
Additionally, the proposal calls for a renewed interinstitutional agreement on simplification and better lawmaking, to ensure comprehensive impact assessments across all legislative processes. Each Commissioner will be required to provide annual progress reports to their respective European Parliament Committee and Council formation, promoting transparency and accountability.
The Clean Industrial Deal – World-Leading
Von der Leyen’s proposal also outlines a comprehensive plan to address the climate crisis while enhancing Europe’s industrial competitiveness. The Clean Industrial Deal builds on the European Green Deal’s goals, aiming for a 90% emission reduction by 2040. The plan emphasises the dual need to decarbonise and industrialise the economy efficiently and fairly, prioritising regulatory simplification and investment in sustainable energy. Central to this strategy is the Industrial Decarbonisation Accelerator Act, designed to channel investment into energy-intensive sectors and support the development and deployment of clean technologies. The proposal includes measures to streamline planning and permitting processes to expedite these initiatives.
The plan highlights significant achievements, such as a record 50% of EU electricity generation from renewables and reduced dependence on Russian fossil gas. However, it acknowledges ongoing challenges in energy pricing and market efficiency and advocates for further reducing fossil fuel reliance, enhancing joint procurement, and developing a robust Energy Union governance framework.
Investments should be scaled up in clean energy infrastructure, including renewables, low-carbon technologies, grid infrastructure, and hydrogen networks. The proposal also emphasises the importance of securing raw materials and clean energy through new trade and investment partnerships. It underscores Europe’s leadership in global climate negotiations and aims to enhance green diplomacy. It also seeks to facilitate sustainable mobility, notably through a Single Digital Booking and Ticketing Regulation to simplify cross-border train travel.
Digital Tech Diffusion and Productivity Gains Thereof
The 2024-2029 agenda also addresses Europe’s productivity challenges, highlighting the insufficient diffusion of digital technologies as a key impediment. The focus is on implementing and enforcing digital laws such as the Digital Services Act and the Digital Markets Act to ensure tech giants are held accountable for their systemic influence. Enhanced enforcement aims to create a level playing field, especially for e-commerce platforms, by ensuring effective customs, tax, safety controls, and sustainability standards.
The transformative potential of achieving digital targets and establishing a true digital Single Market is highlighted, with investments planning to be increased in frontier technologies like supercomputing, semiconductors, the Internet of Things, genomics, quantum computing, and space tech. A significant emphasis is placed on Artificial Intelligence (AI), aiming to position Europe as a global leader in AI innovation. This includes initiatives like the AI Factories to provide tailored supercomputing capacity and an Apply AI Strategy to enhance industrial uses and public services.
A European AI Research Council is proposed to consolidate resources, inspired by the model of CERN. Data accessibility is highlighted as a critical factor for competitiveness and innovation. The proposal notes the disparity in data access between European companies and large foreign tech firms. To address this, a European Data Union Strategy will be developed, aiming to create a simplified, clear, and coherent legal framework for data sharing while maintaining high standards of privacy and security.
Utilising the most innovative place on Earth
The proposal also aims to place research and innovation at the core of Europe’s economic strategy to maintain competitiveness and drive the transition to a clean and digital economy. The plan involves increasing research spending with a focus on strategic priorities, fundamental research, disruptive innovation, and scientific excellence.
Key initiatives include the expansion of the European Research Council and the European Innovation Council. The proposal highlights the importance of positioning Europe at the intersection of emerging science, technology, and industry to accelerate the technological revolution.
Biotechnology is identified as a crucial area, with plans to leverage AI and digital tools to modernise sectors such as farming, forestry, energy, and health. To facilitate the transition of biotech innovations from the laboratory to the market, a European Biotech Act will be proposed in 2025, forming part of a broader Strategy for European Life Sciences.
Creating an environment conducive to innovation involves providing state-of-the-art infrastructure and laboratories through public-private partnerships. Attracting and retaining top talent is also a priority, with plans to strengthen collaboration between research departments, higher education institutions, and businesses, particularly through enhanced University Alliances.
Turbocharging Investment
The proposal also stresses the necessity for substantial investment to drive the green, digital, and social transitions in Europe. Recognising that public funding alone is insufficient, the proposal highlights the importance of maximising public investment while leveraging and de-risking private capital in collaboration with the European Investment Bank. A key component of this strategy is completing the Capital Markets Union, which could potentially attract an additional €470 Billion of investment annually.
The proposal addresses the need to create a more ambitious environment to combat the lack of private capital and shallow markets within Europe. By implementing risk-absorbing measures, it aims to facilitate easier access to financing for innovative European companies and start-ups, reducing their dependency on foreign markets for expansion capital.
To further unlock capital, the regulatory framework will be reviewed to eliminate barriers that restrict the availability of European capital for financing innovation. Addressing the fragmentation of financial markets is also a priority, with plans to develop a European Savings and Investments Union. This initiative aims to leverage the significant private savings within Europe and enhance financial instruments to attract global savings.
Public procurement, accounting for 14% of EU GDP, is identified as a key lever for innovation. A 1% efficiency gain in public procurement could save €20 billion annually. The proposal includes a revision of the Public Procurement Directive to prioritise European products in strategic sectors, thus fostering the development of innovative goods and services.
The Clean Industrial Deal will focus on investing in clean and strategic technologies within Europe. A new European Competitiveness Fund is proposed as part of the next multiannual financial framework. This fund will support Important Projects of Common Interest (IPCEIs) and will be instrumental in financing strategic technologies such as AI, space tech, clean tech, and biotech, ensuring these industries flourish within Europe.
Much to do in the next 5 years
The proposal posits an insightful question – how can the EU, with its goal being to provide the best all-encompassing living standards (health, labour rules, commute, food safety, privacy, and so much more) for its citizens compete with the United States, where, as long as the potential fines incurred are smaller than the revenue that can be made, then the material gains are worth it? In particular, since American businesses can first leverage the vast capital and the market size in the US, they can grow and mature before ever expanding to the Single Market, whereas European companies must from the start be fully compliant with the complex regulatory requirements and also take into account the lack of proper public funding that regulatory agencies have, hampering any sort of swift communication between businesses and authorities.
Europe has proven that it can be lean when it needs to – its reaction to the COVID-19 pandemic and to the ongoing unlawful and cruel invasion by Russia have shown that when there is political will, mountains can be moved in weeks. It is vital that this momentum is not let go to waste, as the gap between Europe and the United states is increasingly widening.
One key aspect that the proposal did not mention is the fact that European languages are too diverse to compete with the United States and that English as a standard for businesses has a long way to go. Putting aside the regulatory differences that various Member States have implemented, the fact that it is currently impossible to effectively enter the market if you do not know the local languages, let alone their culture, means that European businesses need to acquire significant capital in their Member State of origin, before they can even consider expanding further. This is a stark contrast to the United States, where businesses can immediately start gaining market share in other States in a way that requires very little transition.
Another often-neglected fact is that the EU’s wide-ranging proposals for innovation will be all for naught if our largest and strongest economy in Germany continues lag in innovation. The Member State, for which the primary benefit of the EU is to solidify their function as an export economy, have often opposed measures that might integrate the EU further, such as common debt, moving additional powers to the EU or opening up German markets to more competition. Volkswagen’s endeavours in China are a perfect example, where an authoritarian state has directed enough capital and resources to start completely eating out the market share of foreign cars, whilst European companies have been too slow to even notice the shift. The quick fix has been to lower prices, but European carmakers have been unable to compete on cultural aspects – even the smallest things like a karaoke function has been a selling point for Chinese vehicles.
The contrast between capital markets and the opportunities that are available in the EU and the US are potentially the primary reason why the US has been so much more innovative and quick in pivoting to producing innovation. The gap has been increasing since the COVID-19 pandemic and, due to geopolitical factors, will continue to increase. It is interesting to note how Europe already produces world-class research and innovation, but has thus far been unable to convince actors to capitalise on this in Europe. Look at whatever makeup of large US tech or other cutting-edge industries and you will see a highly diverse team, filled with individuals who have grown up in Europe, have been educated in Europe (at least until tertiary education), but have opted to move, as the ‘exciting’ work is being done in the US. The fact that our best and brightest are compelled to move to places such as Silicon Valley should frighten us and should highlight that Europe is not doing enough to entice people to be innovative here.
