Can Europe be a powerhouse in technology and the digital economy?

Why is it so important for the EU to adopt a sovereignty perspective, particularly in the field of technology?

The EU is based on a predominantly commercial expression of power, which explains its difficulty in really getting to grips with issues of sovereignty, such as defense or foreign policy.

However, its commercial power runs the risk of structural decline over time. It is therefore a matter of winning a race against time:

to seize the issues of sovereignty before the loss of commercial power deprives the EU of additional strategic room for maneuver.

To meet this challenge, we need to change the current European software code. Many public decision-makers are not ready for this and continue to believe that we do not have the resources to put Europe in a position of sovereignty.

Do you understand this resistance?

On the paper, they’re not wrong: the EU is a political and economic union based on a set of principles and rules that is unique in the world. It is the only political-economic entity that has renounced basic instruments of power for internal reasons.

On November 11, the Council and the European Parliament reached an agreement on the EU’s annual budget for 2024. Total commitments are set at €189.39 billion. Total payments amount to €142.63 billion. For example, the two or three hundred billion euros that would be needed to make Europe self-sufficient in the crucial field of semiconductors seems very substantial in this context (the Chips Act of 2023 is for €43 billion at best).

In addition to this extremely reduced budget, the European budget is constrained by a multiannual financial framework that limits its budget on a seven-year basis.

In theory, the European Central Bank is not authorized to finance budget deficits. In fact, it could not finance a budget deficit because the EU does not have its own budget in the sovereign sense: it receives compulsory contributions from the member states and spends these funds on its operations and activities. It cannot borrow directly on the capital markets, even at negative interest rates, nor can it run a deficit.

The EU is therefore not a political entity on a par with other powerful states, although it is increasingly seen as the right level for dealing with sovereignty issues.

So why are sovereignty issues back on the agenda?

Because the decision-makers I’ve just mentioned are fundamentally wrong:

sovereignty is never optional, and it cannot be decreed. It is recognized by others and maintained through the possession of the appropriate means.

The increasing number of crises and geopolitical tensions is a constant reminder of this. A recurring question for the EU and its member states is how much strategic room for maneuver they have. It is up to Europe to reform itself and to put itself “in a position of sovereignty”.

On a per capita basis, the EU is richer than China. In other words, its population produces more per capita than China’s. In 2022, GDP per capita was €11,965.62 in China and €30,919.80 in the EU.

Moreover, the EU’s share of global wealth production is equal to that of China. In 2022, the EU was the world’s third largest economy. With €15,837 billion, it accounted for 16.5% of global GDP, just behind second-ranked China with 17.8% of global GDP.

However, since 2012, EU has invested slightly less in terms of GDP and significantly less in terms of value. In 2022, the EU and its member states spent €352 billion on R&D, or 2.22% of European GDP. As a share of GDP, this was slightly lower than in 2021 and still far from the target of 3% of GDP. China, on the other hand, spent more than $442 billion on R&D in 2022, or 2.55% of its GDP, a figure that has been rising steadily in recent years.

The gap is widening. Let’s not forget that China started from practically zero in terms of technological development, while Europe had a considerable lead in terms of research, industrial and scientific culture, administration, education, etc.

If we can’t explain Europe’s structural backwardness in strategic areas such as semiconductors or supercomputers in terms of natural economies of scale or raw capacity, then we must look for these weaknesses in its political and organizational architecture, as well as in its industrial strategies and policies.

How can we protect ourselves against extraterritorial legislation? Is encrypted data a sufficient response?

Extraterritorial legislation is a performance “in law” of a well-established sovereignty “in fact”. In other words, it is the exact opposite of the European approach, which often aims to produce “in law” sovereignty to try to strengthen its “in fact” sovereignty.

To guard against such legislation, we must define and implement an effective data protection strategy. Such a policy systematically rests on two pillars: a technological one and a legal one. One cannot exist without the other.

Therefore, encryption (including quantum-resistant encryption) is a mandatory tool, but it is not the only one. It must be accompanied by some form of legal protection. For example, the capital structure of suppliers is now becoming a point of attention: that’s why we are now seeing the creation of new legal entities using technologies from outside Europe, within a legal framework that does not allow the suppliers of these technologies access to the data produced and processed.

This strategy is interesting because it aims to reduce the exposure of non-European technology providers themselves to laws with extraterritorial reach.

However, it is not easy to implement this strategy on a systematic basis. Mostly because its application must be based on a well-founded economic rationale for the industry, including for the European industry.

For this reason, I am afraid that regulation will, once again, take the place of the main and primary strategy, whereas it should be one dimension among others, to compensate for European weaknesses in holding the technological means of production of sovereignty, especially in the digital field.

How do you approach this question of concrete means?

The technological means of producing digital sovereignty form a kind of technology stack, but not in the most common sense of the term. In fact, the logic of the technology stack as applied to digital sovereignty is both intuitive and counterintuitive.

On the intuitive side, we can see that a low level of mastery at one level has consequences for the next. What’s counterintuitive is that this logic requires a certain amount of back and forth between the infrastructure, hardware, and application layers.

For my part, I believe it’s possible to think of this technology stack in the following way: first semiconductors, which are the foundation of the digital sovereignty technology stack, then supercomputing, quantum computing, cybersecurity and cryptography, telecom networks (Low-Earth orbit conquest), and submarine cables.

As far as Europe is concerned, delays are accumulating and feeding each other on many levels of this stack.

Efforts should focus on encouraging alliances between European technology suppliers to capture international market share, not just on creating domestic niche markets for local companies.

The issues of standards, intellectual property and research are also crucial. In these areas, Europe is still lagging behind. For instance, it’s true that European research has held up well and even excelled, even with lower budgets. Nevertheless, the trend is less and less in favor of the EU. Around 2017, China overtook the EU in the top 10 most quoted publications. Let me give you another example: while the EU produced around 21% of the world’s scientific publications in 2018, compared to 17% for the US, if we look at the share of publications quoted in the top 10 most influential, the US share rises to 31% compared to 21% for the EU.

A major problem in the EU is the fragmentation of R&D expenditure and R&D centres. In addition, the preferred form of transition from research, often publicly funded, to industry today is the “research start-up”, which operates without revenue, from capital increase to capital increase. This often forces researchers to become financiers, which is not optimal in terms of skills and time lost outside the laboratory. It also introduces the risk that the research product, once developed into an industrial product, will be taken over by a State third party.