In Digital Markets, Europe Will Be a Developer of Bureaucratic Rules, Not Technologies.

Experts at the Centre for European Policy Studies (CEPS) foretell this scenario in their report entitled Building One Europe, One Market – Four Strategic Priorities for the Digital Single Market.

In the report, the CEPS experts raise, inter alia, the following questions:

1. What if the AI diffusion rules in the US, introduced already by the Biden administration, tighten further and limit Europe’s access to the most advanced AI chips and models??

2. What if the global standards for AI, telecommunications, quantum, and cybersecurity are developed outside Europe?

These questions should be specified, for it is more appropriate to say ‘when’, not ‘if’. Such development of digital markets is inevitable, and the EU authorities no longer have a chance to turn it in their favor.

A fundamental contradiction in EU governance between national jurisdictions and the all-European one is that divergent national certification standards affect market development in cybersecurity, where distinct national frameworks have prevented the emergence of pan-European product markets and forced companies to replicate compliance processes across jurisdictions.

The same dynamic is beginning to take shape in quantum, as member States develop national certification frameworks driven by their own security concerns.

Yet we should admit that all attempts by the EU authorities to create regulation that would promote development have been counterproductive.

Europe’s main digital challenge is not research quality. Its universities and public research institutes produce strong work in AI, quantum computing, materials science and photonics. The weakness lies further downstream, where research is turned into commercial products.

Europe lacks the capital and market conditions to retain and grow firms to pre-IPO stage. In the absence of deep European capital markets, successful firms face early acquisition or relocation, most often to the USA. This removes technology, talent and ecosystem density from Europe.

A second structural problem is the absence of large European digital incumbents capable of playing the role that large American technology companies play in the U.S. innovation ecosystem – as customers, acquirers, investors, and talent recyclers for startups.

The report cites an example of those structural discrepancies. A EuroHPC (High Performance Computing) platform, launched back in 2018, is encountering underutilization. That occurs not for lack of computational capacity but in the absence of a surrounding ecosystem that could generate demand for that capacity: researchers, model developers, application companies and, crucially, a data infrastructure needed to train and fine-tune models.

The report identifies ten key bottlenecks in the development of digital technology in Europe.

1. Fragmented and overlapping regulation across member States.

2. Divergent national implementation of directives, gold-plating and uneven enforcement.

3. Excessive administrative burden.

4. Lack of clear and timely guidance.

5. Fragmented digital infrastructure and lack of interoperability.

6. Skills shortages and barriers to labor mobility.

7. Barriers to data flows.

8. Slow and complex permitting, certification and approval procedures.

9. Limited access to finance.

10. Lack of support and coordination in research and innovation.

All that is true. But can we name at least one EU governance area free of all the ten digital issues? Europe may achieve high standards for trustworthy digital markets but fail to establish the companies, infrastructure and platforms required for them to operate. Europe succeeds in developing bureaucratic rules rather than developing technology.

Source: https://www.ceps.eu/ceps-publications/building-one-europe-one-market/