Open but Secure Europe%E2%80%99s Path to Strategic Interdependence 2025

When it comes to technology, the European Union is a long way off achieving strategic interdependence. Its industry lags behind the US and China and depends heavily on its global competitors. Nearly 80% of suppliers to European semiconductor firms are headquartered outside the bloc,32 while its global competitor China produces 80% of the EU’s solar panels and just under half of its critical raw materials.33,34 Meanwhile, the seven largest US tech companies are 20 times bigger than the EU’s, generating 10 times the revenue.35 The EU’s technology sector cannot afford to be playing catch-up. The bloc desperately needs a secure and stable supply of critical technologies to realize its digital and green transitions. Being heavily dependent on the US and China reduces Europe’s ability to act autonomously when those countries do not align with the EU’s interests or values. However, to achieve a more robust and resilient technology sector, Europeans have so far asked themselves the wrong question. Rather than trying to emulate US successes – for example with a European cloud or satellite constellation – they should be asking how to create an environment where European innovation and industry can play to its own strengths. Building strategic interdependence should therefore begin with a frank assessment of where the EU’s dependencies and vulnerabilities lie, where it has strong like-minded partnerships and where it can develop its leading edge in technologies of the future. The EU cannot create champions without the raw ingredients: the right regulatory space, financing, infrastructure and trade partnerships are needed to unleash Europe’s technological potential and safeguard its competitiveness and economic security. Greasing the gears To begin with, the EU needs to rethink its regulatory approach. The bloc has pitched itself as a regulatory powerhouse, setting important standards to guide the development of technologies. In the 2019-2024 EU institutional term, 93 digital and technology regulations were adopted, including the General Data Protection Regulation (GDPR), the Digital Services Act (DSA), the Digital Markets Act (DMA), the Chips Act, the AI Act and the Data Act.36 But the “Brussels effect” – where other regulatory jurisdictions seek to align with the EU’s regulations – is losing its potency as emerging technologies like advanced AI become more hotly contested geopolitically. The rise of technology sectors in other countries, especially new great and middle powers, dilutes the imperative to follow the EU’s digital rules. Big technology firms, meanwhile, have consistently argued that overregulation has stifled innovation in Europe.European policy-makers should not see it as a simple choice between regulation and innovation. Rather, a broader set of legal and institutional reforms are necessary for technology companies to innovate and for digital economies and societies to thrive in the global ecosystem.37 To kick-start European industry and innovation, the EU should conduct a comprehensive review of its regulations and withdraw any unnecessary regulatory and administrative barriers. As part of this EU-wide review, it should consider creating one-stop shops in member states that could help companies navigate the complexity of digital regulations. This should be accompanied by a less fragmented approach to initial public offerings (IPOs) to start- ups and small and medium enterprises, as well as a more unified and straightforward legal framework for businesses. Innovation also requires investment. European start-ups currently face challenges in accessing capital, as bank loans have become harder to secure and venture capital in the EU remains much lower than in the US, as Agathe Demarais details in the following chapter. With support from the European Commission, the European Innovation Council could tap into pension and insurance funds to fuel home-grown start-ups and high-tech companies. To entice more private sector funding, the EU could minimize investor risk by introducing robust de-risking tools, such as loan and guarantee programmes backed by EU institutions. The European Fund for Strategic Investments and the European Guarantee Fund can serve as valuable models for these initiatives. To get the most value for money, the EU should make use of the tools already at hand, such as the scale provided by the single market. The completion of the single market should therefore focus on removing barriers in services, energy, defence, finance, electronic communications and digital technologies to make doing business and innovation across member states easier.38 The EU could then develop schemes to coordinate investments across the bloc and help European companies scale-up into global players. This approach could benefit from tax incentives, such as stock options with deferred taxes to make it easier for innovators to work across Europe, as well as from accelerating permitting and improving guidance and support for implementing regulations. However, developing a more resilient and competitive technological industry cannot rest on the private sector alone. The EU must play its part by increasing investment in its own infrastructure – especially water supply, hydrogen pipelines, charging points, renewable energy technologies and 5G networks. Securing critical infrastructure is an important priority, particularly Europe’s subsea cable network, on which Ireland, Cyprus and Malta rely for digital connectivity. Beyond foundational infrastructure, the EU could aim higher by expanding its supercomputing 80% of suppliers to European semiconductor firms are headquartered outside the EU. China produces 80% of the EU’s solar panels and nearly 50% of its critical raw materials. The US’s 7 largest tech companies generate 10x more revenue than the EU’s. To kick-start European industry and innovation, the EU should conduct a comprehensive review of its regulation and withdraw any unnecessary regulatory and administrative barriers. Open but Secure: Europe’s Path to Strategic Interdependence 18