As the European Union heads for elections in June, one theme is already showing up in every campaign: the fear of being left behind. From defense spending to the job market, politicians across the political spectrum are trying to break out of paralysis. After all, the biggest achievements of European Commission President Ursula von der Leyen’s first term have been holding the status quo together in the face of enormous challenges like the COVID-19 pandemic and Russia’s full invasion of Ukraine in February 2022. Preventing further disaster is good, but Europe knows it needs to move forward too.
Enter the digital future. Technology plays a big role in the future of work and the future of the economy, and it would seem to play to Europe’s strengths in education and basic research. Yet innovation tends to head out when it scales up, and none of the world’s technology giants are EU-based. This hasn’t stopped Brussels from making lots of new rules that apply to companies all over the world, however. Consume locally, regulate globally. The risk, however, is that limits take priority over potential.
On the one hand, consumer protection safeguards are a staple of the single market, and it makes sense that EU lawmakers would want to wrestle their collective local market under more control. On the other hand, policymakers want these new regulations to create conditions that accelerate growth, rather than hold it back. Such wishful thinking may make it harder for the rules to work well on either score.
More Optimistic, Less Defensive
The EU needs to flip the script, to give opportunity more bandwidth. This could look like actively welcoming the investments by Microsoft and Google into EU-based artificial intelligence projects, instead of looking at these moves as a cynical way to dodge regulation. It could look like encouraging savers to branch out from conservative fixed-income investments so that European capital markets can offer more of an alternative to thriving American finance. Whatever it looks like, it needs to offer more reasons to be optimistic, rather than defensive, in the face of uncertainty.
Foreign policy can help. The EU is now in the midst of redefining its relationship to, and reliance on, the United States in the defense sphere. As Brussels seeks to step out of Washington’s shadow, militarily, it faces a similar temptation to try to promote European business champions by creating distance from Silicon Valley. But economic security won’t work without economic resilience, and that means shoring up global ties at least as much as developing capability at home.
About 25 percent of global growth in innovation spending is coming from just 10 companies, according to the European Commission’s 2023 Industrial Research and Development Scoreboard, released in December. Eight of these are US-based: seven technology firms led by the Big Tech household names, plus automaker General Motors. The list also includes Chinese telecommunications Huawei and German auto giant Volkswagen, the only EU company in this tier.
New Trade Barriers Hurt
The automotive sector has taken center stage in the competitiveness battles, with the EU taking steps to shore up its own electric battery sector and also considering curbs on emissions-free vehicles from Beijing. Thierry Breton, a French former telecommunications executive who is now the European Commissioner for the Internal Market of the European Union, has led the charge to defend against what he sees as unfair competition from China. Yet within the auto industry, putting up new trade barriers is seen as hurting Europe’s push to keep up. Volkswagen Group’s chief executive Oliver Blume said on March 13 that new tariffs would ultimately make European firms less, not more, competitive worldwide.
Brussels shouldn’t be at cross purposes with the company that is its biggest global source of research and development growth. While it might be tempting to think that pushing back against Chinese subsidies could buy time for European industry to catch up, the reality is that all major players are subsidizing electric vehicle development, and new tariffs would just push costs up for consumers rather than deter such investments.
In the technology sector, the stakes are higher and the need for cross-border cooperation even more clear cut. Alphabet, Amazon, Apple, ByteDance, Meta, and Microsoft are the big companies most in the crosshairs of the EU’s new technology regulation, and all of them are headquartered outside the 27-country bloc. It’s possible that Amsterdam-based Booking.com will this year join ByteDance, the Chinese company that owns TikTok, alongside the American goliaths as a provider of so-called gatekeeper services with at least 45 million active monthly end users. But a travel platform is no ticket to purist independence, and in any case the rules for these giant platforms are designed to cut into their market-leading dominance.
The EU’s new regulations generally require the companies to show how they are meeting the standards and to pay steep fines if they fail to follow the rules. So far, compliance costs and court battles are the only sure bets. While the European Commission has hit Google and its parent company, Alphabet, with €8 billion in antitrust fines in recent years, all of the levies remain tied up in court. A new €1.8 billion sanction against Apple, rolled out on March 4, seems headed for similar legal gridlock, and the commission is also facing challenges from Amazon, Meta, and ByteDance pushing back against various supervisory obligations.
Labyrinth of Rules and Laws
Yet the rulemaking train is steaming ahead. The EU has dozens of tech-oriented laws and initiatives, enforced by a spiderweb of institutions, agencies, and governing bodies. A November 2023 dataset assembled by European Parliament staffer Kai Zenner and Scott Marcus, senior fellow at the Bruegel think tank, shows the breadth of the agenda.
Out of that labyrinth, a few laws emerge as the capstone regulations: the Digital Markets Act, which requires designated gatekeepers to make their platforms more accessible to competitors; the Digital Services Act, designed to combat misinformation and enforce consumer safeguards; and the AI Act, the world’s first sweeping oversight law for the emerging field of artificial intelligence. There is also a suite of new laws covering data use and data sharing, including 2016’s General Data Protection Regulation, known for the pop-up boxes that ask users to consent to website tracking as much as its fines for non-compliance.
The EU wants all these rules to add up to a competitive advantage. This approach presumes that the rest of the world will follow the same strategy of constraints and guardrails, giving Europe a first-mover advantage. According to US legal expert Anu Bradford’s conception of a “Brussels effect,” companies will appreciate these standards for offering a measure of certainty, while other jurisdictions will choose to align when they put in their own oversight systems. This approach has paid dividends in areas like consumer safety and environmental reporting. However, the EU has more often played catchup to the US when it comes to asking banks to hold higher capital, a requirement that makes the financial system more stable in times of crisis. And in technology, the EU runs the risk of drowning in its own red tape while the rest of the world heads in other directions.
In the AI Act, for example, the EU is still working on exactly how to define which users are affected and which systems operate with enough autonomy to fall under various requirements. The law sets out a standard for “high risk” general purpose AI models, but indicates that this cutoff will shift over time. Meanwhile, the US has focused on innovation and jobs creation in implementing a White House executive order on the sector. Authorities on both sides of the Atlantic want to curb bias and protect consumers from fraud. Yet the EU goal of shepherding AI systems “from the lab to the market” will not work unless European start-ups can partner successfully with established cloud computing systems—run by US-based companies—that have already assembled the processing power and infrastructure needed for further advances.
Keeping the EU Self-Reliant
Foreign policy planners need to keep these alliances in mind when they debate strategic autonomy, economic security, and other principles aimed at keeping the EU strong. Data and money cross borders easily, and making the most of these connections is a crucial part of keeping the continent self-reliant. If Europe’s networks break, the EU economy will break too. Then again, these ties offer plenty of potential for growth if authorities nourish it rather than solely trying to stamp out dependencies.
Growth and safety are not direct tradeoffs. If anything, economic prosperity acts to increase stability, or at least to provide the resources to restore it. When the COVID-19 pandemic hit, the EU marshalled its resources to develop vaccines and restore supply chains despite unprecedented global shutdowns. When Moscow invaded Ukraine in February 2022, the EU weaned itself rapidly off Russian natural gas with the help of its connections to the US, Norway, and other parts of the world.
As politicians and policymakers lay the groundwork for a new term of the European Commission, based on the coming European Parliament elections, they can turn to the strengths of these connections as a counterpoint to isolationist narratives of populist fearmongering. Citizens are understandably nervous about changes to their way of life from new technologies and the shift away from fossil fuels. Digital policy will serve them better if it stays open and consciously linked to the rest of the world, rather than trying to wall itself off and hope companies from elsewhere are engaged enough to want to come inside. It’s a tricky mental shift, but worth the effort. As Brussels strives to make its member states more competitive in the global economy, reinforcing its connections will help the EU keep up.
Rebecca Christie is a senior fellow at Bruegel, the Brussels-based economic think tank, and the Europe columnist for Reuters Breakingviews.
