European ‘tech sovereignty’ or ‘tech protectionism’?

A new narrative about “technological sovereignty” is gaining traction in Paris, Berlin and Brussels. Earlier this year, Bruno Le Maire, France’s finance minister, published a book calling for a “new European empire” to resist U.S. and Chinese economic and technological domination. His colleague, German Economy Minister Peter Altmaier, has also been calling for “digital sovereignty” in recent months. And this week, Chancellor Merkel said that: “Europe, as a general rule, needs to be able to do everything itself”.

At the European Union level, the incoming European Commission President, Ursula von der Leyen, introduced technological sovereignty in her political guidelines for the next EU five year mandate. 

Is Europe having a “sputnik moment”, realising in fear that it is falling behind in a global tech race against the United States and China?

Creating a technologically-sovereign Europe

The new war-like sovereignty narrative is being used to justify a host of initiatives that previously would have been dismissed as protectionism.

Earlier this week, the German government unveiled its “Gaia-X” project which is supposed to compete with non-EU cloud providers. “We want to establish a safe and sovereign European data infrastructure,” said the French finance minister. The French tech company, Atos, hailed the project as “an important step towards European data sovereignty.”  (The French government has nominated Atos’ CEO, Thierry Breton, to become EU Commissioner for EU tech and Single Market regulation. Atos’ shares jumped nearly 10% on the day of the announcement). Deutsche Telekom has also called for “digital border controls” and it has previously promoted its “German cloud” solutions, build on Chinese technology, as a safer alternative to its more popular foreign competitors.

Europe is, on several other fronts, enacting legislation aimed at holding down foreign tech giants while promoting national incumbents. Austria is moving forward with its 5% tax on digital ad revenues. The tax is aimed at U.S. tech firms and part of the proceeds are reported to be earmarked to support the digital transformation of domestic companies. France has already enacted its Digital Services Tax which requires a select group of large tech companies to pay a 3% tax on their turnover regardless of whether they have any operations or any profits in France.

The EU is also considering changing its competition rules. The goal is to create “European champions” while taking a hard line on foreign champions. Commissioner Vestager is reported to be considering changing the burden of proof in competition cases, but only those involving “big tech” companies.  That is, businesses targeted by regulators are essentially viewed as innocent until proven guilty, but this proposal would make one group of companies guilty until proven innocent. That such an affront to the rule of law is even being considered shows how hard a line the Commission is contemplating against non-EU companies. At the same time, the Commissioner has relaxed competition enforcement to allow governments to subsidise cartels groups of national companies working on “Important Projects of Common European Interest”. Recent examples include microelectronics and car batteries.

The problem with picking winners

Europe has a long history of failed industrial policies. Remember Quaero, the EU subsidised French-German search engine? Or what about Galileo, the European satellite alternative to GPS, which has been plagued by delays, cost increases, and disruptions? Or what about the massive French government subsidies into the now abandoned cloud consortia, Numergy and Cloudwatt?

The EU’s quest for tech sovereignty runs the risk of wasting billions of taxpayers’ money on vanity projects which will mainly benefit European legacy companies. Why spend scarce resources on copying something that already exists only to produce something more expensive and inferior?

So what should Europe do?

First of all, Europe isn’t falling behind. In fact, several European Member States are among the most digitally competitive in the world. The EU should build a true single market that takes the best existing solutions, ranging from infrastructure investments and labour reform to simpler tax rules for startups, to attract venture capital and talent and stimulate new innovation.

Europe shouldn’t attempt to wall itself off inside a digital fortress. Europe will thrive when it produces the world’s best ideas, products, services, investments and talent to stay relevant in our globalised, modern economy.