Mario Draghi's Anniversary in Brussels Reflects on a Year Past
The European Commission has unveiled ambitious plans to bolster its technological and economic standing, aiming to close innovation gaps and strengthen economic security. The Commission's strategies focus on advanced technologies, decarbonisation, and economic resilience.
In a bid to boost AI capabilities, the Commission has announced plans to establish at least five AI gigafactories and triple data-center capacity over the next seven years. However, the adoption of AI is rising, yet stark gaps persist, with the EU producing just three large foundation models compared to 40 in the US and 15 in China last year.
To address this, the Commission is taking steps to make IPCEIs (Important Projects of Common European Interest) more attractive and accessible. One such example is Japan's semiconductor IPCEI, Rapidus, which channels $12 billion of public support into a single large-scale leader in advanced chips.
The Commission is also focusing on the EV market, recognising that it has grown more slowly than expected. To accelerate growth, charging point installation must accelerate three- to fourfold in the next five years to reach adequate coverage. The Commission is taking steps to decouple the remuneration of renewables and nuclear from fossil generation, aiming to lower barriers in the single market and let firms scale faster.
Economic resilience is another key focus. Europe's ability to respond to economic challenges is limited by its dependencies, such as reliance on the US for defense and dependence on Chinese critical materials. The Commission is considering using industrial policy to cut dependencies and guard against state-sponsored competition.
The growth model of Europe has weakened further due to the decline of expanding world trade and high-value exports. To counter this, the Commission is promoting consolidation and innovation while protecting competition. Harmonised public procurement rules across member states are necessary to prevent procurement from sliding into national protectionism and failing to deliver scale. Public procurement can create stable demand for innovation and strengthen strategic sectors by directing even a small share to European industries.
The Commission is also exploring the potential of joint issuance of debt for common projects, allowing Europe to finance larger projects in areas that lift productivity, breakthrough innovation, scale technologies, defense R&D, or energy grids. The European countries that have issued joint bonds for common projects include the member states of the European Union, specifically through the issuance of the EU's "NextGenerationEU" recovery bonds launched in 2020 to finance the COVID-19 recovery plan.
However, Europe's response to economic challenges is not without its challenges. EU public debt is set to rise by 10 percentage points over the next decade, reaching 93% of GDP. The Commission is currently spending nearly €190 billion on state aid, while only €8 billion has been allocated to IPCEIs since 2018. Concrete dates and deliverables, along with accountability, are necessary to move beyond broad strategies and backloaded timelines.
In conclusion, the European Commission's strategic initiatives aim to propel Europe towards the forefront of technological innovation, foster a greener economy, and strengthen economic resilience. By addressing gaps in AI adoption, promoting electric vehicles, and exploring joint debt issuance for common projects, the Commission hopes to create a more competitive and sustainable Europe.
