Mario Draghi, the former Italian Prime Minister and President of the European Central Bank, presented his long-awaited report on “The Future of European Competitiveness” forcing the EU to accept some harsh truths regarding its competitive standing in cloud services, AI, and quantum computing. Without significant reforms to its private investment, labour, and regulatory strategies, the EU will likely fall behind the United States and China in the ongoing technology race.
The EU, estimated to reach a €200 billion valuation by 2028, accounted for a mere 16% of the market in 2021. The three U.S.-based cloud “hyperscalers”: Amazon Web Services, Microsoft Azure, and Google Cloud, account for more than 65% of this market. Why is this the case? EU providers offer only fundamental services like Infrastructure-as-a-Service (IaaS) and act as middlemen reselling hyperscalers’ platform services (PaaS), which are generally more profitable. Additionally, operating costs, energy and real estate are substantially higher in Europe than in the U.S. or the Middle East, and the EU lacks effective industrial alliances for cloud-based technologies and data exchanges.
Draghi describes AI as “an opportunity for EU industrial players to boost their competitiveness” if properly leveraged and rapidly integrated. In this light, the EU has made progress through the AI Innovation Package, which in part allows access to the EU’s high-performance computing (HPC) to AI start-ups, SMEs and the broader AI community. However, the light shines brighter on the EU’s shortcomings, with AI being adopted by only 11% of EU companies, and almost 90% of foundational AI models being developed in the U.S. and China. This situation opens the risk of the EU becoming dependent on AI models designed and developed by non-EU players for both general purposes and vertical uses dedicated to crucial EU sectors including banking, telecoms and transportation. The underlying issue is a lack of private investment. In 2023, the EU reported $8 billion in venture capital investment toward AI compared to $68 billion in the US and $15 billion in China.
Quantum computing will play a pivotal role in the next generation of digital innovation, potentially revolutionizing digital encryption systems underpinning today’s security and defence communication and business transactions. The EU must leverage its strengths, ranking second only to China for public investment in Quantum and leading the pack with the largest concentration of quantum experts. On the other hand, Europe is suffering from limited private investments, with none of the top ten tech firms globally ranked in terms of quantum investment headquartered in the EU. The EU’s firms attract only 5% of global private funding compared with 50% attracted by U.S. firms.
The EU faces a critical decision: to promote “stronger ex-ante regulatory safeguard for fundamental rights and product safety” or adopt light-handed regulation to entice private investment and innovation. Draghi’s recommendations boil down to leveraging the EU’s comparative advantage in skilled labour by tabling new legislation proposing more deliberate regulations to invite increased venture capital.
