Europe Indecisive Whether It Wants to be Richer or Safer

The European Commission’s new Tech Sovereignty Package aims to answer two questions at once: how to reduce dependence on foreign technology and how not to kill competitiveness in the process. It has given only a half-answer by now.

In a policy paper of the Centre for European Reform entitled Should the EU's Tech Sovereignty Package Make Europe Richer or Safer?, Zach Meyers examines the Tech Sovereignty Package proposed by the Commission. Its key part is the Cloud and AI Development Act that calls for assessing the risks of using cloud services in the public sector and introduces ‘assurance levels’. For the most sensitive tasks, foreign suppliers may be excluded altogether. For others, they may be allowed if they meet a number of conditions.

The author underscores the main dichotomy. On the one hand, the package is designed to manage risks: protect data and critical functions from a U.S. or another country’s ‘kill switch’. On the other hand, European tech companies expect a more aggressive industrial policy and guaranteed demand. The package generally takes the former route as it falls short of creating a comprehensive Buy European environment and contributes almost no new money to chip-making and AI development.

The problem is that even limited preferences for European cloud companies may not work. Public procurement is only a small part of the market. National governments may prefer their own providers to all-European ones. And the requirements associated with top assurance levels are so tight that many European companies will simply be unable to meet them without huge costs. In the meanwhile, U.S. tech giants have already been active in creating their own ‘sovereign’ cloud solutions and may thus find it easier to fulfil the formal criteria.

More broadly, the package reflects an old European dilemma. If businesses and the State are compelled to abandon top-class foreign technology for homegrown one, this may reduce efficiency and hinder growth. If the market is left open, the dependence persists. The Commission has chosen a cautious course, but it solves almost none of the problems as it should.

There is still another layer. Even if some public procurement is redirected to European companies, it will produce no real tech champions. The latter takes deep capital markets, the ability to scale quickly across the EU, and a risk appetite. In the absence of those conditions, procurement preferences will remain a stopgap, not a basis for long-term competitiveness.

Besides, the package does almost nothing to address the one-way dependency issue. Europe consumes foreign-made technology but produces almost none indispensable to others. In a world where technology chains are increasingly used as a pressure lever, such a posture leaves little space for maneuver. The formal restrictions on some public procurement do not alter the overall picture. European companies do get a small protected segment but remain weak in the global market, where real strength is determined by one’s ability to create technologies on which others will depend.

Europe is again torn between two goals that poorly match. So long as it tries to both hedge risks and stay competitive, its technological sovereignty will remain rhetoric rather than reality. And the longer this choice is delayed, the more entrenched its one-way dependence will get. As a result, Europe risks remaining a market that consumes others’ technologies and just formally restricts access to its more sensitive segments.

Original publication: https://www.cer.eu/insights/should-eus-tech-sovereignty-package-make-europe-richer-or-safer