Updated assessment: Memo to the commissioner responsible for digital affairs

The digital investment and uptake gap between the European Union and the United States is large, with the US leading not only because of market concentration around its big tech giants but also because of EU domestic barriers to investment and adoption, ranging from difficulties in accessing venture capital and private equity to multiple and partly overlapping data regulations. Narrowing the gap required harmonising EU rules across regulations, particularly with regard to access to data, EU-wide payments and identity platforms, standardising data-processing consent notices and implementing the EU Artificial Intelligence Act (Regulation (EU) 2024/1689) in a way that keeps market entry and compliance costs low (Martens, 2024).

What changes as a result of Trump? The Biden administration’s push-back against the market power of big tech will probably slow down under Trump. The new administration is likely to go full speed on AI, particularly for cybersecurity and defence. Right-wing disinformation on social media platforms such as X is becoming more aggressive and targeted to exacerbate political and national divisions within the EU.

The European Commission’s approach. The early focus for the 2024-2029 European Commission has been put on the well-worn path of Europe’s 2030 Digital Decade targets – mostly hardware and network spending plans that have marked the Commission’s digital policy agenda for decades, amplified by the intention to develop an EU Cloud and AI Development Act to increase computational capacity for innovative SMEs. The Commission has also announced a European Data Union Strategy that aims to simplify and bring more coherence to current EU data regulations, devotes considerable attention to (cyber)security, and argues for a “European Democracy Shield”, building on the EU Digital Services Act (DSA, Regulation (EU) 2022/2065) to combat disinformation ¹ Mission letter from Ursula von der Leyen to Henna Virkkunen, Executive Vice-President-designate for Tech Sovereignty, Security and Democracy, 17 September 2024, https://commission.europa.eu/document/download/3b537594-9264-4249-a912-…. .

Assessment and updated recommendations. EU hardware subsidies can enable private-sector investment decisions, but the main question is what the EU will do to improve the enabling environment for firms. Facilitating the emergence of EU hyperscale cloud infrastructure in support of AI – including through mergers and acquisitions among smaller EU players – requires thinking about business models and what prevents firms from going that way currently. Draghi (2024) did not explain how to turn hardware initiatives into viable commercial undertakings that boost the EU’s productivity growth and strengthen its competitiveness.

The planned Cloud and AI Development Act might fill some of this gap provided it addresses monopolistic positions in cloud software without eroding the beneficial network effects of cloud interoperability. Throwing taxpayer money at cloud hardware will not solve this issue. Executive Vice-President Henna Virkkunen, who is responsible for digital issues, will have to work out mechanisms that can foster capital markets for EU start-ups, implement the proposal in Draghi (2024) for a twenty-eighth regime for innovative start-ups and enable them to prosper into scale-ups (Martens, 2024).

The DSA and Digital Markets Act (Regulation (EU) 2022/1925) focus mainly on reining in the market power and conduct of very large big-tech firms. But even if big tech’s monopolistic rents can be reduced, this alone will not enable EU start-ups to scale up; US firms will likely retain market leadership in digital ecosystems. Accelerating AI investment will entail huge costs that require large market scale. Finding routes for closer collaboration between the US and the EU would be a win for both sides.

To counter disinformation and political interference promoted through social media, the application of the DSA is essential but may not be sufficient (as the plan for a European Democracy Shield proposal seems to acknowledge). The Commission should also explore the role that digital policies could play in modern geopolitical conflicts.

Draghi, M. (2024) The future of European competitiveness, European Commission, available at https://commission.europa.eu/document/download/97e481fd-2dc3-412d-be4c-f152a8232961_en

Martens, B. (2024) ‘Memo to the commissioner responsible for digital affairs’, in M. Demertzis, A. Sapir and J. Zettelmeyer (eds) Unite, defend, grow: Memos to the European Union leadership 2024-2029, Bruegel, available at https://www.bruegel.org/memo/memo-commissioner-responsible-digital-affairs