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Saturday 1 June 2019

Rebooting a digital Europe

By James Harding

Europe is trailing the US and China. It missed the boat in analytics and data, it is falling behind in artificial intelligence (AI) and blockchain, and currently looks set to come in third in quantum computing.

Europe is outstripped by North America and Asia in AI investment

$ billion

Data from 2016. Source: McKinsey

Data from 2017. Source: UHY, World Intellectual Property Organisation

Data range from 1992 to 2014. Source: European Commission

If Europe wants a digital future that is competitive and fair, it is going to need to free up financial capital and foster human capital.

The to-do list in European finance is clear:

Delivering on the promise of a capital markets union and a banking union in Europe would have a profound, positive impact. It would enable much-needed scale at banks and businesses in Europe. It would broaden and deepen the pools of venture and equity finance for innovative businesses. In Europe, 90 per cent of lending to small- and medium-sized enterprises (SMEs) is provided by banks. The US, on the other hand, deliberately forged a single market for financial services in the 1980s and, today, has a mix of investors and lenders that have proved to be the seedbed for Silicon Valley.

Data from August 2018. A “large company” is a private company with a valuation of more than $1bn. Source: Pitchbook, Bloomberg


Regulating businesses for what they do, not who they say they are, would make for a fairer playing field between incumbents and newcomers, between European businesses and competitors from the US and China. Among other things, this relates to how much tax companies pay – not to mince our words, the tech companies aren’t paying their fair share.

The effective tax rate of digital businesses in the EU is on average less than half that of traditional companies

Data from 2018. Source: European Commission


Communicating the benefits of a single market that can finance future growth is a prerequisite. Europeans came to appreciate what Schengen meant in terms of ease of travel, study and movement; likewise what the EU could do for them in cutting the roaming charges on their mobile phones. The arcane business of the banking union and capital markets union must be a story that is told in the popular terms of lower mortgage costs, greater ease of doing business and increased prospects for the jobs of the future.

EU data from December 2017, Chinese data from July 2018. Source: European Banking Federation, China Banking and Insurance Regulatory Commission


At the same time, Europe needs intellectual capital. There’s movement within Europe that’s bringing exceptional people to work in capitals such as Berlin and Lisbon, Madrid and, yes, London, too. There needs to be easier access for people with qualifications and skills from around the world.

Source: The Observatory of Borderless Higher Education, 2013

More importantly still, Europe needs to invest in its leading universities: Europe’s expertise in science and engineering is too fragmented.

The digital future won’t be mandated by government: Paris can’t wish its own Google into existence; German politicians can’t invent their own Facebook.

But Europe can reverse the brain drain to Asia and the US, and reboot. If combined with access to finance, the distinct values of the EU digital marketplace – openness and accountability – will be a competitive advantage for Europe.


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