Can we save Europe from digital mediocrity?

The years 2016 and 2017 will determine whether Europe creates a digital roadmap to support competitiveness and growth, or slips into digital mediocrity.

The centrepiece of this agenda will be the Digital Single Market, which is one of the priorities of the European Commission as led by Jean-Claude Juncker. But the broader question is whether Europe dares to embrace accelerating technological change or fights a rear-guard action by overly focusing on data privacy and protecting national industries and ICT champions.

Creating a Digital Single Market could add €340 billion to the EU economy per year, according to estimates from the European Parliament. The opportunities are plentiful. Today, only 15% of online shopping in Europe takes place across borders. The various EU member countries still differ greatly in terms of digital infrastructure, business environment, regulation and skill levels.

More choice, new industries

If barriers to cross-border business came down, consumers would benefit from greater choice and the quality of products and services should improve. Intensified competition would force European companies to speed up their digitalisation and transformation efforts, which, in turn, would help them grow. Europe’s innovative start-ups, which now frequently decamp to the larger US market to reach scale, would enjoy more growth opportunities at home. New industries could develop and expand. Cloud computing, for example, has the potential to reach €174 billion per year in Europe by 2020.

Removing barriers to cross-border digital business will not in itself be enough. Digital content and services will only flow more freely across borders if differences in consumer protection, copyright laws and VAT systems are evened out.

Over €80 billion will have to be invested to build fast broadband networks across Europe. Much of this will have to come from the private sector, which will require stable and forward-looking regulation. Massive efforts will be needed to train the engineers, programmers and innovators needed for the digital economy.

The ITC skills gap in Europe already means 900,000 people lack the tools they need to succeed today. As important will be using technology to upskill and reskill the 32% of the EU population in work but lacking basic digital skills.

The EU will also have to push forward its Capital Markets Union project to provide more seed funding and venture capital to innovative start-ups.

Access to talent and customers are vital to build tomorrow’s European digital champions. In parallel, the EU will also have to push forward its Capital Markets Union project to provide more seed funding and scale-up capital to innovative start-ups. Compared to the US and Asia, non-bank financing is still underdeveloped in Europe. The lack of pan-European funds with the size and expertise to finance the growth of digital ventures into global champions is becoming a major hurdle.

Data, the currency of the new economy

Much of Europe’s digital future will be determined by its approach to data: the currency of the new economy. The free flow of data is required for everything from pan-European value chains to the sharing economy, and it should be at the heart of the Digital Single Market. Data is becoming more and more important to the way we shop, work and live. Yet much of the European debate has focussed on consumer privacy and security without addressing adequately what industrial data can do to improve growth, jobs and competitiveness. In the next two years, we will need agile regulation to handle cross border data flows, consumer privacy and the growth of the industrial internet of things.

Europe needs it to reap the benefits of Big Data. Therefore, the European Commission should ban or strongly deter all data localization requirements within the European Union. Data localisation requirements are protectionist measures that go against the essence of a digital single market.

Though the Privacy Shield agreement, which governs how US companies handle the data of EU citizens, answers some of the concerns stipulated by the European Court of Justice, it risks being cancelled again. This could lead to a questioning of all other current standard mechanisms of data flows between Europe and the US. The fundamental difference in perspective on data collection is unfortunately expected to remain a major roadblock in the creation of free data flow between the US and Europe.

Another area that will be critical for Europe’s digital future is how it deals with online platforms, which, in the definition of the European Commission, comprise everything from online auction houses and shops to search engines, sharing sites, social media and internet-based payments systems. The growth of international (mostly US- based) platforms in European countries will test policy-makers’ ability to balance opportunity and risk and to create a legislative environment which is more flexible and able to adapt to the speed of technology change.

If Europe is to break the 1.5% annual GDP growth barrier over the next decade, a vibrant digital economy will be critical. Our EU institutions will need to provide positive leadership at a time when fear can often overwhelm opportunity.

This essay is drawn from the Global Agenda Council on Europe's report, Europe: What to watch out for in 2016-2017.