Time for a "European tech flywheel"?
There has maybe better been a better time to build European IT infrastructure. And there hasn't been a more difficult time either.
Update (6 March 2025): Added a link to Bertelsmann Foundation’s report on the EuroStack.
THE recent “AI Action Summit” in Paris and the speech by US Vice President JD Vance at the Munich Security Conference were important inflection points for Europe.
The US attempt to reach a peace agreement in Ukraine through bilateral negotiations with Russia proves that Europe no longer has geopolitical influence. Global trade relations, meanwhile, are becoming increasingly transactional. This is particular harmful for Europe, whose “soft power” relies on trade. And lastly, in tech policy, relations with the US are equally adversarial.
The EU reacted by launching an initiative to cut red tape and increase the region’s competitiveness. At the same time, the Commission announced increased spending on tech infrastructure, while French President Emmanual Macron presented an ambitious plan to invest EUR 109 billion in France alone – a sum that according to Macron matches the American Stargate project.
Tech infrastructure: Now or never?
JD Vance’s speech at the Munich Security Conference (video) left European diplomats wondering whether the US can still be considered an ally. If there ever was a time to build a home-grown alternative to US infrastructure, it is now.
Earlier European initiatives such as Gaia-X were overly politicized from the beginning. But slowly, European industry is catching up. One of the challenger firms is Stackit, a cloud platform that was built for internal use by the German retail company Schwarz Group before it was made publicly available in 2022.
Similarly, the recently announced “EU AI Champions Initiative”, led by VC firm General Catalyst, is committed to invest EUR 150 billion into the European AI ecosystem in the next five years. A report published by the initiative at the Paris AI Action Summit reads like Europe’s response to the UK’s “AI Opportunities Action Plan”.
This is a refreshing alternative to Europe’s traditional “me too” approach to industrial policy that focused on copying US business models. Instead, European firms now take a page from the playbook of French AI firm Mistral: The company was created in 2022 as a result of a sense of “panic” that Europe was behind in generative AI. But because Mistral lacked the capital and compute to compete head-on with the large US labs, the company had to innovate and developed a competitive model at a fraction of the cost of the leading foundation models.
Scaling AI in Europe however remains a challenge: According to the think tank Group d’Études Géopolitiques, Europe would need to invest EUR 500-700 billion into energy infrastructure to achieve 16% of global AI compute power, which is proportionate to the EU’s weight in the global economy. A far cry from what is currently in the budget.
A tech trade war will threaten Europe’s competitiveness
Europe’s dependency on US tech is a “critical weakness”, writes Marietje Schaake, a former member of the European Parliament. And the Financial Times’ Martin Sandbu believes that the EU must refrain from the natural desire to prevent a tech trade war with the US.
This view, however, is mistaken. The digital services that Europe buys from the US cannot be replaced easily with competing offers. In some instances (social media, for example) this may be annoying for consumers but not business critical. But in other cases like cloud infrastructure or AI, it is important to retain access to the best products in the world. A world-class large-language model cannot be replaced as easily as Russian gas.
Europe’s growing dependency on US tech groups is a critical weakness. We must (…) invest in building a more resilient (…) digital ecosystem: a Eurostack.
— Marietje Schaake
Both Schaake and Sandbu point to the Eurostack, a new initiative that aims to reduce Europe’s dependency on Big Tech by creating a full-blown IT stack to firmly position the EU across the entire technological value chain, from physical infrastructure to software and, ultimately, digital applications and services.
So far, however, the Eurostack is not more than a “pitch”. And while its authors recognize that traditional approaches to industrial policy in the tech sector such as Gaia-X have failed, it is far from sure that this approach can be more successful.
The Eurostack does not change geopolitics
The Eurostack report itself recognizes that “complete self-sufficiency is neither feasible nor desirable” and that international partnerships are still required. Computer chips and energy production all require critical input in terms of raw materials, intangible assets and technical components that that are subject to the same geopolitical tensions that the “sovereignists” want to overcome.
There are also economic questions around the Eurostack that remain unsanswered so far. Ansgar Baums, co-author of “Tech Cold War”1 believes that developing a Eurostack is economically not viable and that the EU should instead double-down on co-dependency with the US by creating more firms such as ASML that are indispensable for the Western IT stack.
Becoming a tech leader takes time. But there is a shortcut, and this shortcut is rapid adoption. Europe’s AI opportunity is the wide adoption of AI models across all sectors and industries. This does not mean using chat bots to cut costs in customer support, but using AI in in research, development and robotic process automation where it can truly transform industries and support the creation of AI-first companies that will hopefully become “superstar firms” one day.
The proposed “28th Regime”, a new, pan-European legal framework for startups and scale-ups might be the right path towards this (provided member states share the Commission’s ambitions). But there is more work to be done on strengthening the Single Market, providing access to cheap energy and capital and attracting international talents.
The EU tech policy flywheel
The US did not become dominant in tech by creating national champions but by designing a market. And the best way to do this is to create a “flywheel”, where every piece of the flywheel reinforces the whole.
Speaking to Bloomberg, French tech mogul Xavier Niel lays out in a compelling way (“almost as a general would”) how such a flywheel could look like:
The priority (...) is talent and how to keep it. That means funding startups and entrepreneurs and offering them the computing power that resource-hungry AI demands. Then comes the need for actual users – to “democratize access to AI.” (...) This will be a critical path for long-term productivity gains that Europe badly needs.
Only then comes infrastructure (understood in the broader sense of the Eurostack) which in turn deepens the maturity of the talent market and the diffusion of new technologies.
Another way to look at the flywheel is from an impact perspective: Where can Europe get the biggest impact with the smallest input? Building data centers, cloud infrastructure and networks has lots of external dependencies, such as access to chips, raw materials and insecure supply chains. Increasing the quick adoption of new tech merely requires access to these technologies while attracting talent requires next to no input from third parties.
Europe should start with this first step, and then go faster and further.
📚 Read on
In their recently published report, the EU AI Champions initiative urges policy makers to streamline tech regulation, accelerate AI adoption, invest in tech and energy infrastructure and support AI skills development.
In this podcast, my former colleague Jack Keevill gives and excellent overview about the Commission’s simplifaction agenda and its implications for tech.
The “pitch” for the Eurostack is worth reading and apparently, another report by Bertelsmann Stiftung and Francesca Bria.
Chamber of Progress researcher Kay Jebelli has published in in-depth thread on the opportunities and obstacles for the Eurostack.
Ansgar Baums; Nicholas Butts (2024): Tech Cold War. The Geopolitics of Technology (Lynne Rienner Publishers).