Sabotaging Europe’s Tech Efforts: Beware Neoliberal Relics Carrying Water for Hyperscalers

Making and Building in Europe is the Critical Path for Our Tech Future

Cristina Caffarra

Digital sovereignty should not be engulfed in the pushback to “European preference”

Europe should not allow the effort to rebuild our tech industry (and reverse our status as a “digital colony”) to be engulfed in the broad negative campaign being wielded against the call for some “European preference” at the core of EVP Séjourné’s proposed “Industrial Acceleration Act” (IAA).

A few thoughts to start with on the IAA and the big picture. The diagnosis of Europe’s ailments (as stated in Letta/Draghi and since developed by Tordoir and others) is painfully clear. Yet in classic European fashion, European leaders have been intent on playing a game of “pick and choose” with the required urgent responses to return to growth. A recent excellent essay by Guttenberg, Redeker and Tordoir in Politico (Europe is chasing the wrong fix for its growth crisis) lucidly calls out the selective path we are going down on, and why it will fail: the convenient narrative that Europe’s problems are all the result of excess regulation, so that “deregulation” (dressed up as “simplification” and “cutting red tape”) plus rollback of the Green Deal, is all we need to reverse the problem. As ever, European leaders dealing with a messy landscape converge on the minimum denominator in the hope that “the market” - unshackled from the constraints of red tape – will spontaneously jerk into action and growth will ensue. Maybe throw in a few trade agreements with distant lands, and that will do it. Oh and load the rhetoric on “deepening the Single Market”.[1]

We need more to deal with Europe’s (or at least its “core” countries’) real problem: a fossil-fuel dependent export-driven economic model (with weak internal demand) now asphyxiated by high energy prices and China’s push into our manufacturing “crown jewels”, while the US is no longer providing any offset because of tariffs and other coercive threats. This is not going to be solved by cutting red tape. Add to that a timid trade policy where no one can agree on what to do and fear of retaliation prevails (so action is limited to small product-by-product remedies) and lack of an industrial policy vision – again trapped in national cobwebs: protecting one’s industrial base, preserving traditional posture and preferences.

A sensible strand of an effective industrial policy, proposed by many including Tordoir et al. (also discussed at this CEPR event), has been identified for some time in some “Made in Europe” preferences – incentivising a portion of demand to shift to products that are locally made to preserve industrial muscle, assets and capabilities. Limited to sectors where European manufacturing has a real future (e.g. not solar panels!), this makes eminent sense, and seems to be the direction of EVP Séjourné’s IAA, as anticipated in the op-ed he published a couple of weeks ago on multiple European top titles.

While the tech sector is not explicitly in scope for the IAA, multiple tech CEO’s were part of the “over 1,000” who signed the op-ed, and the call for a “European preference” is coherent with calls for some “Buy European” in the revision of IT procurement rules across Europe.

The opposition is weaponizing old thinking in the guise of “tradition”

As Europe is confronted by major macroeconomic challenges, that the gestation of the IAA is being so troubled is witness to the torment that even something relatively modest in industrial policy ambition encounters across Brussels and national capitals. We have seen it creep out of the “Belgian Castle meeting” of Heads of state on 12 February, just ahead of yet another summit checking on “progress of the Draghi mission” – notably with Chancellor Merz proposing a “Made WITH Europe” alternative, pushback by the Swedish Prime Minister of the so-called “French push to Buy European”, and assorted other forays.

These stances are evidently seeking to placate internal and external opposition which is suddenly rising against the very idea of any “Made in Europe” language. All lobbying of course. Is there a principled justification? No. The pushback narrative is entirely old-fashioned neoliberal free trade lore (“Europe stands for free markets, protectionism and national champions are bad, free trade is engraved onto our souls and in our laws, we respect the rule of law when others no longer do”, etc.). This does not come out of nowhere. These free trade narratives - so out of line with geopolitical realities - are being purposefully reactivated at these times. Unfortunate to see one of Brussels’ most established economic think tanks, Bruegel, publish just the day before the Brussels Castle meeting such a “stick in the mud” piece pushing back on the IAA (“Made With Europe, not Made in Europe, Should Guide EU Industrial Policy”) presumably setting out to provide intellectual support for the backslide.

The piece is in fact extremely thin. Sophisticated, modern economic analysis grappling with our new predicament? No, neoliberal ideology. It just dusts down the oldest of “motherhood and apple pie” banalities: “Effective industrial policy should be cost-effective and concentrate resources where Europe has competitive potential; it should avoid spreading resources thinly across sectors without strategic prioritisation. It should also promote healthy competition so industries have incentives to innovate, while reducing exposure to economic-security risks. This implies an industrial policy that embraces global comparative advantages”. So novel and relevant in current circumstances.

Then on the other old chestnut: “Made in Europe requirements could raise costs for export-oriented industries, slowing domestic industrial transformation and ultimately the clean-energy transition. Europe’s clean value chains already benefit from foreign expertise. For example, four-fifths of EU battery-cell manufacturing capacity has been built by Korean companies, aiding European automakers that are investing in electric vehicle manufacturing. The IAA could thus mark a break from the EU approach to trade and industrial policy, potentially leading to conflicts with likeminded partners.” So the argument here is just “barriers to trade can raise costs, this can harm Europe and upset parties we are jolly friendly with”. Again, so profound.

And here’s the punchline: “This is despite the Commission reiterating that international commitments should be respected and trade strategy should be based on partnerships. And international trade rules are very clear. Local-content requirements are prohibited. The EU is committed to non-discriminatory access to procurement for suppliers from countries that are party to the World Trade Organization Agreement on Government Procurement or have free-trade agreements (FTA’s) with the EU. Breaches of such commitments would damage the EU’s reputation and likely lead to legal challenges by close allies, such as Japan or the United Kingdom”.

Eureka! We just MUST respect the traditional WTO trade rules! Which are god-like and admit no deviation by anyone from the god-given principles that the LETTER of whatever we did say to the WTO is just eternally binding! And Europe alone would be the bad dog while no one else ever dares to do anything different! That’s it. That’s the whole argument.

This is NOT what Europe needs to listen to now. It reflects a decrepit worldview. First, the fiction that WTO rules admit no exception ever must be addressed once and for all. I encounter it all the time: it is the “go to” argument of every official who has nothing else to say to push back on tech sovereignty. In fact, EU primary law clearly recognises situations where Europe can do what is required: for instance Article 346 TFEU allows Member States to take measures necessary to protect their essential security interests and relieves them of obligations that would otherwise apply where disclosure or dependency would undermine those interests.

Second, as the Senior Advisor to US Trade Ambassador Tai, Beth Baltzan, recently wrote, “The Truth About the EU’s Compliance with WTO Decisions” is quite different: “The reality is, the Europeans have never actually put WTO compliance above domestic priorities. If you listen to EU trade PR, you’d think the Europeans don’t breach WTO rules, and certainly if they do, they fix those breaches lickety-split. Nope.

Under WTO rules, if you lose and choose not to fix what’s wrong, the winning party can retaliate against you (and maybe negotiate a settlement). A few years ago, researchers calculated the EU’s compliance rate when the WTO found it to be in breach of the rules. According to their analysis, the EU brought its measures into compliance less than 40% of the time. You can debate the methodology, but whatever methodology you use, it’s not 100%.

To be clear, that is totally within the rules of the rules-based order. The problem isn’t keeping non-compliant measures in place – it’s the fiction that fealty to WTO rules is the top priority for the EU. It isn’t”. And given current geopolitical dynamics, it shouldn’t be. For years, EU trade policy has carried the water for US tech, both at the WTO and through its own free trade agreements, under the banner of “digital trade”.

She continues: “So let’s understand that even before the Buy European movement began to take hold, the EU was already practicing political economy in deciding how to deal with WTO commitments. Like every other WTO Member. The willingness to put political economy above strict adherence to WTO commitments is plain old good governance. Europe is fighting for its sovereignty — and you undermine your ability to preserve your sovereignty if your priority is messaging compliance with an external institution that doesn’t care about your sovereignty”.

So what are European leaders getting ruffled up about? Why do they listen to this old fashioned obsolete dogma, instead of adopting the bold posture that Europe is at war, Europe has to address its declining economic performance, we are good global citizens and respect the rule of law but will do whatever it takes to stave our decline. Limited European preferences will not undermine our standing. We are not going to be bullied and preached to and lobbied in ways that are contrary to European interest. That is over.

Europe’s digital sovereignty is on the move and should not be caught up with this pushback

Europe’s tech industry is gearing up for major upheaval. The realisation that we have become a “digital colony” (not just for consumer-facing apps and services, but across the full supply “stack”), has now broadly landed. And this has finally triggered major grassroot energy to build, leverage our capabilities and create our own asset base (as opposed to the magical thinking that trying to regulate digital giants would ipso facto create us an industry). This energy is helped along by fears that the Trump Administration might weaponise American tech infrastructure, on which we thoroughly depend, as a means of coercion (the “kill switch”); but also motivated by a major appetite to regain capacity, grow and capture a larger share of the value chain. This is not controversial: we need to capture more value from our own digital activities instead of leaking most of it outside – a few players taking a slice at the top reselling non-European tech benefit privately, but Europe as a whole broadly suffers (the taxable benefit and tax base is also far smaller).

We are a large, rich Continent: no one is suggesting pivoting away from US suppliers entirely or doing away with them. But gaining a greater share of our own (growing) demand is imperative. Most especially as AI provides a unique opportunity for Europe to lift itself up from tech doldrums by leveraging our unique competences in machinery and advanced manufacturing to build industrial AI and defence applications. This is the EuroStack mission.

An industry does not build itself in a vacuum. Business needs an addressable demand, as well as a business model, funding, clear USP’s and KPI’s. Demand in particular is key. “Build it and they will come” is a fallacy. No one can invest in developing and integrating bundled products and functionalities without the material prospect of selling them. For a glaring example, look at Europe’s Chips Act 1. It failed entirely to deliver, essentially because it focused on building mega fabs for which there was no business case – i.e. did not really know what chip demand was being targeted and where it was going to come from – a fault which Chips Act 2 is trying to address (maybe).

So where is the demand to power up European sellers going to come from? The market is growing, though for now in some of the large segments (cloud, software) it is occupied by essentially three US companies. The private sector needs to be motivated to explore other options, and for it to be easy and cost-effective to switch. Mindset and posture play an important part: continental “pride”, reclaiming our position as “superpower”, the realisation that Europe MUST turn around its digital vassalage, improve resilience, capture value from its own activities and fuel productivity growth, especially given AI opportunities, is now pervasive and is key to motivation. The private sector needs better discovery and matching tools (on all sides of the market) to identify alternatives and procure them while IT vendors have to integrate their tools and systems more comprehensively. This is happening. We are doing it at EuroStack and other discovery efforts are emerging. In all of this, the public sector could give a useful signal by shifting a portion of its procurement towards European solutions. Again, all of this is also the EuroStack mission.

Hyperscalers are of course now very aware we are serious. There has been a disinformation campaign going around for months preaching US solutions are uniformly better and any switch would be costly and lower performance across Europe. This is not so. For most users, US suppliers with market power are extractive and extortionate, building barriers to switching and bamboozling regulators running excruciatingly long and ineffectual “investigations” (nothing has been achieved in the UK after years of cloud market scrutiny; - we have not even designated cloud services by Microsoft and AWS as “gatekeepers” for purposes of the DMA – the first baby step to even ask whether there is an issue; - and DG Comp continues to merrily wave through Big Tech deals - Google/Wiz in cloud the latest example. But we are now beginning to see a switch in gear. Lobbying is exploding, and we have only seen the first salvos: in an FT interview last week, Google’s lead lawyer reached for the usual playbook – that it is all going to end in tears, “lower productivity”, “bad for Europe”, “protectionism”, “contrary to international trade rules”, etc.

The answer should simply be: MOVE OVER. The mission is to power up European tech capabilities. No continent or bloc can build serious value and grow productivity just using someone else’s infrastructure, that extracts value from European businesses and syphons it off to propel investment and innovation on other shores. Not only that: the whole direction of innovation in Europe simply cannot be dictated by other economies and players with different competitive advantages and sector composition. Europe is still hugely strong in mechanical engineering, machinery, advanced manufacturing, aerospace, and more. All strong launchpads for an industrial AI revolution. So why do we want to continue to remain entirely tethered and dependent on US solutions and direction of travel? This is not to say we need to “decouple” (a word we at EuroStack never used), or adopt “protectionism” or embark in “autarky”. We will continue to welcome working with US suppliers, only we want a bigger share of our own market.

Again in tech this should be a “no brainer”. We cannot let the positive “build” imperative to be caught up in the obfuscation and pushback effort which is now gearing up and engulfing the broader European drive to use demand as an economic policy tool in key industrial sectors (note this is in fact something others now complaining absolutely do – do I need to mention the Buy American Act of 1933, which mandates US federal agencies to prefer domestic suppliers). The major pushback against any “European preference”, right when digital sovereignty is gaining momentum, is not a coincidence but a manifestation of the lobbying effort underway whereby hyperscalers are funding and fighting the broader fight (and “hiding the ball”). Europeans need to push back firmly. Brussels and national governments cannot slide back when they made clear commitments to digital sovereignty.

Wake up all: these are just Big Tech’s siren calls. Their lobbying is extensive and smartly takes a broad line of attack. We cannot let the narrative be contaminated also in tech. The need for more resilience and growing the asset base is established, we cannot have it rowed back by hyperscalers scaremongering (even weaponizing the traditional arm of think tanks still clinging to neoliberal times).

Cloud infrastructure and AI-capable compute increasingly perform the functions of traditional critical infrastructure. They host sensitive state data, support command-and-control functions, enable emergency response and underpin economic continuity. Treating these systems as ordinary commercial inputs no longer reflects the threat environment Europe now faces. The same public figures that claim to support strategic sovereignty cannot default to the stacks that feel safest – not in geopolitical terms, but in procurement terms, under pressure from massive lobbying. Let’s not continue to pursue learned helplessness. Europeans should not accept this.

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[1] Guttenberg et al. describe the potential benefits of “cutting red tape” as no more than a “rounding error” (12bn a year, 0.07% of EU GDP by the EC’s own estimates), and those of new FTAs as marginal (certainly in the short term). There is no real indication of how “deepening the single market” might unfold, and the celebrated 28th regime is but a coat of paint (though it might benefit startups): instead of putting in effort to harmonize cross-border rules, we punt to a new regime for corporate structure “and hope that no one notices”. “A market integration agenda at this level of ambition won’t move the macroeconomic needle”.

The 28th regime is more popular with Isabel Schnabel, respected economist and Member of the Executive Board of the ECB, who delivered her Made in Europe speech in Vienna on 11 February. She explains Europe lacks scale, not ideas, and the 28th regime “offers a concrete and powerful way to address this problem… By helping to build a truly frictionless Single Market, it can establish a “Made in Europe” brand for companies that stands for innovation, excellence and legal certainty. And that is the narrative that Europe needs to reclaim”. Amen.