This audio was created using Microsoft Azure Speech Services
Europe’s prominence in the world is shrinking, but this is reversible; and we have to act now. High energy costs, limited access to energy sources, and an underutilized research and innovation system is hampering growth of our industries against global competition. The EU’s research and development (R&D) intensity sits at 2.2% of GDP, below that of US, Japan, South Korea and China, and in recent years we’ve seen a significant decline in the number of EU firms that form the Fortune Global 500 and labor productivity.
In September, former European Central Bank President Mario Draghi delivered a significant report emphasizing the essential adaptations needed for Europe’s competitive revival. It serves as a wake-up call for immediate action in Europe, while also underscoring that Europe’s challenge is its greatest opportunity.
With a rich history of industrial prowess, innovation, and scientific breakthroughs, and favorable economic conditions, the continent is poised for change. To restore economic vitality, Draghi emphasizes the need for a profound reshaping of industrial strategy. This includes accelerating innovation, bridging the skills gap, and maintaining investment in critical sectors.
Energy and digitalization are highlighted as catalysts for sustainable economic development, positioning Europe as a model for sustainable growth globally. The key areas identified as powerful game changers for Europe to regain competitiveness, and to which we are committed, are as follows:
Interconnection of Decarbonization and Economic Growth
The Draghi report underscores the critical role of decarbonization in bolstering European competitiveness. As data center demand is expected to surge by 28% and other energy-intensive industries expand by 2030, the EU must prioritize grid modernization, streamlined permitting, and clear standards to foster a sustainable energy system. This is pivotal in shaping the future energy landscape.
Existing policies are already driving this transition. The Net Zero Industry Act, for instance, aims to strengthen European manufacturing through clean technologies. By reducing administrative burdens and providing local support, this act aligns economic growth with the EU’s decarbonization goals.
The EU Green Deal is a cornerstone of our future. We are committed to implementing the Fit for 55 package to enhance Europe’s competitiveness through sustainable innovation. Policies like Fit for 55 and the Energy Performance of Buildings Directive (EPBD) can stimulate job growth and revitalize the EU economy. A recent joint study with Boston University suggests that adopting clean energy technologies in new and retrofitted buildings could create over 2 million new jobs in Europe and the United States.
The journey to net-zero will profoundly impact both the environment and the economy. Europe has a unique opportunity to lead the way, setting a global standard for sustainable growth and innovation in response to climate change.
Strengthening Security and Reducing Dependence
Amid ongoing geopolitical tensions, Europe’s external reliance on critical raw materials (CRMs) and advanced technologies present potential vulnerabilities. The impact was evident during the spike in energy prices following the Russia-Ukraine conflict, leading to business closures, and exacerbating the cost-of-living crisis. While energy prices have since decreased from their 2022 peak, projections indicate that even beyond 2025, they could be up to four times higher than pre-crisis levels.
To enhance European resilience and security, significant investment in sectors such as mining and semiconductors seems essential. The most effective strategy to diminish current dependencies on fossil fuels involves transitioning to renewable energy sources and improving energy efficiency. Increased investment in the energy transition can expand our supply of green energy and align renewables with demand, crucial for supporting our industries and driving the innovation and growth necessary to fortify our economic resilience.
Fostering Innovation and Driving Digital Transformation
In today’s rapidly evolving digital landscape, innovation is crucial for the EU to maintain its global competitiveness. The region faces a significant funding gap in technology, particularly AI, compared to the U.S. To bridge this divide, the EU must prioritize increased investment in research and development and cultivate a culture of innovation across various sectors.
Currently, U.S. companies dominate AI startup funding, receiving 61% of the global total, while EU startups lag behind at only 6%. To address this, the EU should provide greater support to startups and SMEs, which often serve as incubators for groundbreaking ideas. This could include:
- Incentivizing investments: Offering tax breaks, grants, and other financial incentives to encourage investment in early-stage technology companies.
- Streamlining regulations: Reducing bureaucratic hurdles and simplifying compliance processes for startups and SMEs.
- Harmonizing legislation: Creating a more unified regulatory framework across EU member states to foster a level playing field for innovation.
- Funding for scaling up existing technologies/market deployment: Providing targeted funding to support the growth and commercialization of promising technologies that have already demonstrated their potential. This can help bring innovative solutions to market faster and create tangible economic benefits.
By focusing on both R&D and market deployment, the EU can create a more robust and competitive innovation ecosystem that drives digital transformation and benefits its citizens and businesses.
Digitalization is a cornerstone of the EU’s economic growth. While Europe excels in green technologies, increased investment in AI is essential to maintain its global leadership. This investment will contribute to energy efficiency gains as technology adoption grows. By harmonizing standards and frameworks, such as the NIST AI Risk Management Framework, and adopting a more unified industrial policy, the EU can revitalize its economy.
Draghi Report Calls for Tackling the Skills Gap
The EU continues to wrestle with a significant skills disparity, posing a substantial obstacle to its growth. While this challenge is widespread across various sectors, the green economy is facing a particularly acute shortage of skills, with a need for over 1 million solar workers by 2030 for the EU to achieve its renewable energy goals.
As underscored in the Draghi report, fostering productivity growth “serves as the primary driver for long-term progress and contributes to the gradual improvement of living standards.” I strongly believe that accomplishing this requires collaborative efforts among governments, educational institutions, and the private sector to retrain and enhance the workforce’s skills.
Currently, Europe is at a real risk of a brain drain, exacerbated by language barriers and siloes between digital and green skills. We need more appealing policies that assist businesses in investing in talent and equipping the workforce with the skills necessary to adapt to technological advancements. This is crucial to keeping pace with evolving industries and global markets, ensuring sustained economic growth and prosperity.
Achieving Europe’s Competitive Vision
The Draghi report outlines a comprehensive and forward-looking strategy to enhance Europe’s competitiveness. Without implementing these robust measures, we risk falling behind on the global stage. Realizing this vision will require substantial financial investment and collaborative efforts among all member states. Nevertheless, I am optimistic that by focusing on innovation, investment, and strategic policy reforms, Europe can establish itself as a global leader in technology and sustainability.
Add a comment