Policy Paper | HOW TO PLAY THE DIGITAL POWER GAME WITH LIMITED MEANS Policy Principles for the Next European Commission

Amid global competition for technological dominance, this policy brief puts forward six principles for the next Commission to play the digital power game with limited means. Despite its market size, the EU lacks the common fiscal capacity, capital markets, and labour market dynamism. Its ability to compete in the tech race is further challenged by restrictive state aid and debt rules and competing priorities like defence spending after the outbreak of war in Ukraine. Rather than seeking to match the US and China across the board, the policy brief argues that the EU should pursue a narrow competitive advantage, seizing critical chokepoints in the digital value chain and increasing others’ reliance on the EU. A narrowly targeted industrial policy can help achieve these goals while mitigating critical dependencies and social risks. Given the EU’s resource constraints, a painful prioritisation exercise to evaluate the economic security risks of key dependencies will be necessary in this debate. Furthermore, investments in the basics, including digital infrastructure, skills, basic research, and widespread digitalisation, will be prerequisites for the EU’s digital aspirations to succeed. Lastly, The digital economy would benefit from harmonising national regulations, lowering barriers to data flows, and upgrading digital infrastructure. While market size is not a precondition for digital success, as evidenced by successful nations like Japan, South Korea, and small digital EU frontrunners states, it enables innovative firms to scale faster across European borders. Along with expanding the single market, resources for more streamlined and effective enforcement will ensure a competitive environment that can ultimately support innovation and strengthen Europe’s digital competitiveness.

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