Europe’s AI Problem Isn’t Inventing It, It’s Using It
But Also - Defence, Sanctions, Climate
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THE BRIEFING | By Oscar Guinea
Europe’s AI Problem Isn’t Inventing It, It’s Using It
Oscar Guinea is a senior economist at the European Centre for International Political Economy (ECIPE). He has been an economic advisor to the Scottish Government and a seconded national expert at the European Commission. He is from Spain. You can find his papers for ECIPE here.
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In the film Moneyball, telling the story of how the Oakland A’s changed baseball forever, the breakthrough wasn’t discovering new statistics but using them better than anyone else.
The lesson for countries lagging behind in the technology race is simple: success often belongs not to the inventor but to the one who applies a new idea most effectively.
How Europe’s Digital Divide Shapes Competitiveness
The same is true of Europe’s digital technology. The European Union has fallen behind on Artificial Intelligence. But there is still hope. As with baseball and statistics, the real power of technology lies less in its invention and more in how widely it spreads across the economy.
A new paper from ECIPE looks at how Europe is faring in the adoption of digital technology:
Digital adoption across the EU is deeply uneven. Smaller open economies such as the Nordic countries, Ireland and the Netherlands are frontrunners.
Meanwhile, Europe’s large economies — Germany, France, Italy and Spain — sit in the middle of the rankings.
Within sectors, the story is similar: Europe’s carmakers should be rushing into autonomous driving, but they are far behind in their adoption of digital technologies.
The Regulatory Maze Blocking Innovation
So, what can the EU do? If European companies are not the ones inventing the next generation of AI systems, then at the very least they should be the first to use them. That requires the best possible regulatory framework: one that enables businesses to adopt digital technologies swiftly.
Sadly, that’s still not the case today.
A European firm keen to roll out a new digital tool faces three layers of regulation.
First, it must comply with EU-level laws such as the GDPR, the Digital Markets Act (for gatekeepers) or the AI Act.
Then it must meet the national rules in its home country.
Finally, if it wants to export digital services, it must adjust again to the different regulations of its target market. Europe may have a single market for goods, but when it comes to services – where most digital technologies are used – the single market looks like a home run on paper but rarely clears first base.
This matters. The great promise of digital technologies lies in their ability to scale up effectively once developed. But if regulation inflates compliance costs, firms will think twice before investing in new digital systems. For many, the rational choice is simply not to bother. Europe’s future digital champions will never emerge if they are buried under paperwork before they can grow.
The effects are already visible. Countries and sectors that use fewer digital technologies are less productive and generate more value.
Regulatory restrictions reduce the uptake of digital technologies and, through that channel, cut competitiveness. We estimate the effect at 1.3 per cent of value-added.
That may sound like a rounding error. But applied to the EU’s private-sector value-added of €10,061 billion in 2022, it amounts to €131 billion lost, equivalent to more than €300,000 per EU company – every year.
Giving Europe a Chance to Win
This is why the European Commission’s Digital Omnibus is so important. European Commissioner Henna Virkkunen comes from Finland, the Member State with the highest percentage of firms using digital technology. If anyone understands the importance of digital diffusion, it must be her. Europe cannot afford to fall further behind in digital adoption.
Yet, lowering the reporting requirements of EU digital regulation is not enough. The EU must dismantle the barriers that still hold back digital and non-digital services. That is why the latest State of the Union address by Commission President Ursula von der Leyen also mattered. For the first time, she acknowledged the problem and proposed a Single Market Roadmap to 2028 for services.
In Moneyball, the Oakland A’s won not by outspending rivals, but by using the tools they already had more effectively. Europe faces the same challenge. Its future competitiveness will not be decided by whether Europe invents every breakthrough, but by how quickly and widely it puts them to use. Play the game smarter, and Europe still has a shot at winning.
In Case You Missed It
DEFENSE • Within the FCAS (Future Combat Air System) project, the Franco-German partnership is faltering.
Launched by Paris and Berlin in 2017 and later joined by Spain, FCAS aims to develop a next-generation air combat system combining a fighter jet, drones, and connected capabilities, to replace existing fleets by 2040.
Germany is now considering pursuing the program without France, after long months of fruitless negotiations over governance and the division of industrial work.
Dassault, representing France, is demanding greater autonomy in leadership and decision-making, while Airbus, representing Germany, is pushing for a tripartite management structure as originally agreed.
Spain, through the company Indra, which develops certain aspects of the project, shares the German vision.
A deadline has been set for the end of the year by the German and French defense ministers to resolve the dispute or explore an alternative, either bilaterally or with other partners.
If no compromise is reached, the three-country FCAS format could change, undermining the realization of a shared European defense industrial capability.
SANCTIONS • As announced in Ursula von der Leyen’s State of the Union address, the European Commission has proposed a 19th package of sanctions against Russia, against a backdrop of renewed tensions on the ground and at the EU’s borders.
This new set of measures mainly targets the energy sector: it proposes banning European imports of Russian liquefied natural gas (LNG) one year earlier than planned, starting in January 2027, with the aim of depriving Russia of a major source of revenue that continues to fuel its war effort, even after significant reductions in gas deliveries since 2022.
In 2024, Russia still supplied nearly one-fifth of the gas consumed in Europe, much of it in LNG form.
In the background is pressure from the White House, which is conditioning tougher measures against Moscow on a complete European withdrawal from dependence on Russian hydrocarbons.
The plan also extends the maritime blacklist with 118 new vessels linked to the “shadow fleet,” along with strengthened measures targeting the oil industry, notably a total ban on commercial transactions for Rosneft and Gazprom Neft.
These tools add to the lowering of the price cap on exported Russian oil and new sanctions against energy companies in third countries suspected of helping circumvent restrictions.
Adopting sanctions requires unanimity in the Council. To secure Hungary’s approval, the Commission is reportedly preparing to unblock nearly €550 million in EU funds previously frozen for Budapest.
The suspension of trade relations with Israel and the sanctions announced during Ursula von der Leyen’s State of the Union speech were also presented.
CLIMATE • The EU failed to adopt a greenhouse gas emission reduction target for 2035 in time for COP30. After difficult discussions, environment ministers could only agree on a declaration of intent, proposing a reduction range (66.25% to 72.5% compared to 1990).
These negotiations aim to meet a United Nations requirement: each party to the Paris Agreement must present a quantified target (or national contribution, known as NDC) for 2035 before the COP, in order to collectively contribute to the global effort to limit warming to 1.5°C. This goal was supposed to be set by the end of September.
The deadlock stems from the interdependence between the 2035 target and that for 2040.
In July, the Commission had proposed setting the 2040 goal at a 90% reduction (compared to 1990).
The Danish presidency of the EU Council wants to derive the 2035 target from this long-term objective, to ensure coherence in the climate timeline.
A vote on these targets was supposed to take place on September 18, but about ten member states, including France, Germany, Poland, and Italy (which form a blocking minority), requested that the vote be postponed for further discussions — several states want more flexibility on these targets and are worried about potentially negative effects on industry.
What We’ve Been Reading
In the FT, Martin Sandbu explains why creating a “28th regime” of European company law is essential to allow businesses to fully benefit from the single market.
In a speech at the ninth annual conference of the European Systemic Risk Board (ESRB), Adam Posen, president of the Peterson Institute for International Economics, explained that Europe is well-positioned to face financial stability risks linked to changes in the international trading system.