The EU is determined to be a leader in the digital economy, yet it seems equally determined to ignore the lessons of its repeated failures to become more competitive. The latest example of this unfortunate pattern is Gaia-X, a European cloud service designed to ensure European data stays in Europe.
Germany’s minister for economic affairs, Peter Altmaier, announced the project recently in the hope that it will pave the way for Europe to achieve “digital sovereignty.” Supported by European companies such as Atos, Deutsche Telekom, and Bosch, the plan is to combine the cloud capacities of European companies, large and small, to build an alternative to U.S. and Chinese cloud providers, first through a Franco-German partnership, and then broadly by expanding as a European project. Germany, France, and the rest of the EU have every right to help domestic firms compete fairly with foreign ones—provided they comply with WTO rules. But trying to achieve technological sovereignty simply by bringing together European companies, rather than developing a superior product, is a losing game.
First, it is unlikely that Gaia-X will offer lower-cost or higher-quality cloud services than what is already available. Foreign cloud service providers such as Amazon, Google, Microsoft, and Oracle make it easier for European businesses to compete in a global market by lowering costs and increasing access to the best cloud technology. As long as cloud service providers address legitimate security concerns, the EU should welcome those able to provide these services at scale.
Second, there is no reason to fear that storing data with U.S. cloud providers, either in Europe or abroad, somehow exposes Europeans to lower standards of data protection. The GDPR applies to any company that stores or processes data about Europeans, regardless of whether it is based in the EU or elsewhere. Moreover, the EU-U.S. Privacy Shield provides measures to safeguard EU citizens’ personal data when processed by U.S. firms, and the CLOUD Act guarantees that U.S. cloud providers can challenge U.S. government requests for extraterritorial access to data—Google will soon join Amazon Web Services in publishing those requests to increase transparency. Finally, cloud service providers often offer their customers the option to encrypt their data, so in many cases the providers do not even have access to their customers’ information.
Third, the EU is likely too late to the cloud game to vault into the lead. Rather than try to replicate Amazon Web Services, which started over a decade ago, it should be investing in efforts to commercialize emerging technologies like artificial intelligence. Unfortunately, the EU has a habit of shooting at the wrong target. For example, both Germany and France attempted to launch a would-be Google-killer in the mid-2000s, France with the ill-fated Quaero search project and German with the equally unsuccessful Theseus. Trying to catch up in the cloud race, France lost millions in 2012 with two failed initiatives, Numergy and Cloudwatt.
The problem, according to British economist John Kay, is that Europe habitually tries to create domestic firms to compete with foreign technology companies that rely on a “wish-driven strategy based on aspiration, not capability.” Rather than wasting money on technologies and businesses where the competition is already stiff and Europe is far behind, the EU and its member states should build on areas of strength in technologies of the future, not the past. For example, the EU can build up new digital business models in its largest industrial sectors such as mechanical engineering, by developing tools for predictive maintenance.
Finally, the EU should drop this strange notion of trade sovereignty, recently described by German Chancellor Angela Merkel as the idea that “Europe, as a general rule, needs to be able to do everything itself.” Instead, EU policymakers would be better off being guided by former EU Trade Commissioner Cecilia Malmström who recently stated that “a basic principle of trade—that of comparative advantage, that specialization is more efficient—seems to be increasingly forgotten these days. This type of thinking could lead to unsustainable business models; higher prices for ordinary citizens; and a more fragile economy in the long run.”
It is time for Europe to do away with the misguided beliefs that European companies can and should do everything on their own, that requirements to store data domestically drive innovation in a global economy, and that Europe should build yesterday’s services to be more competitive tomorrow. Rather than waste more taxpayer money or more time coming up with another mythological name for yet another government project, the EU should deepen its ties with trusted partners, invest where it can lead, and compete fairly with its best assets.
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