The EU environment and climate ministers are meeting in Budapest today and tomorrow in the second week of the Hungarian Council Presidency. However, there can hardly be any talk of environment ministers. The German government is represented by state secretaries from the Federal Foreign Office and the Federal Ministry for the Environment. There seems to be little interest in an exchange at ministerial level with the Hungarians, possibly also because of Viktor Orbán’s geopolitical solo efforts.
The topics of this informal environmental council are certainly relevant, as the Council Presidency has put an exchange on the agenda in preparation for the next UN Climate Change Conference in Baku (COP29). The Azerbaijani COP presidency has also been invited, which shows how important COP29 and the climate financing target to be negotiated there are to Hungary.
However, the EU’s own climate targets for 2035 and 2040 will not be discussed in a separate agenda item. The German government and other member states will nevertheless advocate “science-based” targets in their interventions. Even if there is not yet a unified position in Berlin for a percentage target, this points to at least a 90 percent CO2 reduction by 2040 compared to 1990 – the EU’s scientific climate council had recommended 90 to 95 percent.
The future of the Green Deal will also be discussed in Budapest. It looks as though it will be given a stronger industrial policy focus and transformed into a package of measures for a green economy in the coming legislative period. This is being advocated both in Brussels by the groups supporting the new EU Commission and by the governments in many capitals. However, there will be no decisions on this at this informal meeting anyway.
I wish you an insightful read.
Next Monday evening, Christian Lindner will be speaking at the Baden-Württemberg state representation in Brussels. The topic of his speech: the future of cohesion policy. The Federal Minister for Financial Affairs wants to present a study and send a clear message at the same time: Instead of reflexively demanding more money for the EU budget, the existing spending programs should be reviewed for their effectiveness. This applies above all to European regional policy – with €392 billion over seven years, the largest block of expenditure in the current EU financial framework.
The FDP politician repeated similar messages like a prayer wheel during the negotiations on the federal budget. Next year will see the start of talks on the new EU financial framework, which covers the years 2028 to 2034. And Lindner wants to drive a stake in the ground early on. From his point of view, other governments are demanding an expansion of the EU budget or new European debt programs too lightly.
In Lindner’s view, money could be saved in cohesion policy in order to finance new political priorities such as defense and competitiveness. The study should provide the facts. The Ministry of Finance has commissioned the study from the Center for European Economic Research in Mannheim and experts from other countries. The researchers led by ZEW financial expert Friedrich Heinemann will hand over their 400-page study to the responsible Commissioners Elisa Ferreira (Cohesion) and Johannes Hahn (Budget) on Monday evening.
The study reportedly concludes that the cohesion funds have had a poor track record. Central and Eastern European regions in particular have quickly caught up economically with the help of money from Brussels. But in other regions, such as southern Italy, the funding has had little effect: Dysfunctional structures, inefficient administration and corruption are slowing down development there.
In a recently presented paper, ZEW researchers criticized the fact that the success of the funding measures is not sufficiently transparent and independently reviewed. The European Court of Auditors has also criticized the controls.
However, the discussion about the effectiveness of structural policy, which Lindner wants to initiate, is not new. In recent decades, wealthier member states have repeatedly called into question the multi-billion euro programs that are intended to help strengthen economic and social cohesion and reduce inequalities between the regions in the EU. And they have always bared their teeth in the face of resistance from the less developed countries. They see the payments from Brussels as a balancing of interests in the internal market, which particularly benefits export-oriented companies from countries such as Germany.
In the German states, the local beneficiaries of the payments from Brussels, Lindner’s initiative is therefore viewed calmly. The plans of Commission President Ursula von der Leyen to realign the structural funds along the lines of the Recovery and Resilience Facility (ARF) from the coronavirus pandemic are causing much greater concern there. She said in an interview in May that disbursement could be linked to conditions such as specific reforms in the recipient countries. The combination of reforms and investments brought growth to countries such as Italy, Greece and Portugal.
The Secretariat-General of the Commission and the Directorate-General for Budget are already working on concrete plans for this, according to informed sources. DG Regio, which is responsible for the administration of the structural funds, is largely left out of the loop.
Alarm bells are therefore ringing in the states. They fear that they will no longer be able to decide for themselves whether they want to finance cycle paths, nature reserves or a start-up campus with the help of the European Regional Development Fund or the Cohesion Fund. At a meeting in June, the European ministers of the federal states unanimously warned against shifting the funding instruments to the national or EU level.
In order to receive funds from the Recovery and Resilience Facility, federal governments had to submit comprehensive action plans to the Commission and have them approved. The federal states were only consulted but not seriously involved, criticizes a high-ranking representative of one state. Transferring this model to the Cohesion Fund would mean far-reaching centralization.
Brussels is trying to accommodate the concerns. According to EU circles, the regions could be more involved in the formulation of priorities than was the case with the ARF.
There is sympathy within the German government for following the ARF approach. “Linking the funds from the Recovery and Resilience Facility to the implementation of reforms and milestones in the member states has brought about real change”, says Sven Giegold, State Secretary in the responsible Ministry for Economic Affairs and Energy. “We should seriously discuss transferring this principle to cohesion policy.” This would not mean centralizing the allocation of funds.
However, there are also major concerns in Berlin about giving the Commission a similarly strong role in the allocation of cohesion funds as with the ARF. It is considered completely illusory that the authority in Brussels itself decides on thousands of funding decisions, which has so far been the responsibility of the regions and municipalities. Anyone who shakes this up is messing with all the cities and regions, they warn in Berlin. In addition, an entire industry of business promoters and project evaluators lives from EU funds. It therefore remains to be seen whether politicians are really serious about reform.
The first outlines of China’s response in the tariff dispute with the EU are beginning to emerge. On Wednesday, China’s Ministry of Commerce announced an investigation into trade barriers on the EU’s side. This investigation had been planned for some time: Back in late June, a spokesperson for the ministry announced that they were reviewing a corresponding request from the China Chamber of Commerce to the EU (CCCEU). The matter has now entered the next phase.
The investigation follows a set mechanism, which the Chinese government transparently outlines on its website. If the review finds that the EU is unfairly closing its market to China, the Ministry of Commerce has three options:
The third option leaves all possibilities open, including counter-tariffs and other potentially unpleasant escalations.
The investigation is set to last six months. The announcement does not specify which sectors and trade barriers are being targeted. It concerns “trade and investment barriers related to the EU’s practices in investigating Chinese companies under the decision to review foreign subsidies.” The ministry’s statement explicitly mentions:
At first glance, no general market barriers apply here. In the solar industry, the EU has recently refrained from examining tariffs. The EU has also refrained from initiating proceedings in the wind power sector for the time being.
At the same time, however, a pattern can be recognized. In all cases, these are industries in which the EU has initiated an anti-subsidy investigation. It has had this instrument for almost exactly a year, with the Foreign Subsidies Regulation (FSR) coming into force in July 2023. It is particularly annoying for the Chinese side because it is much quicker and more hands-on than the good old anti-dumping investigations, which often dragged on forever. The investigations of Chinese suppliers for inappropriate state subsidies included
The first phase for the ministry is to research how the EU might be violating a range of rules defined in the implementing regulations. This includes breaches of agreements between the economies, as well as more ambiguous cases such as “causing market entry barriers for our country” or “harming the competitiveness [of Chinese] firms”. Another broadly defined point is: “[The trade measure] could hinder export opportunities for a [Chinese] product.”
The tools for examining the facts on the Chinese side include:
These are similar to the tools the EU used to scrutinize the Chinese vehicle industry in setting electric car tariffs.
China is making it clear that it will not accept the EU tariffs quietly or consider them fair, as Trade Commissioner Valdis Dombrovskis had hoped. There will be a robust response, not limited to specific products like cognac or pork. China wants to show that it won’t be pushed around.
However, this does not necessarily mean an uncontrolled spiral of ever-higher tariffs and other barriers. Even with the US, China generally responded with roughly equivalent trade measures when first Donald Trump and then Joe Biden imposed new tariffs and restrictions.
Beijing relies on exports and has no interest in closed markets, as it has repeatedly emphasized. China will probably also proceed according to the same principle with the EU: tit for tat.
Hungarian Prime Minister Viktor Orbán caused displeasure in Brussels with his trip to Moscow and Beijing. At yesterday’s meeting of the Permanent Representatives (Coreper), the Polish ambassador therefore put the behavior of the Hungarian Council Presidency on the agenda – just ten days after the start of the Presidency.
In a two-and-a-half-hour discussion, the permanent representatives of 25 member states criticized Orbán’s trip. According to Brussels sources, apart from Hungary, only Slovakia refrained from criticizing Hungary’s behavior. The EU diplomats speak of a serious breach of trust.
At the Coreper meeting, Hungary argued that Orbán’s talks were of a purely bilateral nature and were intended to explore the feasibility of a ceasefire. Also on Wednesday, the Hungarian Minister for European Affairs, János Bóka, faced the media and defended Orbán’s actions. He said that there was no obligation to inform or consult the EU and member states about bilateral meetings in advance.
However, EU diplomats contradict this argument. Hungary had deliberately blurred the boundaries, among other things by using the hashtags and logo of the Hungarian Council Presidency in his posts about the trip on social media. With his trip, Orbán acted “against the spirit and text of the European Council conclusions”, an EU diplomat told Table.Briefings.
According to Brussels sources, the EU Council’s legal service argued at the Coreper meeting that Hungary had violated the principle of loyalty. This is not only about Orbán’s behavior in Moscow and Beijing, but also about his trip to the meeting of the Turkic states. There, the Hungarian prime minister had taken positions on Northern Cyprus that were not in line with EU positions and particularly angered Cyprus and Greece.
At his press conference in Brussels, Europe Minister Bóka tried to distinguish between the Hungarian Council Presidency and the Hungarian government. Although the Hungarian government has a very “characteristic” style, this is “not irreconcilable” with a successful Council Presidency.
Bóka may be relatively alone in Brussels with his assessment, but tough measures against Hungary are not currently in sight. Despite the criticism in Coreper, no ambassador has suggested that the Hungarian presidency should be terminated prematurely. Before the start of the Hungarian Council Presidency, a super-qualified majority of 20 member states would have been sufficient for such action, but now it is unclear.
Member states are therefore considering low-threshold measures, such as staying away from informal Council meetings. These traditionally take place in the member state holding the Council presidency. The informal Competitiveness Council in Budapest at the beginning of this week already took place without the participation of the German Minister for Economic Affairs, Robert Habeck, and the French Minister for Industry, Roland Lescure. jaa/sti
Based on data from the European Commission, the EU is currently dependent on imports from abroad for more than 80% of digital products, services, and infrastructures. This ever-increasing one-sided dependency on large tech companies – primarily from the USA and China – must be seen as a clear call to action for the new EU Commission. After all, they are not only alarming for Europe as a business location. They also make us politically vulnerable. The consequences of such dependency have already been demonstrated to us in the energy sector.
In order to secure Europe’s digital sovereignty, we need our own digital products “made in Europe”. Small and medium-sized enterprises (SMEs) are of central importance for this because the digital economy in Europe is characterized by SMEs. Small and medium-sized IT companies provide the majority of jobs and innovations in Europe – they are not IT corporations. The independence, freedom, and growth opportunities for these companies must therefore be the top priorities of a European digital policy that aims to ensure that we shape our digital future in a self-determined way.
The EU has already recognized the need for digital sovereignty. It appears as an objective in various strategies. However, this goal is often missed when translated into political measures. Why? Because they focus too much on regulating large corporations from overseas and too little on developing their own potential.
The digital policy of the current EU legislature has resulted in a dramatic expansion of regulations in the digital sector – including the AI Act, the Cyber Resilience Act, and the NIS2 Directive. These are often associated with bureaucratic effort and compliance costs that are easily manageable for the large corporations they are primarily intended to affect. Instead, SMEs, for whom the costs and bureaucracy are real hurdles, are hit hard. This restricts the innovative strength of precisely those companies that are essential for Europe’s digital value creation and independence.
In view of Europe’s digital emergency, it is now high time for a rethink in European digital policy – high time for a Digital New Deal that utilizes the potential of IT SMEs. The basis for this is the promotion of digital business models, among other things by stopping regulation and reducing bureaucracy; SMEs need more freedom for innovation. Furthermore, the strengths of the IT SME sector, particularly for shaping key technologies such as artificial intelligence, must be used in a targeted manner so that we can continue to help shape these in the future instead of being relegated to a pure user role.
What sets Europe’s medium-sized IT sector apart from international tech corporations is specialization and niche expertise rather than a generalist focus for the broadest possible user base. This successful model has already turned numerous European SMEs from traditional sectors, such as industry, into globally admired niche world market leaders with their highly specialized focus and can certainly be transferred to digital business models.
Digitalization “made in Europe” therefore means targeted and tailored IT solutions that address industry-specific needs instead of trying to cover all industries. In this way, we can participate in shaping future technologies without wanting to replicate the successes of Silicon Valley, for example by promoting European specialized vertical AI models or niches such as European cybersecurity software.
The specialization for IT solutions can be based on many niches – be it public administration, medicine or accounting – but offers a solution with a much higher benefit for the customer according to the best-of-breed approach. This allows us to develop world-leading digital products that solve real problems, rather than just launching the next global platform as a supposed all-in-one solution.
In addition to more freedom for digital innovations by stopping regulation and reducing bureaucracy, a Digital New Deal should therefore include a new leitmotif of tailor-made digitalization in industries to project the success story of traditional SMEs into the digital age. Focusing digital policy exclusively on its own few big players in the hope of creating its own Silicon Valley would be a missed opportunity. Instead, Europe must reflect on its digital DNA and make specialization the standard.
Oliver Grün is founder and majority shareholder of the GRÜN Group as well as President of the Bundesverband IT-Mittelstand e.V. and President of the IT-Mittelstand-Europaverband European DIGITAL SME Alliance.
The EU environment and climate ministers are meeting in Budapest today and tomorrow in the second week of the Hungarian Council Presidency. However, there can hardly be any talk of environment ministers. The German government is represented by state secretaries from the Federal Foreign Office and the Federal Ministry for the Environment. There seems to be little interest in an exchange at ministerial level with the Hungarians, possibly also because of Viktor Orbán’s geopolitical solo efforts.
The topics of this informal environmental council are certainly relevant, as the Council Presidency has put an exchange on the agenda in preparation for the next UN Climate Change Conference in Baku (COP29). The Azerbaijani COP presidency has also been invited, which shows how important COP29 and the climate financing target to be negotiated there are to Hungary.
However, the EU’s own climate targets for 2035 and 2040 will not be discussed in a separate agenda item. The German government and other member states will nevertheless advocate “science-based” targets in their interventions. Even if there is not yet a unified position in Berlin for a percentage target, this points to at least a 90 percent CO2 reduction by 2040 compared to 1990 – the EU’s scientific climate council had recommended 90 to 95 percent.
The future of the Green Deal will also be discussed in Budapest. It looks as though it will be given a stronger industrial policy focus and transformed into a package of measures for a green economy in the coming legislative period. This is being advocated both in Brussels by the groups supporting the new EU Commission and by the governments in many capitals. However, there will be no decisions on this at this informal meeting anyway.
I wish you an insightful read.
Next Monday evening, Christian Lindner will be speaking at the Baden-Württemberg state representation in Brussels. The topic of his speech: the future of cohesion policy. The Federal Minister for Financial Affairs wants to present a study and send a clear message at the same time: Instead of reflexively demanding more money for the EU budget, the existing spending programs should be reviewed for their effectiveness. This applies above all to European regional policy – with €392 billion over seven years, the largest block of expenditure in the current EU financial framework.
The FDP politician repeated similar messages like a prayer wheel during the negotiations on the federal budget. Next year will see the start of talks on the new EU financial framework, which covers the years 2028 to 2034. And Lindner wants to drive a stake in the ground early on. From his point of view, other governments are demanding an expansion of the EU budget or new European debt programs too lightly.
In Lindner’s view, money could be saved in cohesion policy in order to finance new political priorities such as defense and competitiveness. The study should provide the facts. The Ministry of Finance has commissioned the study from the Center for European Economic Research in Mannheim and experts from other countries. The researchers led by ZEW financial expert Friedrich Heinemann will hand over their 400-page study to the responsible Commissioners Elisa Ferreira (Cohesion) and Johannes Hahn (Budget) on Monday evening.
The study reportedly concludes that the cohesion funds have had a poor track record. Central and Eastern European regions in particular have quickly caught up economically with the help of money from Brussels. But in other regions, such as southern Italy, the funding has had little effect: Dysfunctional structures, inefficient administration and corruption are slowing down development there.
In a recently presented paper, ZEW researchers criticized the fact that the success of the funding measures is not sufficiently transparent and independently reviewed. The European Court of Auditors has also criticized the controls.
However, the discussion about the effectiveness of structural policy, which Lindner wants to initiate, is not new. In recent decades, wealthier member states have repeatedly called into question the multi-billion euro programs that are intended to help strengthen economic and social cohesion and reduce inequalities between the regions in the EU. And they have always bared their teeth in the face of resistance from the less developed countries. They see the payments from Brussels as a balancing of interests in the internal market, which particularly benefits export-oriented companies from countries such as Germany.
In the German states, the local beneficiaries of the payments from Brussels, Lindner’s initiative is therefore viewed calmly. The plans of Commission President Ursula von der Leyen to realign the structural funds along the lines of the Recovery and Resilience Facility (ARF) from the coronavirus pandemic are causing much greater concern there. She said in an interview in May that disbursement could be linked to conditions such as specific reforms in the recipient countries. The combination of reforms and investments brought growth to countries such as Italy, Greece and Portugal.
The Secretariat-General of the Commission and the Directorate-General for Budget are already working on concrete plans for this, according to informed sources. DG Regio, which is responsible for the administration of the structural funds, is largely left out of the loop.
Alarm bells are therefore ringing in the states. They fear that they will no longer be able to decide for themselves whether they want to finance cycle paths, nature reserves or a start-up campus with the help of the European Regional Development Fund or the Cohesion Fund. At a meeting in June, the European ministers of the federal states unanimously warned against shifting the funding instruments to the national or EU level.
In order to receive funds from the Recovery and Resilience Facility, federal governments had to submit comprehensive action plans to the Commission and have them approved. The federal states were only consulted but not seriously involved, criticizes a high-ranking representative of one state. Transferring this model to the Cohesion Fund would mean far-reaching centralization.
Brussels is trying to accommodate the concerns. According to EU circles, the regions could be more involved in the formulation of priorities than was the case with the ARF.
There is sympathy within the German government for following the ARF approach. “Linking the funds from the Recovery and Resilience Facility to the implementation of reforms and milestones in the member states has brought about real change”, says Sven Giegold, State Secretary in the responsible Ministry for Economic Affairs and Energy. “We should seriously discuss transferring this principle to cohesion policy.” This would not mean centralizing the allocation of funds.
However, there are also major concerns in Berlin about giving the Commission a similarly strong role in the allocation of cohesion funds as with the ARF. It is considered completely illusory that the authority in Brussels itself decides on thousands of funding decisions, which has so far been the responsibility of the regions and municipalities. Anyone who shakes this up is messing with all the cities and regions, they warn in Berlin. In addition, an entire industry of business promoters and project evaluators lives from EU funds. It therefore remains to be seen whether politicians are really serious about reform.
The first outlines of China’s response in the tariff dispute with the EU are beginning to emerge. On Wednesday, China’s Ministry of Commerce announced an investigation into trade barriers on the EU’s side. This investigation had been planned for some time: Back in late June, a spokesperson for the ministry announced that they were reviewing a corresponding request from the China Chamber of Commerce to the EU (CCCEU). The matter has now entered the next phase.
The investigation follows a set mechanism, which the Chinese government transparently outlines on its website. If the review finds that the EU is unfairly closing its market to China, the Ministry of Commerce has three options:
The third option leaves all possibilities open, including counter-tariffs and other potentially unpleasant escalations.
The investigation is set to last six months. The announcement does not specify which sectors and trade barriers are being targeted. It concerns “trade and investment barriers related to the EU’s practices in investigating Chinese companies under the decision to review foreign subsidies.” The ministry’s statement explicitly mentions:
At first glance, no general market barriers apply here. In the solar industry, the EU has recently refrained from examining tariffs. The EU has also refrained from initiating proceedings in the wind power sector for the time being.
At the same time, however, a pattern can be recognized. In all cases, these are industries in which the EU has initiated an anti-subsidy investigation. It has had this instrument for almost exactly a year, with the Foreign Subsidies Regulation (FSR) coming into force in July 2023. It is particularly annoying for the Chinese side because it is much quicker and more hands-on than the good old anti-dumping investigations, which often dragged on forever. The investigations of Chinese suppliers for inappropriate state subsidies included
The first phase for the ministry is to research how the EU might be violating a range of rules defined in the implementing regulations. This includes breaches of agreements between the economies, as well as more ambiguous cases such as “causing market entry barriers for our country” or “harming the competitiveness [of Chinese] firms”. Another broadly defined point is: “[The trade measure] could hinder export opportunities for a [Chinese] product.”
The tools for examining the facts on the Chinese side include:
These are similar to the tools the EU used to scrutinize the Chinese vehicle industry in setting electric car tariffs.
China is making it clear that it will not accept the EU tariffs quietly or consider them fair, as Trade Commissioner Valdis Dombrovskis had hoped. There will be a robust response, not limited to specific products like cognac or pork. China wants to show that it won’t be pushed around.
However, this does not necessarily mean an uncontrolled spiral of ever-higher tariffs and other barriers. Even with the US, China generally responded with roughly equivalent trade measures when first Donald Trump and then Joe Biden imposed new tariffs and restrictions.
Beijing relies on exports and has no interest in closed markets, as it has repeatedly emphasized. China will probably also proceed according to the same principle with the EU: tit for tat.
Hungarian Prime Minister Viktor Orbán caused displeasure in Brussels with his trip to Moscow and Beijing. At yesterday’s meeting of the Permanent Representatives (Coreper), the Polish ambassador therefore put the behavior of the Hungarian Council Presidency on the agenda – just ten days after the start of the Presidency.
In a two-and-a-half-hour discussion, the permanent representatives of 25 member states criticized Orbán’s trip. According to Brussels sources, apart from Hungary, only Slovakia refrained from criticizing Hungary’s behavior. The EU diplomats speak of a serious breach of trust.
At the Coreper meeting, Hungary argued that Orbán’s talks were of a purely bilateral nature and were intended to explore the feasibility of a ceasefire. Also on Wednesday, the Hungarian Minister for European Affairs, János Bóka, faced the media and defended Orbán’s actions. He said that there was no obligation to inform or consult the EU and member states about bilateral meetings in advance.
However, EU diplomats contradict this argument. Hungary had deliberately blurred the boundaries, among other things by using the hashtags and logo of the Hungarian Council Presidency in his posts about the trip on social media. With his trip, Orbán acted “against the spirit and text of the European Council conclusions”, an EU diplomat told Table.Briefings.
According to Brussels sources, the EU Council’s legal service argued at the Coreper meeting that Hungary had violated the principle of loyalty. This is not only about Orbán’s behavior in Moscow and Beijing, but also about his trip to the meeting of the Turkic states. There, the Hungarian prime minister had taken positions on Northern Cyprus that were not in line with EU positions and particularly angered Cyprus and Greece.
At his press conference in Brussels, Europe Minister Bóka tried to distinguish between the Hungarian Council Presidency and the Hungarian government. Although the Hungarian government has a very “characteristic” style, this is “not irreconcilable” with a successful Council Presidency.
Bóka may be relatively alone in Brussels with his assessment, but tough measures against Hungary are not currently in sight. Despite the criticism in Coreper, no ambassador has suggested that the Hungarian presidency should be terminated prematurely. Before the start of the Hungarian Council Presidency, a super-qualified majority of 20 member states would have been sufficient for such action, but now it is unclear.
Member states are therefore considering low-threshold measures, such as staying away from informal Council meetings. These traditionally take place in the member state holding the Council presidency. The informal Competitiveness Council in Budapest at the beginning of this week already took place without the participation of the German Minister for Economic Affairs, Robert Habeck, and the French Minister for Industry, Roland Lescure. jaa/sti
Based on data from the European Commission, the EU is currently dependent on imports from abroad for more than 80% of digital products, services, and infrastructures. This ever-increasing one-sided dependency on large tech companies – primarily from the USA and China – must be seen as a clear call to action for the new EU Commission. After all, they are not only alarming for Europe as a business location. They also make us politically vulnerable. The consequences of such dependency have already been demonstrated to us in the energy sector.
In order to secure Europe’s digital sovereignty, we need our own digital products “made in Europe”. Small and medium-sized enterprises (SMEs) are of central importance for this because the digital economy in Europe is characterized by SMEs. Small and medium-sized IT companies provide the majority of jobs and innovations in Europe – they are not IT corporations. The independence, freedom, and growth opportunities for these companies must therefore be the top priorities of a European digital policy that aims to ensure that we shape our digital future in a self-determined way.
The EU has already recognized the need for digital sovereignty. It appears as an objective in various strategies. However, this goal is often missed when translated into political measures. Why? Because they focus too much on regulating large corporations from overseas and too little on developing their own potential.
The digital policy of the current EU legislature has resulted in a dramatic expansion of regulations in the digital sector – including the AI Act, the Cyber Resilience Act, and the NIS2 Directive. These are often associated with bureaucratic effort and compliance costs that are easily manageable for the large corporations they are primarily intended to affect. Instead, SMEs, for whom the costs and bureaucracy are real hurdles, are hit hard. This restricts the innovative strength of precisely those companies that are essential for Europe’s digital value creation and independence.
In view of Europe’s digital emergency, it is now high time for a rethink in European digital policy – high time for a Digital New Deal that utilizes the potential of IT SMEs. The basis for this is the promotion of digital business models, among other things by stopping regulation and reducing bureaucracy; SMEs need more freedom for innovation. Furthermore, the strengths of the IT SME sector, particularly for shaping key technologies such as artificial intelligence, must be used in a targeted manner so that we can continue to help shape these in the future instead of being relegated to a pure user role.
What sets Europe’s medium-sized IT sector apart from international tech corporations is specialization and niche expertise rather than a generalist focus for the broadest possible user base. This successful model has already turned numerous European SMEs from traditional sectors, such as industry, into globally admired niche world market leaders with their highly specialized focus and can certainly be transferred to digital business models.
Digitalization “made in Europe” therefore means targeted and tailored IT solutions that address industry-specific needs instead of trying to cover all industries. In this way, we can participate in shaping future technologies without wanting to replicate the successes of Silicon Valley, for example by promoting European specialized vertical AI models or niches such as European cybersecurity software.
The specialization for IT solutions can be based on many niches – be it public administration, medicine or accounting – but offers a solution with a much higher benefit for the customer according to the best-of-breed approach. This allows us to develop world-leading digital products that solve real problems, rather than just launching the next global platform as a supposed all-in-one solution.
In addition to more freedom for digital innovations by stopping regulation and reducing bureaucracy, a Digital New Deal should therefore include a new leitmotif of tailor-made digitalization in industries to project the success story of traditional SMEs into the digital age. Focusing digital policy exclusively on its own few big players in the hope of creating its own Silicon Valley would be a missed opportunity. Instead, Europe must reflect on its digital DNA and make specialization the standard.
Oliver Grün is founder and majority shareholder of the GRÜN Group as well as President of the Bundesverband IT-Mittelstand e.V. and President of the IT-Mittelstand-Europaverband European DIGITAL SME Alliance.
