Earlier today, the European Commission published the new Annual Single Market and Competitiveness Report. The report indicates that roughly half of the identified competitiveness drivers and Key Performance Indicators (KPI) have improved, including those related to the overall Single Market integration and the percentage of incorrectly transposed directives. While this is positive, it also means half of the markers have worsened, including those on the EU’s share of global exports (a 0.2% decrease), or remained stable, like public investment in business supporting infrastructures like digital connectivity.
The fact that the EU does not yet have a fully integrated Single Market and Digital Single Market is one of the main factors holding back Europe’s competitiveness and innovation potential and making it less attractive for investors. The report shows that while private investment has increased, venture capital investments have declined compared to 2021. In terms of innovation, research and development expenditure in Europe has also slightly decreased.
For Europe to remain a global leader in the tech space, it is essential that regulatory initiatives incentivise innovation and competitiveness and strengthen the single market. As ITI pointed out in our recent Vision 2030 guide, “competitiveness checks” – systematic in-depth assessments of the impact of legislative proposals on competitive conditions on the market and innovation – are key. When looking at the ease of regulatory compliance, this year’s report shows the EU has improved, though based on its score it is clear more work is needed. It is crucial that legislative and regulatory initiatives at EU level are proportionate and seek consistency and avoid a multiplicity of overlapping or conflicting requirements, which together can have a negative impact on innovation and competitiveness in Europe.
Regulatory initiatives in Europe must also avoid fragmentation created by national laws and regulations that increase complexity and add new operational and legal costs to firms operating in the EU. This approach can also frustrate citizens and consumers who – instead of enjoying a truly harmonised single market – face conflicting rules, for example on labelling or repair. Circularity is an area where harmonization will be key, but this year’s report shows again a slight decrease in the share of materials recovered and fed back into the EU economy. Here, alignment on reporting, harmonisation of requirements, green claims rules, waste, labelling, and standards for products placed on the EU market will all be significant aspects to improve upon.
Given the expected significant impact and the extraordinary amount and complexity of a variety of recent EU, the Commission should establish a process to review regulatory initiatives and avoid potential fragmentation created both by national laws and EU rules to ensure key concepts are clear, consistently understood and applied across the bloc. It would also help reduce complexity and remove new operational and legal costs to firms operating in the EU, while at the same time avoiding frustrating citizens and consumers who – instead of enjoying a truly harmonised single market – face conflicting rules.
Ensuring uniform implementation across the Single Market of EU cybersecurity rules is also crucial. Given the increasing number of cybersecurity initiatives, Europe needs to pay particular attention in ensuring coherence and avoidance of conflicting requirements, including on reporting of vulnerabilities, between the different existing and new rules and frameworks.
Some of the digital indicators in the report have shown an improvement, like the “digital intensity” in Small and Medium Enterprises (SMEs), which measures their use of selected digital technologies, such as AI or e-commerce in Europe. ITI supports the overall digital policy goals that the EU has been pursuing recently to foster the uptake of innovative technologies and maximize the potential of data innovation in Europe, while safeguarding individuals’ rights and addressing potential risks. A deliberate and careful assessment of the full real-life outcomes and impact on competitive conditions of this new body of laws is needed, to ensure key concepts are clear, consistently understood and applied across the bloc. The launch of such an evaluation and reflection is also essential to preserve incentives to invest in data innovation in the EU in the future.
Strengthening the digital skills of the EU’s present and future workforce will contribute to enhancing the long-term competitiveness of the EU’s technology industry and meeting the digital targets for 2030 outlined in Europe’s Digital Decade policy programme. This year’s report’s data shows a worrying decline in STEM skills among EU students. This is mitigated by the increase in ICT specialists in the EU workforce, but the EU is still less than halfway through its 2030 goals, showing 9.4 million workers in 2022, compared to the goal of 20 million workers in 2030. Investing in STEM and computer education and training programmes, including for underrepresented minorities and women, and ensuring Europe’s immigration policies allow business to tap into a global pool of candidates is necessary to respond to the growing demand for highly skilled digital professionals in the Single Market, and address disinformation and cyber-skilling challenges.
The Single Market is always a work in progress, and it needs to be back on top of the EU’s agenda to make sure it delivers for citizens and business. This year’s report is an important eye-opener to help Europe preserve an open and attractive single market and advance the opportunity to ensure its values and interests are protected while supporting its global competitiveness and enhancing its international leading role.