The critical challenges faced by Europe’s digital economy were set out at the 2024 Digital SME Summit in Brussels. The EU’s reliance on external technologies, market fragmentation, and a pressing need to bridge the skills gap topped the agenda.
To help meet these challenges, EU Commission Executive Vice-President Henna Virkkunen announced the investment of €750 million in seven supercomputers to propel the AI capacity of European industry.
As global competition intensifies, the EU’s path to technological sovereignty lies in empowering small and medium-sized enterprises (SMEs), which form the backbone of Europe’s economy, but they need a robust digital infrastructure and more investment.
SMEs represent 99% of European businesses, making them indispensable to economic and technological progress. At the Summit, Sebastiano Toffaletti, Secretary-General of the European Digital SME Alliance, highlighted the pivotal role of these enterprises in driving innovation and delivering software and services essential to Europe’s transformation.
Start-ups and scale-ups are not just participants in Europe’s digital ecosystem but its lifeblood. They bridge the gap between emerging technologies and businesses, offering agility and innovation unmatched by larger corporations.
“By placing SMEs at the heart of its digital strategy, Europe can foster technological sovereignty and become a leader in global innovation,” said Toffaletti.
However, the road to success is fraught with challenges. Market fragmentation across EU member states hinders scalability and growth.
As former Italian Prime Minister Enrico Letta remarked, “We don’t have a single market. Too many fragmentations.” This lack of cohesion restricts investment and prevents SMEs from competing effectively on a global scale.
Towards technological sovereignty
Europe’s reliance on external digital products is staggering, with imports accounting for 80% of its consumption. Over the past decade, its share of the global digital market has halved from 22% to just 11%. This dependence poses risks to economic security and limits Europe’s ability to lead in critical sectors like artificial intelligence (AI), robotics, and cybersecurity.
The European Digital New Deal manifesto, introduced by the European Digital SME Alliance, aims to reclaim technological sovereignty. It envisions a Europe where innovation flourishes domestically, reducing reliance on external players. MEP Alexandra Geese stressed the urgency of this shift: “Technological sovereignty is something we need in Europe, and it is something we can achieve.”
Realising this vision requires targeted investments in innovation ecosystems, as well as collaboration between public and private sectors. Policies must also address regulatory hurdles that disproportionately affect SMEs, enabling them to thrive in a competitive environment.
Bridging the digital divide
While Europe’s ambitions are high, its reality is sobering. Nearly 44% of EU citizens lack basic digital skills, and only 60% of SMEs meet minimum digital intensity thresholds. These gaps threaten to derail Europe’s digital decade goals, which include ensuring that 75% of businesses adopt AI, big data, and cloud technologies by 2030.
Sandra Parthie, President of the EESC’s Section on Internal Market Production and Consumption, questioned the feasibility of these goals: “When we look at reality, where do we actually stand?” Her remarks underscore the need for substantial investment in digital education and training, particularly in science, technology, engineering, and mathematics (STEM) fields.
Cybersecurity remains another pressing concern. As Jurgita Miseviciute, Head of Public Policy at Proton, observed, “SMEs in Europe are some of the most vulnerable ones when it comes to cybersecurity.” Addressing this vulnerability requires tailored support, such as subsidies for adopting secure digital tools and training programs to enhance cyber resilience.
Scaling up to compete globally
Europe’s ability to lead in the digital economy hinges on its capacity to scale businesses. Despite its strengths in areas like robotics, additive manufacturing, and green technology, Europe accounts for only 10% of the global market share in digital products. In comparison, China holds 40% and the United States 20%.
The European Commission’s startup and scale-up strategy aims to address this imbalance by simplifying access to finance, markets, and talent. However, as Francesco Bonfiglio, CEO of Dynamo, pointed out, “We are spending a lot of billions for something that has not been adopted by the industry.” His criticism highlights the need for better implementation of existing initiatives and a sharper focus on measurable outcomes.
Europe’s opportunity in AI
Artificial intelligence represents a significant opportunity for Europe to regain its competitive edge.
Renate Nikolay, Deputy Director General of DG CNECT, emphasised that “Europe has a chance to become a potential leader in AI, and not only a user.” Europe’s strength lies in its diverse sectors, including health, energy, and agriculture, where AI applications can drive transformative change.
To capitalise on this opportunity, Europe needs sector-specific AI initiatives, such as AI factories, which can provide start-ups with the resources and infrastructure needed for innovation. “Data is the oil of this next technological revolution,” Nikolay noted, underscoring the importance of strategies that enhance data access while safeguarding privacy and security.
Building a resilient digital infrastructure
A robust digital infrastructure is foundational to Europe’s technological aspirations. Audrey Tang, Taiwan’s Minister of Digital Affairs, proposed the Eurostack—an open, interoperable infrastructure designed to align innovation with Europe’s values of dignity, fairness, and democracy. Such an initiative could provide SMEs with the tools they need to innovate while fostering economic growth across the continent.
Cristina Caffarra of the Competition Research Policy Network echoed this vision, arguing that Eurostack should be treated as a public good. “It’s not about creating a state-owned monopoly but about ensuring shared resources that support innovation,” she said.
Paul Fehlinger, Director of Policy at Project Liberty, added that prioritising digital infrastructure is critical to Europe’s resilience and sovereignty. Shared resources, open standards, and privacy-enhancing technologies must form the backbone of Europe’s digital strategy.
Investment and talent retention
Securing private investment remains one of Europe’s greatest challenges. While the European Commission has introduced several funding initiatives, the scale of investment still lags behind that of global competitors. MEP Alexandra Geese emphasised the importance of closing this gap: “We need to ensure that the money creates value within Europe.”
Equally important is the retention of talent. Anne Duboscq, Public Affairs Director at OVHcloud, warned of a brain drain as skilled workers migrate to markets offering higher salaries and better opportunities. To counter this trend, Europe must create attractive conditions for talent, including competitive wages and access to cutting-edge technologies.
The path forward
Europe has the potential to create its own Silicon Valley by placing digital SMEs at the heart of its strategy. These enterprises are not just drivers of economic growth but enablers of innovation, bridging the gap between emerging technologies and real-world applications.
Achieving this vision requires addressing barriers to scalability, investing in digital skills, and fostering technological sovereignty. A unified digital market, supported by strong financial pillars and values-driven innovation, will be essential.
[Edited By Brian Maguire | Euractiv’s Advocacy Lab ]
