In the last few years, the EU has focused on a green, digital, and geopolitical Europe, but this has not yielded a coherent or effective digitalization policy or a strong assertion of digital sovereignty. With changing political tides within the region and the necessity to respond to external geoeconomic pressures from the US and China, the only answer for the EU seems to be to resort to further austerity, and hope for private investment in digital technologies.

Digitalization was a focus of the last EU Commission, pursued through the flagship project of the Green Deal. The Covid-19 crisis accelerated this trend in the EU. To rescue national economies, member states agreed, for the first time in the history of unified Europe, to take up over EUR 800 billion under the Next Generation EU (NGEU) fund, which currently finances national ‘Recovery and Resilience Plans.’ About 20% of NGEU funds must be dedicated to digital investments. Unfortunately, this finance tool runs only until the end of 2026.

Most NGEU funds designated for digitalization are currently channeled by member states into laying fiber optic cables in rural areas or for the digitalization of local administration. While these are commendable investments, they are by no means examples of digital industrial policies. Additionally, when we look at the available future funding at the EU level, the room for building out a genuine EU-based digital industry gets even bleaker.

The EU treaties, which in reality act as the region’s constitution, have the unique feature of encompassing a fiscal policy regime, and are hence dependent on unanimous agreement to be changed. These rules were forged in the neoliberal heydays of the end of the 1990s. They killed the left Syriza government, brought permanent austerity to the rest of the EU, and remain one of the key causes for the region’s lack of economic agility.

The EU institutions have not been dealt good cards to play with in the game of digital capitalism, but this is not a justification for the consequences of this draw.

During the Covid-19 crisis, the rules were suspended using a ‘general escape clause.’ However, at the end of 2023, the European Parliament confirmed the reactivation of the fiscal rules, with basically no real reform of the rules. Trade unions are already openly speaking about the return of austerity 2.0 to EU economies. On 19 June 2024, the EU Commission opened so-called ‘deficit procedures’ against seven member states. The aim is to force these countries to lower their public debt.

States’ fiscal space to pursue needed investments is thus already being attacked due to the fiscally hawkish rules of the EU. Member states have little financial breathing space until the end of 2026, as the NGEU will run until then. But what comes after? This, right now is the big question for left and progressive economists, as well as for trade unions. A central concern will be how to organize and finance the much-needed digital transformation of the EU and its member states.

Industrial Policy: Yes, but Who Pays?

On industrial policy, we see a divergence of positions within the EU. Germany, Italy, France, and Spain are usually in favor of more active national industrial policies, while the rest of the 23 member states are rather against it. The latter support a further deepening of the single market, given their own limited domestic markets in their nation. For context, some of these countries often have a smaller market than the population of an Indian city. Hyderabad has a bigger population than Ireland, Mumbai more than Belgium, and even Noida is now bigger than the state of Luxemburg.

Understandably, smaller countries oppose national go-it-alone solutions, as it would mean that major economies such as Germany and France (like in the exceptional pandemic times) will spend nearly 80% of all national economic support provided by the EU on their own national industries. We therefore find a structural blockage against too much national industrial policy in the EU.

Federal-level spending would be a feasible alternative. But again, this is blocked by the former ‘DM-Block’ countries (Germany, Austria, Netherlands, Scandinavia, etc.), and fiscally conservative Central and Eastern European countries (CEE). This fiscally hawkish alliance has enjoyed stability historically, irrespective of the current governments in these countries.

The only way to break this alliance might be a new financial system for sustaining the EU, based on fiscal resources for the EU itself, which would not endanger national budgets. However, this might entail a huge and necessary Hamiltonian step in the direction of a Staatswerdung (state formation) of the EU. This, on the one hand, of course, remains a trigger for nationalists from the right and left, and on the other hand, rightfully poses a lot of democratic challenges in actionizing.

The only viable interim option would be having a federal-level fiscal capacity, which could democratically plan interventions in the market process to initiate an EU-wide process of digital industrial policy.

The Executive Committee Meeting of 26-27 March 2024 of the European Trade Union Confederation adopted a resolution demanding such an “EU-financed investment tool.” But alas, the EU is governed mostly by conservative capitalist parties. Therefore, we find on page 3 in the ‘Draft Strategic Agenda 2024-2029’ of the European Council the statement: “Trusting our companies to turn risks into opportunities will spur investments, boost economic growth and make Europe a veritable powerhouse.” This assertion can be understood as a clear rejection of all ideas regarding a planned answer to future challenges.

EU governments are rightfully afraid of the dominance of the US and increasing Chinese presence in the digital sphere. However, they are incapable of finding the political courage to set up a real digital industrial policy.

With the strengthening of the conservative and radical right in the European Parliament and also the current balance of power between the national member states (only Spain can be considered an influential left-leaning government currently), a push for an intelligent public-coordinated digital industrial policy is not possible.

In summary, what we see is that the EU is not able to build its economic development on the back of huge decentralized (national) industrial policies. The other option, to build out new industrial sectors and jobs by using middle-range federal financial instruments is structurally possible, but not in the current political conjuncture with fiscal hawkish governments. The EU institutions have not been dealt good cards to play with in the game of digital capitalism, but this is not a justification for the consequences of this draw.

The Strategic Agenda for the Next Five-year Cycle of the EU

EU governments are rightfully afraid of the dominance of the US and increasing Chinese presence in the digital sphere. However, they are incapable of finding the political courage to set up a real digital industrial policy.

Here, it might be a useful exercise to use the theory of national security and its idea of a “hierarchy of interests” with the distinction between vital, important, and peripheral interests. It can be compared to Maslow’s hierarchy of (individual) needs. There is much you like to do, but in situations of crises, you concentrate on keeping yourself and the system alive.

Survival mode for a capitalist economy means ensuring the principle of private property. And this is at the center of what we can find in the three currently most important documents in Brussels.

These are:

i. The ‘Draft Strategic Agenda 2024-2029’ of the Council of the EU (the governments chamber),

ii. The Letta report, and

iii. The Draghi report

The latter two reports commissioned by Ursula Von der Leyen, are intended to show the way to a more competitive EU. Letta and Draghi are both former Italian Prime Ministers. Draghi was President of the European Central Bank and Director of Goldman Sachs.

So far, the public knows about the Strategic Agenda only from a leak. According to the theory of realism, foreign policy interests trump internal issues. Consistent with realist theories of international relations, the Strategic Agenda starts with the sole focus on a hostile global anarchical world. The first leaked details of the strategy were particularly centered on international relations.

In the introduction, the EU member states clearly state that they “…will take the necessary responsibility for our security and defense and become more influential in the world.” We can read this as a goodbye to the idea of the EU as a soft power. The second part of the document is on external actions with a focus on “rules-based international order” (a not-so-secret code word for “western order”) with the demand to “substantially” increase defense spending [and] leverage EU policies (internal and external) to defend our interests”. Further down, the text notes that the “biggest asset” of the EU would be the Single Market, as it would enable “economies of scale.” Therefore “barriers, particularly on services” will be removed. The EU “will exploit the untapped potential of data and encourage investment in game-changing digital technologies, promoting their application throughout the economy.”

Letta essentially advocates for complete economic freedom for the post-fordistic, now digital entrepreneur. This has nothing to do with societal progress. We also see this language clearly in Draghi’s speech.

Concerning our question on digital capitalism, sovereignty, and the EU, the Strategic Agenda of the EU thus wants to:

i. push for the same FTAs,

ii. use the Brussels Effect,

iii. deepen commodification (single market) of goods and services, and

iv. redirect private savings (mostly saved for pensions) into private investments (capital market union).

This is no longer a privatized Keynesianism, but a privatized supply-side policy. The Letta and Draghi reports will spell out this policy approach in more detail. While the Letta report is already available, the Draghi report will be published at the end of June 2024. We nevertheless have a good insight into its contents due to Draghi’s speech at the La-Hulpe Conference in April 2024.

In short, the two reports want to initiate a race of mergers and acquisitions (M&A) inside the EU. For this, the reports advocate concentrating on three sectors: defense, energy, and ICT. These three sectors in particular would suffer from excessive fragmentation of companies. This would prevent them from achieving the necessary economies of scale. Draghi explicitly mentions the ITC sector, emphasizing that in telecommunication “scale is crucial.” The economic strategy of the EU hence boils down basically to ‘competitiveness with competition.’

As the integration of the EU advances, also in social policies (albeit, of course, far too slowly), Letta deploys a potential social bomb in his report. He wants to introduce a “fifth freedom.”

Currently, in the EU, we have four so-called freedoms. While Roosevelt propagated the four freedoms of the New Deal era in 1941: freedom of speech, worship, freedom from want, and freedom from fear; the EU only introduced market-oriented “freedoms” in 1993: free movement of goods & capital, the freedom to establish and provide services, and the free movement of labor (not humans, as you can be deported as an EU-citizen from any EU-country, in case you are unemployed).

Eliminating competitors inside the EU internal market by the supposedly invisible hand of the market in times of permanent suppression of effective demand will not produce promising results for the future.

These so-called freedoms of the EU have had an extremely damaging impact on the working class of Europe as they stand above social rights inside the EU. The radical left and the trade union movement have campaigned for years for an amendment to the EU treaties called ‘Social Protocol.’ And now Letta wants to introduce a fifth freedom, “focusing on research, innovation, knowledge and education” (p. 18).

“The fifth freedom could come to complement this framework to catalyze advancements in areas such as R&D, data utilization, competences, AI, Quantum, Computing, Biotech, Biorobotics, and Space…” (p. 8). Letta explicitly states that this freedom is necessary as the four existing freedoms would only focus on the economy of the 20^th century.

Letta essentially advocates for complete economic freedom for the post-fordistic, now digital entrepreneur. This has nothing to do with societal progress. We also see this language clearly in Draghi’s speech. Workers and trade unions appear in his speech only once, at the very end when he talks about the “supply of essential resources and inputs.” “Another crucial input which we need to secure – and this is particularly relevant to you, the social partners – is our supply of skilled workers.”

Summarizing the current discussions in the European Commission and in most national governments, we cannot see coherent strategic planning for a public digital economic approach. The analyses of the EU as an economy being left behind by its main competitors, the US and China, is correct, especially with respect to the digital economy. Nevertheless, the EU fails to deploy the correct solutions to tackle this. Eliminating competitors inside the EU internal market by the supposedly invisible hand of the market in times of permanent suppression of effective demand will not produce promising results for the future.