Europe's wake-up call

Hello everyone, it’s Gian Volpicelli, covering tech in the European Union from Brussels. Europe’s leaders may need to drop their tried-and-t [View in browser]( [Bloomberg]( Hello everyone, it’s Gian Volpicelli, covering tech in the European Union from Brussels. Europe’s leaders may need to drop their tried-and-true methods if they are to catch up to the rest of the world in tech. But first... Three things you need to know today: • Sony shocked the games industry with the [price of its new PS5 Pro]( • India’s Modi seeks a [$500 billion electronics sector by 2030]( • Amazon is pouring more than $10 billion [into UK expansion of AWS]( Where do we go from here? It’s been a strange couple of days in Brussels. On Monday, the capital of the European Union welcomed [Mario Draghi](bbg://people/profile/1483687) like a prophet — of doom. Speaking [from behind a dais beside]( European Commission president Ursula von der Leyen, the former Italian prime minister delivered a [nifty 397-page report]( explaining that if the EU wants to get out of its decades-long rut of dwindling productivity and economic decline, it should stop focusing on regulating technology and instead build cutting-edge tech itself. Draghi’s recommendation is that the EU spend some €800 billion ($884 billion), favor strategic mergers and scale-ups, and create a European research agency turbocharging innovation. The alternative? “A slow agony,” Draghi deadpanned. A day later, behind the same dais was EU competition and digital czar [Margrethe Vestager](bbg://people/profile/1841431) celebrating [twin courtroom wins]( against Apple Inc. and Alphabet Inc.’s Google, which Vestager had slapped with multbillion fines for falling foul of tax and competition law. Those are just two in a flurry of penalties Vestager has doled out to US Big Tech in her decade-long tenure as Europe’s antitrust boss. Asked when the crackdown will end, Vestager [channeled Winston Churchill]( this, she said, was just the “end of the beginning.” The two events — both hugely anticipated — neatly encapsulate the dilemma facing the European Union today. If the 27-country group wants to catch up with economic powerhouses such as the US and China, it needs to expand its digital sector. The question is how. Europe has a glorious past of leading us into the digital and internet age, with Nordic phone-makers Nokia and Ericsson spearheading the mobile revolution that started in the ‘90s. The advent of Apple’s iPhone and the explosion of social media, however, eroded and eventually eliminated that lead — to the advantage of American behemoths now valued at trillions of dollars each. Over the past decade, one of the EU’s main ways of bolstering a homegrown industry was the Vestager approach: hewing close to competition law, standing up to overseas Big Tech monopolies and leaning heavily on the EU’s role as global tech regulator (the so-called Brussels effect). That effort to ensure a level playing field, in turn, would help produce EU tech prodigies and value for customers, is how the belief goes. Vestager is on the way out as a European Commissioner, but the approach she championed is enshrined in competition laws such as the Digital Markets Act, or DMA, and a large corpus of tech rulebooks. Now, along comes Draghi with a different recipe. His report explicitly says that competition enforcement can be “harmful to innovation” and accuses the commission’s competition unit of being backward-looking. Draghi advocates for allowing mergers in sectors from defense to telecoms if they further innovation, and proposes sheltering multinational ventures in artificial intelligence — dubbed AI Verticals — from antitrust scrutiny. Draghi’s proposed reform goes beyond just flexible competition enforcement. At the core of his plan for a revamped, technologically relevant EU lies a new body modeled after the US [Defense Advanced Research Projects Agency]( (DARPA) — the organization that gave the world foundational technologies from GPS to the internet. Draghi envisions a fast-moving, hyper-focused moonshot factory targeted on accelerating breakthrough technologies and staffed by top scientists. The EU body Draghi proposes upgrading into his DARPA, called the [European Innovation Council]( (EIC), does feature some bright experts and scientists, but is still shaped by the bureaucratic processes the EU swears by, according to [Kat Borlongan](bbg://people/profile/22592083), a French entrepreneur who sits on the EIC board. Borlongan says that for the body to resemble DARPA, “scientists should be at the top of the food chain,” which isn’t the case now. Similar to jettisoning a decade’s worth of competition enforcement, setting up Draghi’s DARPA would mean doing away with the EU’s business-as-usual mindset. Complicating things is the fact that these proposals come with a price tag: Draghi proposes that the EU pour into research funding –his new DARPA-like EIC included — some €200 billion over seven years, doubling the EU’s current investment. The whole report demands of the EU an investment spree and the issuance of joint debt — an ask guaranteed to face resistance from influential countries such as Germany and the Netherlands. It is hard to tell who will win the day between the DMA loyalists and the DARPA aspirants. The one thing that feels certain is that the EU will soon have to pick its path.—[Gian Volpicelli](mailto:gvolpicelli@bloomberg.net) One to watch [Watch Bloomberg’s Jennifer Duggan interviewed on Bloomberg Television about the EU’s court wins over Apple and Google.]( Get fully charged India’s L&T plans to create a chip company, joining others in a push to build out a semiconductor industry [in the country.]( Crypto fraud jumped 45% to $5.6 billion last year, [the FBI said.]( A startup backed by OpenAI’s Sam Altman wants to provide cheap, [clean energy to data centers.]( Larry Ellison’s net worth soared $14 billion in a day as Oracle’s shares hit [a new high.]( More from Bloomberg Bloomberg Tech: Humanity has always relied on technology to drive growth. With the emergence of artificial intelligence, tech companies will affect the economy, media and health like never before. 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