Should the EU invest more in its strengths? | DW Business

China and the US are spending big to boost new future Technologies from artificial intelligence to Quantum Computing and the latest Battery Technology but can Europe compete my guest today is Bill etchingson with the center for European policy analysis uh Bill thanks for joining us I want to begin today's program with that big question I'd ask you to be as concise as possible we'll get into the details hopefully later and that question is can Europe compete when it comes to these these newest Technologies but yes I think Europe it Still Remains very competitive in in key Technologies Imaging Technologies Zeiss uh asml for semiconductors I think Europe has a a strong I mean even in luxury which you don't think is a Cutting Edge but Europe is still very very strong VC investment is booming in Europe but Europe faces challenges it's traditional manufacturing may become threatened will become threatened and it needs to step up a gear so to speak all right let's get into the details now first let's take a look at the background Germany saying essentially it too is part of that race to build off future Technologies just this week the world's largest semiconductor producer tsmc out of Taiwan announced plans to build its first European plants in the German city of Dresden now Germany has been successful in luring big chip producers in recent years Global foundries and other major producer has continued to expand its plant in Dresden but Intel has meanwhile announced plans to build two new production facilities in the city of magdeburg also in the former East in Germany but Germany has also spent a great deal to attract both of these firms offering up to 5 billion euros in subsidies for the tsmc project and a whopping 10 billion euros for Intel now let's have a listen at what uh German Chancellor Olaf Schultz said about the latest tsmc deal when he is now becoming the major location for Semiconductor production in Europe that is important for the resilience of production structures around the world but it's also important for the future viability of our European continent and that is important especially of course for the future viability of Germany all right back to my guest bill atchickson with the center for European policy analysis A bill there was another sound bite I thought about using uh Robert habbeck who is the economy Minister here in Germany saying look this shows that Germany is actually a very attractive place for investment is he right does this kind of investment from tsmc from Intel does it prove that Germany Europe's largest economy is indeed competitive for these kind of future Technologies I'm not sure it does I think that it shows that Germany has Deep Pockets to be able to subsidize these Investments um if the 10 billion uh that Taiwan semiconductor is spending I think half of it is coming from the German taxpayer so that's uh that's quite a big subsidy now America is also subsidizing Taiwan semiconductor and other Investments uh I think the jury is out of whether these are going to be good Investments um the on the one hand I am encouraged that Taiwan semiconductor will be building uh chips for the car industry which is what Germany needs on the other hand these aren't the most advanced chips and perhaps the money would be better spent in Germany on true German strengths rather than semiconductor manufacturing things like Imaging Carl Zeiss things like chemicals which are used in the semiconductor uh process but and which really Germany and Europe have lead in the argument here is that this will create a hub for new business models obviously the workers will come from Germany from Europe uh they'll they will see a flourishing of skills needed uh for these kind of uh plants but also the value chain will move and grow within Europe isn't that a valid explanation when you talk about things like the chemical industry being able to build sort of Baseline substances could we not see some of that flourishing we've already seen it in Dresden for example becoming something of a hub for uh semiconductor production I'm not sure I really am not sure I mean this type of State intervention and state-led Industrial policy isn't what made Germany Rich uh it traditionally has failed and I think the jury is out on both the German Investments the European Investments and the U.S investments in this field whether it's really a wise use of money um I think that Germany really should build on its on its strengths and the the big question for the German economy I think is whether it's car industry so Central to the German economy can um you know can uh Electrify and keep up uh obviously uh it's a it's it's a super strong industry um the future of Germany will to a large extent be determined economically by its success or failure if these chips help them stay competitive maybe it's a good idea if they don't uh it's probably a waste of money we know that a big part of this is obviously for the security reasons of securing chip production here in Europe there were so many concerns around the time of the pandemic as we saw chip production fall car the car industry heavily hit by that actually uh production slowed uh production lines were actually Frozen for a while because of a lack of chips so we do hear this repeated Mantra of this secures that Supply but is are you suggesting there's some sort of illusory aspect to this of Simply we offer you a bunch of money you come over but that it doesn't really create sort of roots in um in the actual um the actual sort of tech economy itself within a country that are that are native to that country I mean how should we understand that well I think chips are obviously important but um you know I think there is a an international division of labor in America uh there's the software and the design capability that is really the strength in Europe there's really the Imaging and chemicals that are the strength and the actual putting them together manufacturing it's really Asian Asia which is ahead and what I've heard from the investment in the United States is it's much made still much more expensive than the United States to make the actual chips um so uh Taiwan semiconductor has been complaining we'll see if these Investments actually uh produce competitive chip making facilities but it's not uh a given uh that this is really the competitive advantage and that Europe would have um nor would it necessarily secure more Supply um I I think the chips is a as a a roller coaster supply and demand and there was oversupply and under Supply and now we're back to a glut so we'll see if this really is something that would lead Germany to become more digital I think Germany needs more software I think Germany needs more scaling of its impressive VC uh startups and I think Germany needs a more positive attitude towards digital in general you know I worked at Google I can finish but I worked at Google and we brought out a project Google brought out a project called street view and it and it was blocked in Europe even though the consumers loved it so I think you know the obsession with privacy and regulation may be the more important than these State subsidies in making Germany competitive I want to talk about its competitiveness in just a moment but I want to ask you um you're talking about Germany playing to its strengths this sounds like a very a strong argument that we would hear especially before the pandemic in a very sort of globalized it's a very globalized uh argument or an argument for globalization that every country should focus on what it's strong at but haven't the past few years taught us that in many cases these countries have to try and adapt and basically gain the same kinds of production manufacturing for certain key Industries and definitely AI Quantum Computing are being seen as these kind of technologies that the EU can't rely on the US or China for is your argument not saying that basically this this kind of globalized world of everyone needs to focus on what makes them best is that not the argument here is that not a little bit outdated based on what we've seen recently I I think you're right to say that globalization has become a dirty word in many ways I'm not sure though it should be such a dirty word I mean if you look at chips uh it's not these chips aren't coming from China they're coming from Taiwan a friend a democracy uh a natural Ally uh I think that uh you know which can be taken over by China and then the supply could be threatened correct could be yes uh there's also Japan that's producing them but you're right they can be uh I mean you can argue that thesis is we've argued in our papers at cepa that there is uh a need for some government intervention to make sure that there is security of supply and and also to prevent China from uh getting ahead of the west but on the other areas that you're talking about I think you know there really does seem need to be uh a reset in Europe um you know AI is coming abroad uh coming up ahead with great steam um and a lot of the research is being done in Europe uh and and Europe has very strong AI Engineers but it's also going to be the first continent to put strong regulation before we really understand what the technology does or what the Technologies dangers are um so I do think that that that type of over regulation does threaten the digital Europe uh to be able to remain competitive with the United States Japan and others we've been talking a lot about competition uh competitiveness I should say attractiveness um Germany has in fact been ringing its hands over just how competitive it is with other major economies some of that due to current events such as the war in Ukraine others due to perhaps a lack of investment in the past let's take a look at some of those issues for example um we know that uh Germany has um among the highest electricity costs in Europe we have a Graphic here it has the highest corporate tax rate in the EU and the highest of all G7 major economies a recent report by the German economic Institute also blamed quote excessive bureaucracy and then ailing infrastructure for putting off companies from investing in Germany and as if all that wasn't enough the country is also facing a worker shortage which is in the headlines here every single day now all of that without even mentioning the slow rollout of broadband I guess you could file that under digital infrastructure back to bill you want to say something yeah no I I think that you've mentioned a lot of challenges facing Germany in particular Europe in general um still in many ways Germany remains quite attractive I mean where did Elon Musk put his biggest Tesla plant I think it's the biggest uh plant in the world for Tesla put it in Germany because you have this deep tradition uh and large markets so I do think that there are uh deep strengths in the German economy uh but you're facing challenges that come from Russian gas being shut off and uh uh freezing of relations or danger zone with China so I do think that uh you know Germany's got a change and the question and it's I don't have the definitive answer is Will Germany change fast enough Bill do you have insights um into why it is that all this seems to be hitting at one time obviously some of it as you mentioned is related to the war but some of it would seem to come down to Investments at least that's a lot of the talk here do you have sort of any insight into why Germany suddenly seems to have all these issues at one time well I think we're moving into a generational change about and it's been pretty uh uh visible for the last decade or so that the world is moving towards more of a digital economy and digital I remember when it was hard to convince Germany that the internet was or German policy makers that the internet was something very important and that it really had a strong economic impact we had to do studies uh as when I was at Google to try to convince Germany to take it seriously um and now it's it's evident that software and the digital world are are driving much of the future economic growth and and those areas Germany's been remains pretty weak so I think sap is the only major German software player uh and its uh needs to Germany needs to really get on the digital train faster and we've also seen Volkswagen definitely stumbling over the issue of software when it comes to uh it's electrifying its cars it's been a real um issue for years now um this this issue of of this this fear this hand ringing over Europe sort of over Germany I should say falling behind when it comes to the next wave of industrial Tech to what extent is that common across Europe well I think that Germany is such a big part of the European economy that if Germany gets a cough the rest of Europe also gets sick so I think that you know everyone in Europe is really rooting for Germany to succeed because uh they depend on Germany and German success uh Germany has been a success story for the last generation and as we've talked about uh the real question is whether it can remain for the Next Generation so successful and uh I think that requires you know change uh adopting digital rather than really resisting digital and playing to German strengths not to try to recreate or subsidize Industries where they aren't going to be competitive and in that light the chip industry is a big question mark for me I mean whether these foundries in in magdeburg and darison are going to really create a competitiveness I think is an open question the same time this whole chip Story shows that when subsidies are in play now subsidies are generally very restricted from the EU in this case with the chip act the chips act I should say it was some of the some of the rules were loosened of course when subsidies play a role then of course Germany has um the Firepower it has the resources to spin big can we expect that subsidies are going to play an increasing role in the EU as we've seen obviously China with its state-backed firms but in the U.S now um there's been so much talk about subsidized climate manufacturing there with the inflation reduction act can the EU are we going to see the same from the EU more and more this kind of subsidy game I fear yes I think yes as you suggest we do see the pendulums uh turning and Industrial policy and state subsidies on both sides of the Atlantic are growing in in number and an amount and policy makers are turning to that instrument of of subsidizing key Industries in a way that would have been Unthinkable I think only a decade ago again whether it will be successful as a policy in really creating competitive Industries really catching up in some of these areas where we feel that we've fallen behind I think or is a big question mark it could end up being a lot of wasted taxpayer money or they're better are there better ways of um of making Europe more competitive I mean you've talked about uh digitization which will also require a lot of investment frankly and then um I guess we talked a little bit about corporate taxes that's definitely something you see a lot of talk of here amongst economists but I mean people do talk about Labor mobility and uh labor costs and and and Taxation as you say um look I mean I'm sitting now in Finland uh where this country had Nokia the biggest mobile phone manufacturer it went bankrupt it failed to keep up with iPhones um but it's been pretty dynamic in in a lot of the industries that have risen up from Nokia so I think uh instead of trying to to keep Nokia and subsidize it it was better to let it go and let the engineers and the talent uh create uh new types of companies and I think you know that's the same thing has it has to happen in Germany there are lots of fields where German VC uh Berlin is a real Tech Hub that there can be a lot of energy in Ai and these new Fields if um you know the regulations are are relaxed because there's a lot of of talent in Germany and like there's a lot of talent here in Finland where I do see a lot of startups thriving we talk so much about European or especially German fears of a lack of competitiveness a lack of attractiveness for investment and yet there are plenty of aspirations within Europe that it's going to continue competing with China and the US economically we think of French president Emmanuel McCall recently saying that the EU in fact needed to be a third superpower with those two Nations not just strategically but also economically and of course its Ambitions to lead green economies to the green deal secure greater market share for microchips as we mentioned through the chips act um bill it is the world's largest single Market which of course has helped shape regulations around the world we've been sort of beating around the bush sort of touching on this why has the EU struggled with Innovation as you mentioned you know there's no um we talked about Google we talked about there's no European Facebook Google Alibaba you talk about AI there's no chat GPT and there's no threat of a chat GPT being there anytime soon is it really just about regulation is about the fragmentation of this economy when it comes to moving Capital around yeah so I do think that um uh fragmentation uh you know if you're trying to build a pan-european uh tech company in Europe it's it's it's difficult the markets despite the single Market remain different uh and selling like e-commerce selling a product in France uh uh means you sell it completely differently in Germany still even if there are no tariffs and and there we do have the single Market there is a lot of Regulation which is a lot of compliance costs so I do think that holds people back especially in these new technologies but look Europe uh is a big economy it is powerful and is innovative I mean if you want to take a good example also uh look on chips asml uh in the Netherlands and the Eindhoven Hub they are producing machines that no one else can duplicate Imaging Technologies are super Advanced and World beating in Europe Pharmaceutical the most exciting new products for weight loss are coming out of Denmark because they were a derivative of the diabetes expertise that they had so you know germ a lot of the covet vaccine came from Germany there's a lot of talent in Europe and we tend Europe tends to underestimate its talents and and wish for things that it could do uh or could have but isn't necessarily best place to have while forgetting what it does have you're very optimistic about sort of these key Industries for Germany but when we talk about this idea going back to macron of strategic autonomy this idea of Europe shouldn't have to rely on the U.S and China for these key developing Industries these are Tech Industries we're talking about AI Quantum Computing we're talking about manufacturing of course when we look at EV batteries for example but is there not indeed an urgency to move faster on these these digital industrial uh areas that frankly Europe has never had any real say in I mean you mentioned sap uh being the only real software company here if you look at the if you look at the Top If you look at the top companies in terms of market cap it's all companies here in Germany that are founded in the were founded in the 19th century I believe um isn't that really what this is about I I think the French analysis is uh a little deformed I mean he talks about strategic autonomy uh macron uh and uh the idea of you know uh separating or dividing the the transatlantic Alliance and I think that's a mistake I mean at the same time um I really admire a lot of what Emmanuel macron has done in France I mean uh he he set out to you know further the digital transformation of France and look they have uh I think it's up to 20 unicorns companies with more than one billion in value you know you talk about refurbishing your iPhone that's a French company that's the the leader in that type of business I mean there's really a lot of dynamism in France I mean he's one of the few also that uh in Europe who's pushed for the gig economy to to to take uh Stronger routes and go faster with you know Uber and a lot of the uh uh replacements for taxis I mean those are are the types of things that Germany needs as well to to Really encourage these uh unicorns so um and and to you know uh I would say liberalize it's it's labor market and and allow these types of new Industries to take uh take flight but there are strong European digital companies I mean it's owned Now by an American company but booking.com is as strong as Airbnb so in a lot of areas um I do think that Europe is doing better than it gives itself credit for that it shouldn't be complacent it shouldn't believe that uh you know it can't do better but we shouldn't be catastrophic about Europe all right we'll have to leave it there for now a big thanks to bill atchickson with the center for European policy analysis and of course thanks to you our viewer for watching be sure to tell us what you think in the comments and check out more of our stuff in the business section of the DW news channel here on YouTube I'm Stephen Beardsley in Berlin thanks for watching

Channel: DW News

Views: 104,220

Keywords: DW News

Id: GgWUwAr-NqU

Length: 22min 51sec (1371 seconds)

Published: Fri Aug 11 2023