Europe paying price for being ‘greedy’

The process of Ukraine’s accession to the EU will progress “much faster” than usual, predicts Margrethe Vestager. In an exclusive interview with Kathimerini on the sidelines of the European Investment Bank Group Forum, the executive vice president of the Commission for a Europe fit for the digital age and European commissioner for competition emphasizes that – more than the subsidy policies of other countries – the competitiveness of the EU is threatened by a significant shortage of necessary skills.

Vestager explains how the latest round of easing state aid rules will curb the trend of investment flight to the US in the aftermath of the Inflation Reduction Act. She notes that Europeans were hypnotized by the prosperity provided by cheap Chinese manufacturing and Russian energy, but that they have now woken up and are taking seriously the risks inherent in economic relations with authoritarian regimes.

Finally, she praises the digital transformation of the Greek public sector, predicting that with the resources of the Recovery and Resilience Facility the benefits of this overhaul will be more widely diffused in the economy and society.

Will the new state aid rules allow the EU to remain competitive with the United States in the wake of the Inflation Reduction Act? How will this be done in a way that does not undermine the cohesion of the single market?

[The new rules] are just one piece of the puzzle. Temporary and targeted state aid rules do not suffice to do the trick – not even with all the money in the world! We are in the process of finalizing the new framework, which will allow member-states to provide subsidies to industries where there is a threat of relocation to the US. This aid can be more generous in assisted [i.e. economically weaker] regions to make the investment option more attractive. We want the aid to go to places where it will make the difference for businesses in their decision to invest or not.

But beyond state aid, we need the right trade rules and a regulatory framework that supports the competitiveness of European businesses. We need to be much faster in permitting. Investors are not willing to wait years. And we also need upskilling and reskilling. Some shrug their shoulders; they claim that this is just what we say in speeches. But the skills issue is developing into a hard strategic barrier to scaling up in Europe. It is very important. In addition, in the next period, we will have to reflect on what is the appropriate tool with which to achieve the balance between the member-states that have huge fiscal capacity to support their businesses and those that do not have this capacity.

You are talking about the Sovereignty Fund. In your speech you said that we do not have time for a big debate between the supporters and the opponents of a new round of European borrowing. It sounded like you tacitly sided with the latter, given that you spoke of the need to utilize the funds that have been raised and remain unused.

I’m on the side of speed. We must know what we want to do and how we will do it. A long debate about the need or not for new borrowing will not answer either question.

‘The skills issue is developing into a hard strategic barrier to scaling up in Europe’

The tone in the EU towards the Inflation Reduction Act has become less alarming in recent weeks. Had the threat been overemphasized?

First, we all realize that it is very positive that the US is joining the fight against climate change. And not only the US – Japan, India are doing the same. In 2022 the EU reduced carbon emissions by 2.5%. But Europe alone is not enough. But secondly, after the consultations with the member-states and now with the presentation of our proposal, there was the realization that we have our own plan for the competitiveness of European industry – we are not simply reacting to the initiatives of the Americans. And this led to an easing of the anxiety.

Europe’s other major competitor is China. Do you think the EU, in the years of the von der Leyen Commission, has woken up to the multifaceted Chinese challenge – whether we’re talking about setting the standards for the technologies of the future, or subsidized companies that distort competition in the single market?

For a long time, unfortunately, we allowed China to grow its share of global production, so that we could benefit from extremely low prices for Chinese goods. We also relied on China for raw materials. It was an integral part of the European economic model.

Production in China, energy from Russia. It hasn’t worked out so well…

No, but it worked very well for a long time. Enjoying the prosperity it created, we ignored the security risks it entailed. To put it bluntly: We were greedy. But now things have changed. The theoretical danger became real with the return of war to Europe. This has led to a new way of thinking, in the political class, in public opinion and also in the business community. There is a realization that we cannot rely on exclusive suppliers, because this creates chokepoints. Late next week I will be visiting mining projects in Latin America as part of the effort to diversify natural resource supplies. The crucial thing is to talk about risks we face and how to manage them, to have a strategy of de-risking instead of decoupling Europe from the rest of the world, which will simply make us poorer. To manage risk properly, we need to have a detailed discussion and reach a common understanding about what goods are of real strategic importance, where the consequences of being cut off would be severe, and in which cases it would be annoying but tolerable.

One area of high strategic importance is semiconductors. A year has already passed since the presentation of the European Chips Act. How goes Europe’s effort to strengthen its presence in global microchip production? How severe is the skills shortage it faces? And is trying to achieve self-sufficiency, even in the most advanced types of semiconductors, the right approach?

We should not try to become self-sufficient. The cost alone would be prohibitive – estimated at between €240 and €320 billion. The goal is to increase our share of the global market from 10% to 20%. The Americans, meanwhile, are trying to increase their own share from 20% to 30%. If these goals are realized, half of the world’s production [by 2030] will take place within the framework of the Trade and Technology Council [where the EU and US coordinate their approach to regulating critical sectors]. Already, under existing legislation, we can enable support for chips production in Europe. We approved almost €300 million for a factory in Sicily – a project with a total budget of €1 billion. And there are a couple of other projects that we are working on together with the member-states. The legislation itself [the Chips Act] is at the stage of negotiations with the European Parliament, especially on the issue of funding and priorities. We will find solutions for everything.

Including skills?

With this law, the level of innovation in microchips manufactured in Europe will be upgraded and the number of companies in the industry will increase. This will encourage many young people to turn in this direction and acquire the necessary skills. But today, indeed, there is a lack of skilled people.

Ukraine could join the EU faster

What regulatory issues arise from the sudden emergence of ChatGPT? Is it a high-risk form of artificial intelligence? How would the Commission’s proposed AI Act deal with it?

It depends how you use it. I asked ChatGPT what to do in Brussels with my family, who were coming to visit. In fact, I asked it twice, clarifying that they have come many times and we wanted to do something more off the beaten track. I got a pretty interesting answer, but I saw that some of the places it suggested were closed on the day of the visit, and so on. This is low-risk. But if it can decide who gets into university, who gets a mortgage, that’s something entirely different. What we’re trying to do with the regulation of AI is to free it up in terms of low-risk applications, but in the high-risk categories, where there is a risk of discrimination based on race, gender, postcode, whatever, there you need a human in the loop. It was very interesting though – I was listening to a podcast with the reporter who had this conversation with the Bing [Microsoft search engine] chatbot and it tried to break up his marriage. “I’m happily married,” he told it. “No, you are not.”

Chilling…

It really is [laughs].

Another issue coming to the fore is funding for 5G and broadband infrastructure – and whether Big Tech companies should foot part of the bill, as many major telecom providers argue. Where do you stand?

We’ve just started an exploratory consultation, so I’ve opened my ears and am listening. We have taken no decisions. The question to be answered is how to attract more investment in connectivity so that it is accessible to everyone in the Union, as the demand for data appears to be unlimited. That’s the point – not the profitability of some businesses versus others.

In recent years, Greece has achieved impressive progress in the digitization of the public sector. However, it remains a laggard in the EU in indicators such as the DESI (Digital Economy and Society Index). Why? Can the Greek Recovery and Resilience Plan fix the situation?

The digitization of the public sector is going very well indeed. Services provided have tripled, millions and millions of interactions are happening every day – it’s an amazing achievement. And it can act as a driver for the same thing to happen in the private sector. Greece achieved this not because it had unlimited resources, but because the government had thought through the issue and they had the right approach to the architecture of the system. This then allows you to expand. I think the Recovery and Resilience Plan contains elements that will lead to many more positive developments [in the digital sector] in the coming years.

How do you feel when you hear President Volodymyr Zelenskyy say that Ukrainians are dying for the EU? Is this not an argument, combined with their tireless efforts to fulfill the criteria set, to accept Kyiv’s request to start accession negotiations within 2023?

The adherence of Ukrainians to the EU was already clear from those days in Maidan Square, where the European flag flew highest of all. Everyone in Europe realized that Ukrainians were dying for something that we take for granted. Ukrainians are not just courageous; they are impressive in their persistence to upgrade their state. Each candidate country receives from the Commission a questionnaire with 4,000 questions. Usually, the answers take some time to come. The Ukrainians, who are at war, responded in four weeks. We are dealing with a country with unprecedented capacity and determination. And we have to respond to that. With the reconstruction, which has already begun, despite the war, the country can be rebuilt in a way that makes it ready to become a member of the EU. Their process will be different from anyone else, because their country is being destroyed. I think it’s going to move much faster than we’ve seen in the past.