EU Struggles to Unlock Value of a Digital Single Market

The European Commission recently passed the halfway mark in a plan to help revitalize the region’s economy by allowing freer digital trade, an initiative the executive body claims could unleash €415 billion ($473 billion) in economic growth through streaming, online shopping, and cloud computing by the end of this decade.

Realizing “a true single market for online content and services,” also known as the Digital Single Market, is part of the Europe 2020 plan. Among other measures, the plan includes steps to harmonize some transaction levies, end roaming charges within the economic union, and simplify rules about the amount of personal information consumers must provide to buy online. More than halfway to the deadline, European cities hold only three spots in a top-20 ranking of the world’s startup ecosystems conducted by data benchmarking company Compass.

“The European Commission’s Digital Single Market strategy is a progressive move that is needed to stimulate technology entrepreneurship within the European Union,” Dr. Ben Sanders, a lecturer in computer networking and information security at the UK’s Anglia Ruskin University, said in an interview with TechPORTFOLIO. “Fragmentation and barriers that have been removed in the physical single market remain in the digital domain and only serve to impede growth in this sector.”

Net Neutrality

Europe isn’t standing still, though. In June 2015, the European Parliament and Justice Council agreed to end roaming charges for all EU mobile subscribers within the trading bloc by June 2017 and to strengthen net neutrality rules protecting the right of every European to access Internet content without discrimination. These measures will be completed by an overhaul of EU telecoms rules this year.

In spite of the policy supports and investments being made by the European Commission, startups in Europe still find themselves at a disadvantage relative to the U.S. In a Harvard Business Review analysis, author Larry Downes looked into what may be holding back European startups. Downes found that the U.S. provided important advantages around issues such as tax policy, legal risk and regulation. In particular, Downes noted the following:

“Another piece of Clinton-era wisdom is a U.S. law known as Section 230. Passed as part of the Communications Act of 1996, Section 230 insulates Internet companies, website hosts, and ISPs from legal liability stemming from content posted by users. It’s hard to imagine the social media revolution — think Facebook, Twitter, Instagram, and Reddit — taking place without that background rule. Which is why none of those companies came from Europe, which has no such protections.”

The Wall Street Journal looked at another possible reason for why startups in Europe lagged those in the U.S.: the difference in appetite for risk. For example, European companies raised €2.6 billion ($3 billion) from venture capital funds in the first three months of this year. In comparison, U.S.-based companies raised $15.7 billion in the same time period.

“The United States of Europe”

“As of today you have two great centers: China and US. The choice is whether Europe wants to play the role of the third great center or a bunch of smaller ecosystems,” Federico Wengi, Venture Capital Associate at Berlin-based Paua Ventures GmbH, said in an interview. Wengi said he advocates something “even further” than the digital single market, “at best something that resembles the United States of Europe.”

Despite the challenges Europe is experiencing in its digital economy effort, or perhaps because of them, more substantial measures are slated to take effect soon. In January, members of the European Parliament (MEPs) passed a resolution urging the EU to table 16 Digital Single Market initiatives announced by the European Commission EC in May 2015 without delay.

Andrus Ansip, the European Commission’s vice president, who’s steering the Digital Single Market initiative has responded to doubts about its prospects. In a recent interview with re/code, Ansip said: “I would like to say very clearly: This commission does not have any plans to kill innovations or overregulate platforms. To provide more clarity? Yes. But to kill innovation, overregulating platforms? No way.”