EU should have more say over innovation policy, says start-up group

EU treaty reform is needed to make technology and innovation a genuine shared competence between the European Union and its member states, according to France Digitale, a network of start-ups and investors.

The lack of a coordinated, Europe-wide economic policy for innovation “severely limits the ability to transform the results of European research into growth levers for businesses,” the association warns in a recent position paper.

The EU’s powers are divided into exclusive competences, such as the customs union and competition rules; shared competences where both the EU and member states are able to legislate, such as energy and consumer protection; and supporting competences where the EU can only intervene to support or coordinate member state actions.

The current Treaty on the Functioning of the European Union lists research and technological development as a shared competence, but with a caveat. In these areas, the EU “shall have competence to carry out activities, in particular to define and implement programmes; however, the exercise of that competence shall not result in member states being prevented from exercising theirs.”

This nuance has resulted in duplication of efforts on the one hand, and on the other, instances where priorities are not aligned between the EU and member states, according to Agata Hidalgo, European affairs lead at France Digitale.

“Over the past ten or 15 years, we’ve been very successful at the scale of each member state at building tech ecosystems,” Hidalgo told Science|Business. “But we really struggle to have big European tech in continental-scale companies. We believe that part of the problem is that everyone has been pushing in their corner.”

Today, 90% of public R&D funding is managed by member states. The first priority, said Hidalgo, should be to agree on strategic priorities. “We should decide at EU level what we will be funding, then we can discuss whether the money will come from the [European] Commission or from the member states and who will manage it.”

This echoes calls from Mario Draghi in his influential report on European competitiveness, published one year ago this month, to establish a Research and Innovation Union for a more coordinated research and innovation strategy.

On the research side, there are hopes that the upcoming European Research Area Act being prepared by the Commission could help to unite member states behind a more coordinated approach.

Airbus model

France Digitale’s position paper is critical of collaborative research calls, which account for a majority of Horizon Europe funding, because much of the money ends up going to large companies and consultancy services. Meanwhile, consortia are often shaped to satisfy geographical balances, rather than finding the best partners to achieve a project’s objectives, Hidalgo said.

“The feedback from our members is that it’s good to have these consortia [. . .] to get to know potential partners, but the real business they will do will not be within the project, it will be after the project,” she said.

Nobel Prize-winning economist Jean Tirole recently accused EU funding of creating “fake collaborations” formed to meet eligibility rules. Similarly, a report published in June by Italy’s Bocconi University and Germany’s Ifo Institute found no evidence that collaborative funding under Horizon Europe improves recipients’ long-term growth or innovation outcomes.

Airbus, which began as a consortium of French and German, and later Spanish and British companies, is often held up as a model of how Europe can compete globally. France Digitale argues the Airbus model should be used to address innovation gaps, rather than the EU’s Important Projects of Common European Interest, which are deemed to be overly bureaucratic and to favour traditional, large industrial players. This should be combined with a European preference in public procurement.

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With Airbus, “there was a very strong will, but especially a very good understanding of the need that they were trying to address,” said Hidalgo. “There was total domination of one American provider on the market. We needed an alternative. We built it, we bought it and we used it.”

Another company that has been thinking European from the outset is France Digitale member SiPearl, which was founded as part of a Horizon 2020 project to develop a new European microprocessor. SiPearl chips will equip Jupiter, the latest EU supercomputer, but there are concerns that the recent EU-US trade deal, in which Europe committed to purchase €40 billion worth of AI chips from the US, will limit demand for European technology.

“We need the promises that we make in big speeches in Brussels and the reality of the agreements that we make with the other powers in the world to match,” Hidalgo said.

Competitiveness Fund

While universities were relieved to see that the Commission is proposing to maintain a standalone Horizon Europe programme in the post-2027 EU budget, the start-up world is concerned that the connection between research and market uptake is still too weak.

The plans include clear connections between the proposed European Competitiveness Fund and the collaborative research pillar of Horizon, but France Digitale was hoping to see similarly clear links with the European Innovation Council (EIC), which supports deep-tech start-ups.

“It’s after the support from the EIC comes to an end that we really need to commercialise and industrialise the innovations,” Hidalgo said.

The association is also hoping the EIC will come out of the upcoming Horizon Europe negotiations with increased autonomy. The EIC already uses an external fund manager to make investment decisions for its equity instruments, but since the programme’s inception in 2021, there have been concerns around the role of the Commission.

“What we're seeing from our start-ups and investors it that the money that has the most impact for them is the money that comes and is managed by financial institutions,” Hidalgo said, referencing the European Investment Bank Group, and Bpifrance and Caisse des Dépôts in France. The EIC could become more effective if it was an independent institution with financial and scientific expertise, she said.

The Draghi report likewise advised that the EIC should have a “high degree of independence” in how it selects and manages projects.

Meanwhile, the France Digitale paper calls for greater use of instruments such as debt, guarantees and equity to complement grants in EU innovation funding, and for applied projects to be assessed also on their potential for valorisation or reuse by industry.

Hidalgo welcomed the Commission’s proposal to endow the next Horizon Europe programme with a €175 billion budget with additional funding from the Competitiveness Fund, but warned that plans to raise funds partly through a new corporate tax could be counterproductive. The Corporate Resource for Europe would be paid by companies with an annual net turnover of over €100 million. This threshold is too low and will impact scale-ups that may not yet be profitable, she said.