Digitalization front and center in the European Union’s coronavirus recovery plans?

After days of deadlock, EU leaders finally reached an agreement on the bloc’s next seven-year budget and the accompanying €750 billion coronavirus recovery fund. While the summit stretched to be one of the bloc’s longest ever, the breakthrough does not mean negotiations over the 2021-2027 budget are at an end. Instead, the European Parliament doubled down on European Commission (EC) President Ursula von der Leyen’s stated regrets over some of the budgetary cuts necessary in order to break the deadlock, with MEPs insisting the body “will not rubber-stamp a fait accompli.”

All the same, the landmark deal already represents a cornerstone of the effort to rebuild after the economic devastation wrought by the pandemic. After the agreement was finalized, observers in Brussels and across Europe presented it as a major step towards “an ever-closer union” in fiscal matters within the bloc. The bumper accord represents a significant victory for German Chancellor Angela Merkel and French President Emmanuel Macron, despite Paris and Berlin compromising on the breakdown of loans versus grants.

Even as the EC, the Parliament, and European heads of state wrangle over the budgetary particulars, member states will clearly have plenty of cash to address two of von der Leyen’s top policy priorities: digitalization and the European Green Deal. The importance of the latter component cannot be overstated, but the coronavirus crisis has also made starkly apparent technology’s crucial role in the recovery. Given the extent of the digital divide both between and within different EU member states, European governments will need every cent in the bloc’s new war chest to engineer an equitable economic rebound.

The way of the future

As it stands, the agreement has finalized a 2021-2027 budget which clocks in at €1.074 trillion—a €26 billion reduction from von der Leyen’s initial proposal but a considerable sum nevertheless, particularly given the dueling impacts of Brexit and the COVID-driven economic downturn. 30% of the capital from both budgets is earmarked for green projects, but the EU cannot afford to neglect technological investment either.

In some ways, the crisis has done some of the work for Europe. The seismic changes wrought by COVID-19 accelerated the transition to a digital workplace by an average of six years, according to a survey of 2,569 executives from across the globe. As a result, Europe’s telecommunications networks saw an increase of between 35% and 60% in traffic due to burgeoning demand, with the five big internet companies (Google, Apple, Facebook, Amazon and Microsoft, or GAFAM) seeing share prices rising 45% and their collective value smashing through the €5 trillion ceiling.

Technological inequality on the continent

The pandemic has also highlighted how far Europe lags behind North America and Asia in terms of the digital transformation, not just in terms of fostering European tech champions but also in the physical infrastructure and professional skills needed to build a digital economy. As a result, European companies’ digitalization efforts, from consumer-facing products to industry solutions, are running roughly five years behind Asia. A recent survey by the European Investment Bank quantified the gap between EU and US firms in terms of digitalization: only 66% of European manufacturers have adopted at least one digital technology, compared to 78% in the US.

Part of the problem is that far too few Europeans have the skills they need to succeed in the digital economy. According to the latest Digital Economy and Society Index (DESI), 42% of Europeans lack basic digital skills—abilities such as connecting to a WiFi network or accessing a website—while only 33% have “above basic” acumen. Even more concerningly, a mere 3% of European citizens acquired basic digital skills between 2015 and 2019. In comparison, only 13% of U.S. workers are considered to lack digital skills, with another 18% possessing “limited” digital skills.

Europe’s overall lack of preparedness for the digital economy is accentuated by the significant disparities between EU member states. While the Dutch are the best prepared (80%) when it comes to rudimentary computing, Bulgaria (31%) and Romania (35%) are lagging far behind, demonstrating an ever-widening gap.

The problems are complex and multi-faceted even within individual countries. Croatia, for example, scores highest among the EU27 for the percentage of 16- to 24-year-olds who have basic digital skills (97%), but an alarming 18% of the populace has never used the internet. Hungary, meanwhile, is one of the most 5G-ready EU members, with substantial infrastructure in place and 60% of its spectrum allocated. And yet, despite the fact that more than half of Hungarian households enjoy internet speeds of greater than 100Mbps, Hungary is also the country with the poorest uptake of mobile broadband (70 subscriptions per 100 people). Over 50% of Hungarians lack basic digital and software skills.

Taking the initiative

Clearly, the EU has its hands full to bring the continent up to speed with its competitors. It will take significant training and education drives, as well as both infrastructural and software investment, to achieve the goal of equipping 70% of European adults with basic digital skills by 2025. The EC has already estimated that it will take around €48 billion per annum to make those ambitions a reality, meaning a sizable chunk of the announced recovery fund and upcoming budget should be apportioned towards improving the bloc’s abysmal computer literacy abilities. This far exceeds what the July summit negotiations allocated for Europe’s digital transformation, with just €1.8 billion of the Connecting Europe Facility (CEF) meant for digital investment and a further €6.7 billion earmarked for the Digital Europe program.

In fairness, much of this work will come down to the individual member states, who now have to put together national recovery plans committing them to systematic reforms in order to secure their share of the €390 billion in grant funding included within the €750 billion rescue package. Forward-thinking EU leaders will need to ensure those funds, beyond just repairing the short-term damage inflicted by the crisis, generate returns which can cover the hundreds of billions in loans the EU is also taking out. While the budgetary debates continue, investing in a working population armed with digital skills and equipped with up-to-date digital infrastructure should be an easy choice.

This article is a sponsored article and does not reflect the opinions of the editors or management of EconoTimes.