While the attention of the financial markets is focused on the current geopolitical tensions, Philip Lane, chief economist of the European Central Bank, turns his attention to a much more important long-term bet on the future of the euro area. At stake is productivity, which, according to the ECB, could increase by more than 4 percentage points in a decade thanks to artificial intelligence. But this optimism is tempered by a harsh reality: the energy barrier and the continent’s structural backwardness.
Lane chalks up two scenarios. The conservative version, which assumes a rate of AI adoption similar to the spread of the internet, yields a modest 1.5 percentage points of growth. However, for a real breakthrough to occur, the technology must penetrate at least half of the economy. This is not just a matter of higher office productivity, but an opportunity to sustainably raise the rate of innovation, which would be a salvation for an ageing Europe.
Energy brakes and capital impotence
However, the road to this goal is bumpy. The first obstacle is the energy paradox. AI is a ‘power-hungry’ technology, and persistently high fuel costs in Europe are directly hitting the profitability of building and deploying new models. Instead of accelerating, companies may be forced to save money, slowing down digital transformation.
The second challenge is the deep reliance on imported technology. The data is merciless: only 3% of patents in the Eurozone relate to AI, compared to 9% in the US. The result is a gigantic drain on capital – European companies pay around €250 billion in royalties annually, feeding mainly into the US giants.
Investment rather than regulation
Lane correctly diagnoses that the problem is not a lack of talent, but a lack of financial fuel. Shallow capital markets in Europe prevent innovative companies from scaling quickly. In order for AI to become a real driver of growth and not just a cost on the balance sheet, the eurozone needs to create a system of broad access to finance, especially for smaller players.
Without bold reforms to capital markets and the stabilisation of energy prices, Europe runs the risk that the AI revolution will be mainly at its expense rather than in its favour. The key to success will not only be the ability to implement algorithms, but above all the ability to finance its own innovations.
