© Airbus Group

How big of a problem – or challenge – are “Industrie 4.0” and the digitalization of Europe’s economy compared to, say, the refugee or the euro crisis? I wouldn’t call digitalization a problem or compare it with political issues. For sure, it is a challenge. But overall, it represents a huge opportunity. Over the past ten years or so, industry has witnessed an unprecedented level of technological advancement with the rise of digitalization. New and bold entrants in this field are challenging the status quo more than ever before, and are disrupting established business models. For instance, while it took 75 years for the telephone to reach 100 million users worldwide, it took only seven years for the World Wide Web. For Facebook, along with WhatsApp, one of the latest contenders on the communications market, it took a mere four years to connect the same number of people. We should be grateful to live in such an exciting era of change and opportunities.

Data – one of the key elements in “Industrie 4.0” – is doubling every five years. Yet its potential is still largely untapped. We estimate that less than one percent of the data available to companies is currently being utilized to its full potential. The same applies to data generated by our products. That’s why we are working together with some customers to better monitor aircraft during flight and process the enormous amount of data generated between take-off and landing. Again, I view digital transformation fueled by data growth as a true business opportunity.

You suggested recently that European companies are still in the “trial and error” phase – is this also true for competitors in the US or China? The issue at stake isn’t Europe versus the US or Europe versus China. Airbus, for instance, is a European company, but one with global operations. We have a significant industrial footprint in all three places. The issue is rather that the big industrial firms have to catch up with the “dot coms”. At Airbus, we’re on it, but we’re definitely still in a trial-and-error phase – and I am convinced many other companies are as well. However, the more we delve into digitalization, the faster we’re learning to tackle the steep learning curve. At Airbus, one of the big lessons we’ve learned so far is that speed and methodology matter. We have also seen that in our sector – there’s no “one size fits all” approach. Our philosophy is this: Learning by doing, trying hard and failing fast! We also firmly believe that data generation in itself is not enough to create value. To do so, you must combine data resources, business know-how, and analytical skills.

Do we have an innovation gap in comparison to the US and China, and if so, how can we bridge it? And is there something the others could learn from Europe? Europe’s biggest advantage is its diversity, and Europe’s biggest problem is diversity! Each country is home to many renowned universities and research institutions. They all have different traditions and profiles or cultural footprints. From one European country to another, we can see differences in industrial structures and approaches to collaboration between stakeholders. Our diversity is an excellent stimulus for innovation. Obviously, this in itself is not sufficient to succeed in the digital age if you look at where the growth is happening: Out of the five biggest smartphone manufacturers worldwide, four come from Asia and one comes from the US. Of the 100 top high-tech companies worldwide, 65 are based in the US and only eight in Europe. And, finally, out of the six biggest websites globally, five are from the US and one is from China – but none are from Europe.

So why is Europe lagging behind? In my view, it is our risk-averse nature in Europe. We’re always looking at the safest path to success, but not necessarily the most innovative or best solution. The question driving European decision-making isn’t “how can we change today’s world?” but rather “how can we minimize risks and guarantee an acceptable standard of living for the foreseeable future?” And as long as we don’t change this attitude, we can’t fully benefit from our famous European diversity, and we won’t see the creation of a Google or Facebook made in Europe!

What does digitalization mean for a company like Airbus Group? Clearly, we are trying to capitalize on the opportunities that digitalization offers. In late November 2014, I led a fact-finding delegation to Silicon Valley. A few months later, I brought our entire management board to the Valley. Soon afterwards we decided to set up shop there with an innovation center and a capital venture fund. Both operations are now in full swing: Airbus Ventures has already made investments, and A³, our innovation center, is involved in various initial pilot projects, e.g. with Uber for on-demand air transportation. So, in only one year, we’ve made a lot of progress on the innovation side – not least thanks to our newly established presence in Silicon Valley.

One of the things that make Silicon Valley so special is its quick decision-making. Speed is of the essence. So we are ready to shake ourselves up and change our “way of doing things” before someone else does. In this special ecosystem, we aim to experiment with new products, business models, manufacturing, and other processes. But we’re not limiting ourselves to Silicon Valley. Our innovation center and the Airbus Ventures fund will serve as catalysts for our entire business worldwide. If we believe we have identified attractive business vehicles, we will make investments – be they in Berlin, Paris, Tel Aviv, Tokyo, or Shanghai. Internally, our Silicon Valley initiative has provided fresh impetus, and has been driving a new wave of innovation throughout the Group.

You said your own company has only “proceeded one percent” of the journey – what will the next 24 percent look like? Frankly, I don’t know. But I am convinced that digitalization and the transformation we’re seeing as a result of it will change the way we work. For example: Digitalization will certainly support our production system, especially when it comes to quality control. Our people on the shop floor will no longer be laboring away in isolation, but will instead be connected to the engineering team, with the possibility to make live modifications if necessary and save time. We’ll also be using 3D printers to manufacture much larger aircraft parts than now.

Therefore I’m convinced that in ten years our company will look very different from today. And I’m also convinced that digitalization will change the way we work and organize ourselves in the future. That will be the real revolution! We are experimenting already in several of our factories with new, shop-floor-based organization forms. For me, it’s fascinating to discuss this with the employees involved!

Do we need “European solutions” for handling “big data”? If so, what would those look like? Yes, I absolutely believe we do, and I can give you a very concrete example of what a European approach to handling big data looks like today: Airbus Group is working with academia and IT companies to harness the immense processing power of quantum computers. We’ve established a quantum computing cell at our Airbus Group Innovations site in Newport in the United Kingdom. Newport is one of our centers focused on cybersecurity R&D, and the quantum computing lab is currently in the early stages of development.

In a nutshell, quantum computing speeds up the computing process by using quantum physical phenomena rather than electrical transistors to process calculations. How does this apply to big data? Quantum computers will be able to process enormous amounts of data in a fraction of the time it takes for computers using transistors to do the same work. For some types of problems, to do the same task, it might take all the normal computers in the world working together for longer than the universe has existed. We’re not building a quantum computer ourselves currently. However, we are collaborating with academic and industry partners to define the algorithms necessary to utilize the immense potential of quantum technology.

What needs to be done by the EU and national governments? Which obstacles need to be cleared? Let me tell you what they should not do: They should neither “protect” companies nor push them in a certain direction. We also don’t need something like a “European Google”, funded by the governments in order to create the industrial structures or to define the strategy and the business areas. That’s the opposite of the creative atmosphere necessary for innovation in this sector.
I’m saying this as the boss of a European aerospace and defense giant which has challenged US dominance. However, there’s a big difference: The aerospace and defense business has very high barriers to entry. In the digital business, investment and size are not necessarily the main issues. It’s the entrepreneurial spirit we are lacking and that needs to be nurtured in lecture halls, classrooms, and start-ups.

Does Europe need a cultural shift – a sort of “mental reboot” – to accompany policy changes, and what would it entail? Yes, indeed. In Europe we tend to see threats instead of opportunities in every change. Big data is one example. This is why others reap the benefits of change rather than chase behind it. While we’re sitting idle, our competitors in other regions are coming up with new ideas and solutions to the challenges of the present – and implementing them quickly. For a continent and culture that once drove global innovation, Europe has declined into the 21^st century’s “late adopters”. But change will happen anyway, like it or not, so we better accept this fact and seize the new opportunities it creates.

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Sources: IFOP, Pew, IPSOS-Mori, infratest-dimap

Polling in Europe has reflected an awareness of this new normal. In Britain, 74 percent said that they expected a major terrorist attack to be committed in the UK in 2016, compared to 49 percent two years ago. In Germany, two thirds said in December that they were afraid that a terrorist attack would be carried out at some point in the immediate future, a number that has risen steadily since the terrorist attack in Paris in January 2015. Fifty-seven percent said that Germany is threatened by the “political situation” in the world. And in France itself, 98 percent responded on November 16 that the threat of terrorism was high, while 59 percent said that France was in a state of war. (This last figure dropped to 37 percent in mid-December – but 94 percent still said that the threat of terrorism was high.)

There is less consensus, however, about what to do to combat IS. Germans want to support French military operations against IS, but only up to a point: over half said that Germany should provide France military support, but when asked what that support should entail, only a third wanted Germany to play an active role in air strikes, while only a fifth approved of the use of German ground troops. The only option that won clear approval (59 percent) was German participation in reconnaissance and refueling missions. Seventy-four percent of Germans said more must be done to close security gaps, but 63 percent said that military operations would likely increase the threat of terrorism.

In the UK, popular opinion is steadily shifting against military operations in Syria entirely. While 59 percent approved of the RAF participating in air strikes targeting IS the week after the attack, that support has dwindled dramatically: only 44 percent said on December 3 that they would support the RAF participating in air strikes, while the number who opposed grew from a fifth to 36 percent. Britons were almost evenly split (42 percent to 37 percent) when asked if the UK and the United States should send ground troops into Syria. Part of the shift represents a domestic political battle: following a staunch anti-air strike campaign from Labor leader Jeremy Corbyn and a bruising fight in the House of Commons on December 1, Labor voters were the most likely to change their positions, going from 52 percent in favor of British participation in air strikes on November 24 to 51 percent opposed on December 3.

Meanwhile, in France, public opinion supports taking a number of dramatic steps to fight terrorism – both abroad and at home. Eighty-five percent said in November that they supported military operations against IS, and even in September, two months before the Paris attacks, 56 percent were willing to send French ground troops as part of a coalition force in Syria. Eighty-four percent were prepared to accept limitations on their personal freedom to improve security, 74 percent were in favor of immediate apprehension of people evaluated by the security services as dangerous (or under special observation), and, at the end of December, 85 percent said they would support rescinding the French citizenship of double citizens born in France convicted on charges of terrorism.

And what of the Americans, who will have to play a significant role if military operations in Syria are to escalate? Eighty-three percent said in early December that IS represented a “major threat” – compared to half who said the same of climate change and the rise of China and slightly over 60 percent who said the same of Iran’s nuclear program. Sixty-four percent approved of US military operations against IS, and 50 percent were more worried about the US doing too little in Syria, compared to only 42 percent who were concerned that the Americans would become too involved. At the same time, the nation was evenly split on the deployment of ground troops, with 47 percent favoring the option and 47 percent opposing.

While air strikes might be able to roll back the advance of IS, it is ground presence that will shape the post-war order in Syria. With the major transatlantic powers reluctant to send ground troops, that task will likely fall to regional powers already active in the country – including Iran, Hezbollah, the Kurds, and whatever Syrian opposition forces are left, friend or foe.

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Artwork: Dominik Herrmann

The United States also has an advantage when it comes to energy. The US produced more natural gas in the last year than Russia’s Gasprom, and more oil than Saudi Arabia. But Europe? We are still on the hunt for a reasonable energy strategy – one that envisages wind farms where there is wind and solar panels where there is sun, while creating a functional energy transfer network to ensure that the energy produced is available where it is needed. Until something changes: US 2; Europe 0.

Next up for consideration: capital resource strength. Microsoft, Google, Facebook, Amazon, and Apple are downright young companies, all between just 15 and 40 years of age. But their total stock market value in New York is twice as high as that of the top thirty German companies combined. Here we speak of € 30-90 billion capitalization; there, it is $300-600 billion. Sorry, Europe – 3:0.

How about digital superiority? It is a category where we have our strengths: Sweden’s Ericsson, France’s Alcatel-Lucent, and Germany’s own SAP, based in Walldorf. Bosch was producing mobile telephones 15 years ago, Siemens just ten. Global leader Nokia held a 50 percent worldwide market share just five years ago. (The company has since been purchased by Microsoft.) The cell phones of yesterday, however, have morphed into the smartphones of today, produced by Samsung, LG, or Apple. They use data from across the planet, and today whoever has the data has the power. Germany may have SAP, good universities, and a roaring Berlin start-up scene, but we have lost the IT leader race.

With a score of 0:4, then, Europe is desperately in need of a comeback – a push for “Industrie 4.0.” The wrestling match to establish a decisive role in industrially significant digital platforms has already begun, and the winner could walk away with market dominance similar to what we are already familiar with on the web. Europe’s industry has no choice but to contribute substantially to the development of the next generation of digital platforms – the ones that will replace today’s search engines, operating systems, and social networks.

Such digital technologies will change existing business models significantly, upending established industries like the automobile industry along with the cultural and artistic industries. Value-added chains will continue to evolve; the borders between products and services will blur. So-called intelligent products with internet connectivity will become significant not only for their functionality, reliability, and adaptability, but also for the way in which they will change the behavior of consumers themselves – the automated car will likely prove an excellent example.

The Americans have a clear strategy: they want to push this reindustrialization forward on the backs of low energy prices and existing digital services, thereby carving out an overall economic leadership role from a place of digital superiority. And nothing against our allies, but this strategy ultimately harms Germany.

Take the auto industry as an example. The worst-case scenario in ten years would look something like this: car bodies are no longer produced from sheets of steel or aluminum, but rather from carbon produced in the US. This alone would result in a loss of a serious amount of demand for German machine tool manufacturing. Batteries are produced in Asia. And an electric motor doesn’t need gears – further bad news for the German auto parts industry. Finally, the digital components are naturally produced in Silicon Valley. German industry is facing a terminal diagnosis – it just doesn’t know it yet.

All of Europe Is Afflicted

The links in today’s value-added chains connect all of Europe; combined with advancing industrial digitalization, this means no single country can solve these problems alone. Yet massive gaps exist between various EU member states, between high-tech industries and traditional sectors, and between large corporations and small and medium-sized enterprises when it comes to the use of digital technologies.

Just 1.7 percent of all businesses in Europe use digital technologies to their full extent, and 41 percent of companies do not use them at all. The former number needs to rise at least to 30 percent should European industry hope to be any match for its international competition. And we need a wave of digital innovation – and not only in high-tech fields, but also in traditional sectors like agriculture and food production.

Such initiatives already exist to a certain degree, they simply need to be Europeanized: Germany’s “Industrie 4.0”, the Netherlands’ “smart industry”, France’s “Usine du Futur”, the UK’s “industrial strategy”, and Sweden’s “Produktion2020”. The problem now is less about integrating more digital technology on a national scale – within German or Swedish industry, for example – and more about pan-European adoption. The consolidation of these initiatives under an EU roof would not only ease the exchange of valuable experience while minimizing the risks for each country individually, it would also lead to the creation of a single EU standard that would enjoy worldwide acceptance. In fact, Europe is already well-positioned to play a leading role: it is already a market leader in industrial robot technologies and automated manufacture (30 percent global market share), in embedded digital systems and product design software (33 percent), and in 3D- and laser-based manufacture (25 to 40 percent).

Comprehensive Broadband Coverage

For a European Industry 4.0 strategy, we first need a reliable digital infrastructure, and that means comprehensive broadband coverage. Connected cars, automated driving – these can function only with 5G networks and a pan-European infrastructure, one that spans from large cities to villages. Any small town without broadband is doomed. Its demise lies not in the opening of the nth bypass road, but rather in its lack of invisible investment: satellite, wireless, and broadband networks. This will be our generation’s challenge.

It does not matter whether we are talking about eHealth, digital surgery, automated driving, machine-to-machine communication, or factory 4.0 innovations; the amount of data we will need to transport is poised to explode – and not on a linear basis, but rather an exponential one. We need speed, we need quality, we need capacity. We shouldn’t talk in terms of 3 MB/sec, nor even of 30 or 50, but rather 100 to 1000 MB/sec. We do not have 30 years to achieve this, either – we must be ready in the next five to eight years.

Here we must also include targeted investment in research and development. On the EU level, we have budgeted € 1.5 billion per year for digital technologies and industrial digitalization. Yet if we want to digitize industry Europe-wide, we will need the support of the member states. They must invest on a massive scale in the expansion of their digital competency and knowledge centers, as well as open the door to digital integration in small- and medium-sized enterprises. Investment by member states and regions must reach at least ten times the level of EU funding in order to bear real fruit.

In the end, it is not only the production of information and communications technology itself whose value is significantly influenced by digital technologies; in the digital factory, investment releases stifled potential, creating space for creativity, productivity, and greater resource efficiency.

Digital Competency Gaps

This leads us to the second point: education. Digitalization will create new, highly specialized jobs, while at the same time eliminating many others – in administration and management, for example. The need for new, well-trained workers in industries like big-data analysis, cybersecurity, and cloud computing is growing massively at the moment. Yet the digital skills gap in Europe is increasing: this year alone 500,000 expert positions will go unfilled. Creativity, communication skills, and the ability to learn new production methods are becoming increasingly important, and it’s high time that they appear on university syllabi.

The Germans, on average eight years older than Americans, are burdened by nearly an additional half-generation of non-digital natives. Continuing education would help – Germans already in the workforce may never become IT specialists, but the CEO, the toolmaker, the factory foreman, the bookstore owner, and the master butcher could become more productive with the acquisition of digital skills. This is the only way we can ever overcome our deficit compared with the US in the medium or long term.

Warnings, Punishments, and Expulsions

Third, we need comprehensive, systematic data security. We created and saved as much data in the past two years as in the entire history of mankind until that point. We must expect that data volumes will continue to increase by 60 percent annually. In Germany, this has led to (justified) greater concerns over data security, but we must remember that any location prioritizing perfect and comprehensive data security is no longer an attractive location for data use and storage. Big data and data security are not necessarily mutually exclusive, but a pragmatic balance of their interests must be achieved.

Furthermore, this balance must be a work of pan-European cooperation – while many things can be resolved nationally, the idea of national digital policy is absurd today. When I took office in Baden-Württemberg’s state parliament in 1984, we had just negotiated our first statewide data security law. Does anyone today still believe that such a law can protect their data? Baden-Württemberg’s data security law will neither be observed by Facebook, nor translated, nor applied, nor utilized as precedent – it will land in the trash bin. As long as Europe has 28 fragmented data security silos, Apple, Facebook, and Amazon will continue to shop around and settle for the country with the laxest data security laws available. They will suck up European data, save it, and sell it.

The only thing that could help in such a case is Europe-wide data security regulation. If the basic data security ordinance introduced by Viviane Reding two and a half years ago were finally enacted, then we would have the ability to go after those skirting our data protection laws in the name of competitiveness with warnings, punishments, and ultimately expulsions. Microsoft already knows this drill, and Google will soon learn it.

Digital infrastructure and digital networks are per se porous. The question is whether the gaps are so large as to allow data theft or even industrial espionage. Industry 4.0 cannot function without cloud computing, but small and medium-sized enterprises will not load their data onto the cloud until they can trust that no one can access it without their permission. For this reason Brussels has made its first attempt at a European standard for data security, the so-called Network and Information Security Directive. So far, only small member states like Malta and Cyprus have signed on – they know they are too small to protect their own data security interests. The large member states have yet to understand this.

It is also a matter of sensitivity. In Europe, we enjoy a high level of job security, as well as a sensitivity to the requirements of workplace protections. But when it comes to data, our sensitivity drops to zero. Every one of us can do more to prevent data theft. Our energy infrastructure, our traffic control centers, our airspace control: every single one of these is highly vulnerable without requiring the bodily sacrifice of a single terrorist. To avoid becoming the Achilles’ heel of our democratic, free market, liberal economies, public infrastructure will require the highest level of data security. Only a Europeanization of digital policy offers the level of defense needed in order to reestablish competitiveness with the US and South Korea. In making this happen, German industry and German politics will play an important role.

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The notion of competitiveness currently en vogue applies business concepts such as profits and competition to countries and international trade. For firms, competitiveness is relatively simple to explain: companies compete with each other, in part on price, in part on quality and innovation. The winners of this competition make a profit, while the losers rethink their strategy – or go out of business.

False (and not so False) Analogies

For countries, almost none of this applies. Countries do not make profits. A trade surplus, often understood as a kind of national profit, is not a profit at all: First, a trade surplus simply means that a country has consumed and invested less than it has produced – some of the production was shipped abroad without a direct compensation in the form of imports. The revenue from the export surplus was thus reinvested abroad. Instead of a profit, a trade surplus simply represents a capital export. Second, by definition all trade surpluses in the world need to sum to zero, because the world as a whole cannot run a trade surplus. Treating trade surpluses as “profits” would imply that world profits are zero, which is absurd.

As for price competition, the analogy between a country and a firm is misleading. Prices matter for competition, and countries can help their export industries with an undervalued currency, for example, or by suppressing wages. But both approaches carry costs. Lowered exchange rates and suppressed wages reduce real domestic incomes and hence the economic well-being of citizens. Second, such a strategy is founded upon depressed demand at home, for which the rest of the world needs to compensate, often through unsustainable booms in consumption, investment or credit. The last few years clearly show how costly this strategy is over the medium term, for a supposedly “competitive” country. Since the early 2000s, Germany’s economy has relied increasingly on foreign demand – financed by German capital exports. It has lost almost half a trillion euros on its foreign investments since the onset of the crisis. Gaining price competitiveness is therefore not a winning strategy, and can hardly be at the core of any reasonable definition of competitiveness.

The final analogy between a country and a company concerns quality: producing better or more goods and services with fewer inputs. Economists call this productivity, and it is a well-defined and important concept. A competitive country in this sense is a productive country that manages to combine the factors of production in the most efficient way possible, thereby also creating incentives for more investment. As a result, its citizens are economically better off. To define competitiveness as productivity thus comes closer to a proper definition of the term competitiveness, as it could be applied to countries.

The World Economic Forum (WEF) defines competitiveness as “the set of institutions, policies and factors that determine the level of productivity of a country.” State institutions, labour and financial markets, infrastructure and education, and many other things interact to make a country productive, and hence competitive; and it is in all of these areas that countries need to invest both money and political effort to become more competitive.

What an Index Cannot Tell Us

An index such as the one used in the WEF’s global competitiveness report is a useful starting point for measuring competitiveness. But taking the WEF’s approach to competitiveness as a policy guideline for Europe has three important drawbacks.

First, the best mix of policies to make a country more productive may vary from country to country, even when these countries are at similar stages of development. The reason is that no country will ever have a perfectly competitive, first-best set of institutions, policies, and factors – if such a first-best even exists. Becoming more competitive therefore means changing a highly imperfect and country-specific set of institutions, rules, and constraints. In such a “second-best” world, it does not automatically follow that a policy to move towards, say, a more liberal product market automatically leads to a more productive economy. Other constraints could stand in the way, for example a lack of funding for expanding firms that could make use of more liberal product markets. In such a second-best setting, it is very difficult to determine the correct sequence of reforms, and whether they are compatible with other institutions in an economy.

The second drawback is that the macroeconomic context matters for the success of reforms, and hence their impact on productivity. The most well-intentioned structural reforms, implemented at the wrong time, can fail to generate economic growth or even make matters worse. For example, labour market liberalizations in the midst of a downturn can exacerbate a drop in demand unless exports pick up the slack. Conversely, minor structural reforms, such as Germany’s labor market overhaul in the early 2000s, can work very well if implemented just before a worldwide economic boom. This notion is particularly relevant for the eurozone: the current lack of demand requires a laser-like focus on structural reforms in areas that can immediately unleash investment without hurting demand further and thus reinforcing deflation.

Finally, improving competitiveness is not a goal, but rather a process. A country needs to constantly reassess its policies and institutions and target reforms at the most binding constraints limiting productivity growth, whatever those might be at the time. The best forum for this constant deliberation is a well-functioning, pluralist democracy.

Steps to Be Taken

Such a comprehensive concept of competitiveness would suggest certain steps in Europe as a whole and in the individual member states.

At the European level, the acute lack of demand, especially in the eurozone, makes it hard for structural reforms to pay off; the European Central Bank needs to be bolder in its monetary policy, and Europe needs to rethink its fiscal policies to ensure sufficient aggregate demand.

Moreover, companies need access to a deep pool of financing, both equity and debt, that only a Europe-wide capital market and banking system could provide. Without adequate funding, firms cannot easily invest to take advantage of newly opened markets or new innovations. Firms that grow strongly (and thereby create the most jobs) and innovative new firms often have particular trouble financing their expansion in Europe, as they lack the collateral to convince banks to fund them, and equity financing and venture capital markets are underdeveloped in Europe.

To increase productivity, European policymakers should focus on areas where a larger market size and increased competition between firms can boost investment and innovation – and thus productivity. One example would be tradable services. Here, Europe has lagged the US in terms of productivity growth for more than a decade.

Finally, the EU should agree on stronger democracy-enhancing reforms and initiatives, such as common enforceable standards for a fair and transparent justice system and support for a free and pluralistic press, areas in which the member states vary dramatically at the moment. The EU could also use its competition and consumer protection tools more aggressively to tackle national vested interests.

At the national level, European countries need to ensure that their tax systems support a meritocratic and risk-taking society. For example, taxing inherited wealth or land more strongly to finance favorable tax treatments for start-ups and proper entrepreneurial risk-taking would boost Europe’s innovative capacity. Member states should end the favorable tax treatment of debt relative to equity to encourage more innovation-friendly equity financing of firms. Tax incentives for private investment should also be stronger during a downturn to encourage investment when the economy most needs it.

In addition, states should invest more in research and development with the explicit aim of maximizing innovation Given current low interest rates and weak demand, it is also in most countries’ interests to spend more on public investment like infrastructure. In combination with other reforms, such investment would generate high returns for many European countries, particularly those that have invested very little in recent years, such as Germany.

In order to become more competitive Europe should stop using the word competitiveness; it is a nebulous concept, too vague to guide policy and easily misused by interest groups to push for policies that serve the few rather than the many. Instead, Europe should focus on productivity growth and ask how best to achieve it. The answer will be much more complex than the word competitiveness suggests.

N.B. A slightly longer version of this original article can be found on the Center for European Reform’s (CER) website.

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The ringleader of the Paris attacks, Abdelhamid Abaaoud, travelled freely within Europe and back and forth to Syria. For instance, he was allowed to fly from Cologne to Istanbul in January 2014 even though there was a Belgian alert notice. What went wrong? Abaaoud appears to have been under intermittent surveillance by the authorities, such as when Belgian authorities tipped off their Greek counterparts in January about his likely presence in Athens. Greek police then raided an apartment where Abaaoud may have been, but there was no trace of him. However, the surveillance appears not to have been systematic, and his travel would also have been aided by the borderless nature of the Schengen zone, meaning that he appears to have enjoyed an operational advantage in countering any surveillance. There also appear to have been some failures in sharing operational intelligence and information between national security services.

There were the attacks on Charlie Hebdo and a kosher supermarket in January, and at least two failed attempts over the summer – on a church in Villejuif, and in the Amsterdam-Paris Eurostar train. Were French and European authorities not alert enough? Our baseline assessment is that the scale of the jihadist threat facing Europe – in terms of numbers of active and potentially willing militants – now exceeds the capabilities of most European security services to carry out comprehensive surveillance and assessment. Under these circumstances, it is inevitable that a number of plots will come to fruition, or will be foiled by luck near the point of execution. It is also entirely feasible – although there is no direct evidence as yet – that small plots such as the Villejuif church attack and the Eurostar attempted shootings were actually an intentional stratagem by the jihadists to distract the authorities from the much larger and more “spectacular” Paris attacks. The massive amount of “chatter” intercepted by intelligence services means that accurate prioritization of plots likely to succeed necessarily involves a degree of subjective assessment.

Is it more a hardware or a software problem? Do the intelligence services have the right (surveillance) tools, or is there a lack of understanding of the so-called Islamic State and how IS jihadis operate? The problem is largely not one of hardware or software: most of Europe’s security services have the requisite technical ability to monitor jihadists, with legal frameworks in place. Some deficiencies have been noted, leading to reforms after the Paris attacks – such as new databases and financing in Belgium, as well as the expansion of search and detention powers, alongside new counterterrorism legislation in France that includes bolstered powers for data collection and intrusive surveillance and an increase in personnel dedicated to counterterrorism. The basic problem is the substantial scale of the threat, which is not matched by the necessary human resources within most security services to carry out analysis and assessment. Moreover, the problem is compounded in Belgium – a key center for jihadist activity – by the country’s complex federalist structure, multiplicity of police services, and its relatively small security service also keeping tabs on more “traditional” targets in the major international city of Brussels. In sum, the issue is one of the threat likely now being greater than the deployable security resources.

Over 5,000 fighters from Europe have joined IS, compared to about a hundred from the United States. Where is the real failure – our intelligence concerning their activities, or our inability to prevent radicalization? The effort to prevent radicalization has largely lost ground in recent years to the Islamic State in particular due to the jihadists’ effective use of social media. Many models analyzing the radicalization of young people predate the explosion of Twitter onto the social media scene and are now outdated, since they assume the physical presence of an individual who guides the radicalization process (extremist imam, fellow prisoner, etc). Most of that radicalization now happens online. Moreover, since the Edward Snowden revelations, a lot of jihadists appear to have increased their operational security online by using legal encrypted chat applications such as Surespot, Wickr, and Telegram, even though this was also happening before. In short, the online government response through counterradicalization narratives has been comprehensively outmaneuvered by the Islamic State, which moves to get potential recruits off open media and onto encrypted channels as quickly as possible.

Are we really doing worse than the US when it comes to fighting homegrown terrorism? If so, why? There are certain countries in Europe, such as Bosnia, Belgium, Kosovo, and France, from which a high pro capita number of jihadists travel to the Iraq and Syria battlefields, and this certainly suggests that efforts to counter homegrown terrorism have been less successful than in the US. There are likely to be several reasons for this, including a more integrated and affluent Muslim community within the US that identifies with US nationality, greater levels of disenfranchisement among Muslim youths in many European countries, and easier physical access to the principal jihadist theater in Syria. That said, and even though the risk of a successful “swarming” attack in the US is almost certainly lower than in Europe, we shouldn’t lose sight of the fact that the US remains a key target for extremists from both the Islamic State and Al-Qaeda (witness the 9/11 attacks), and there is therefore little room for complacency.

After the Paris attacks, there have been calls for improved collaboration between existing European intelligence services; Schengen seems to make this an obvious requirement. Why are EU intelligence agencies still so reluctant to work together? And how could they cooperate better? EU intelligence agencies are not, on the whole, reluctant to work together – this is a media myth. On any given day, numerous joint operations will be running in various bilateral, trilateral or multilateral formats according to the “need to know” principle, and operational intelligence is routinely shared where a common threat has been identified. The reluctance in EU agencies is to share operational intelligence (as opposed to assessed strategic intelligence) at a multilateral institutional level – such as the EU, Europol, or NATO – given concerns about handling and potential leakage.

Tracking suspects is personnel-intensive. Do European intelligence services have enough manpower? No Western democracy will ever have the necessary ratio of security/police personnel per capita to ensure total surveillance of all suspects and to prevent all terrorist attacks; that would necessitate a police state surpassing even the former East German Stasi. The challenge for national authorities is to ensure that suspects are accurately prioritized and given the necessary level of surveillance, in line with personnel availability, and that is where the Paris attacks have shown that counterterrorism manning in both Belgium and France, is probably less than it now needs to be.

The Paris attacks have spurred calls for a central European intelligence agency. Would such an agency really improve our security? Or would we create a paper tiger? There is already a central EU body charged with collating strategic intelligence from EU states and producing threat assessments for EU policymakers – the EU Intelligence Analysis Centre (INTCEN) based in Brussels. However, INTCEN does not direct its own operations or carry out intelligence collection, which remain the prerogative of nation-states. As things stand at the moment, a central EU intelligence agency would be highly unlikely to improve security, given that the nature of the threat differs between states – and states are therefore best-placed to carry out their own assessments and allocation of targeting priorities. Moreover, different states have different intelligence capabilities and histories of handling classified information, meaning that pooling sensitive intelligence at an EU-28 level is not going to happen any time soon.

Expenditures on police forces, surveillance, internal intelligence, and counterterrorism have risen over the last decade, while defense spending has gone down almost everywhere across the EU. The US has long seen the lack of European military spending – and a lack of engagement when it comes to stabilizing countries in Europe’s neighborhood – as the real reason for the heightened terrorism threat. Is Washington right? The issue of European states’ defense spending has long been a transatlantic bugbear, with only a handful of European states meeting the NATO target of spending 2 percent of GDP on defense. Yet the internal response to terrorist threats needs to come largely from a non-military perspective, accepting that conventional military operations to degrade the Islamic State (such as airstrikes in Iraq and Syria) will largely be ad hoc decisions by the more militarily powerful European states. Where European states arguably need to be smarter is in directing some of their finite defense resources towards procuring kit with a counterterrorism application, such as drones, and burden-sharing on the development and procurement of intercompatible high-cost platforms. This is now complicated by the resurgence of Russian assertiveness in foreign policy, which means that any tilt toward defense procurement in asymmetric warfare also needs to be balanced against more traditional interstate considerations.

How, in your view, will IS react to being fought harder? Drawing the West more closely into military engagement is precisely what the Islamic State wants. It feeds into their narrative of the West as aggressor; civilians will be killed as a result of Western airstrikes and this will be exploited for propaganda purposes on social media; and military intervention remains unpopular with large segments of European populations. We have seen the Islamic State expanding substantially in the past year through its wilayat (province) model, and a further expansion is likely before any rollback starts to take place. Countries to watch include Libya, which is likely to be a locus for future Islamic State activities, and Morocco, which has contributed a large number of participants to the battlefield in Syria and which has avoided major attacks in the last 18 months only because of its relatively efficient security services.

It is often said that “there is no military solution to IS” – do you agree? And what else is needed? There is indeed no uniquely military solution to the problem – to retake Raqqa, for instance, would require a substantial military ground force that is currently not in the cards. Many politicians talk of a “generational struggle”, and I think that’s largely the case. What is needed is a much more coordinated and comprehensive roll-out of so-called “counter-narratives” on social media to dissuade potential recruits, and that requires theological engagement to debunk some of the Islamic State’s doctrinal justifications for its actions. Increasing security budgets and manpower may help to mitigate the threat somewhat, but they do nothing to challenge the Islamic State’s powerful appeal to susceptible youths.

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The Bundeswehr operation is being undertaken in the framework of an alliance against terror, an alliance that is meant to fight and diminish the so-called Islamic State (IS), but not really to end the civil war. Combatting IS, however, should be only one element – albeit an important one – of a comprehensive strategy to end the war and to establish a post-war order in Syria. And the latter must be approached in steps: it is important that Bashar al-Assad will no longer be the head of a future Syrian government. When that is accomplished, a strategy for the reconstruction and stabilization of Syria must be implemented – otherwise any anti-terror strategy will only be tilting at windmills, as Islamic fundamentalism will continue to feed off ongoing conflicts in the region’s several failed states.

The current military activity is not entirely without logic; but unless this anti-terror operation is paired with a regional peace and rehabilitation strategy, it will not pacify the region or contain terror in the medium- or long-term.

That said, rebuilding Syria will cost a great deal of money. Syria is a devastated country. But we don’t have the luxury to decide if we want to take on another nation-building project post-Afghanistan; there is simply no alternative here. Along with the problems created by Russia’s actions in Ukraine, the war in Syria is yet another fundamental, perhaps even historic threat to the European Unionʼs cohesion and existence.

In the first EU security strategy paper released in 2003, it was stressed that the EU should strive to establish a “ring of well-governed states” to the East and to the South. We have such a ring – but only as long as we are talking about current or near-future EU member states. Even there, we have not yet exactly achieved our goal.

The reality is that the vision of the European Union established 12 years ago – a union that would be surrounded by a cordon of stability, growing prosperity, and cooperation, both with the Mediterranean countries in the South and South East and the post-Soviet countries in the East – has broken down completely. Thus the question of Syria must be tied into a broader review of European security planning. It is time to revise the previous strategy, and to ask what went wrong and why.

If the EU wants to claim and show that it has a common foreign policy, it must do more than provide a selective response to a terrorist attack in Paris. This will be the great task of the EU over the coming years – developing a long-term strategy, for which a great deal of resources and engagement will be required aside from funds needed for military engagements.

Because of the relative withdrawal of the United States, there is a certain vacuum in the MENA region that is being filled by Russia and Iran, whose position have grown even stronger. That may lead to new rivalries in the region, rather than greater stability. Since other actors are not in a position to play the role of regional stabilizers, the EU should help establish a security architecture for the Middle East. We are now dealing with problems that touch on our own security interests rendering a comprehensive European strategy – one that encompasses European financial and development resources, along with military cooperation – absolutely necessary. The EU will also have to be able to act (with others) in certain areas to establish a deterrent capacity, and through it to establish stability.

Which elements might such an approach entail? One, though perhaps not the most decisive, is greater concentration of national security competencies at the EU level.

The December 2013 European Council focused on EU security and defense policy; the resulting paper was titled “Defense Matters”. One does not need to read the rest; it contained very few real commitments to undergird this proclamation. The EU has thus far not considered it necessary to actually pursue its objectives in this area, including the development and completion of a common foreign policy. The Lisbon Treaty, which in theory laid the groundwork for this, can serve as the basis for further integration steps – and for strengthening the role and visibility of the pertinent European institutions. This refers to, in particular, the role of the Council President and the High Representative for Foreign Affairs and Security Policy.

What we have experienced – and not just in the financial and Euro crises, but also in foreign policy disputes with Russia and the various crises in the MENA region – is not a common policy, but intergovernmental approaches. And one only rarely sees any inclination to transfer these jobs to EU bodies.

If Berlin is to take on a leading role – a desire expressed both within and outside Germany – it cannot and should not simply provide a direction for the rest of Europe to follow. There are better ways for Germany to play the role of a leader: the Federal Republic could put its foreign policy weight behind strengthening the visibility, credibility, and capability of the European Union as a whole. It is regrettable that, despite four years of failure in the Middle East and several hundred thousand casualties, it required a decision by the United States and Russia to convene the peace conference in Vienna – why were the EU Council President and the President of the Commission not empowered months ago to invite the concerned parties themselves, in the name of 500 million Europeans?

After all, the population of the entire Russian Federation is not even a third that of the European Union – Russia only remains a great power due to its military capacities in certain limited areas.

Germany should therefore throw its weight and its credibility as a non-nuclear weapons power and its credibility of not being a permanent member of the United Nations Security Council behind an effort to achieve an EU foreign policy that is more than intergovernmental. This could be Germanyʼs great potential contribution to the future of Europe – and German citizens should also recognize that this is one area in which “more Europe” will not simply mean greater budgetary contribution. Quite the opposite: through a more unified European foreign policy, crises can be managed more effectively, even saving money, as the member states could avoid duplicating expenditures in areas like defense and equipment, among many others.

This does not yet mean taking the leap and forming a European army; it makes more sense to keep more feasible steps in mind, such as more comprehensive pooling and sharing and the avoidance of doubling capacities. The budgetary contributions of the 28 EU members amount to almost half of US defense expenditures – but the EU produces only about 10 percent of the United States’ combat power. What a waste of resources, year after year!

Coming back to Syria, the approach adopted by the Vienna Conference is sound: but the EU should play the leading role in this process, instead of a supporting one.

For the EU, regional stability needs to be one of its key goals – including a balancing arrangement between Saudi Arabia and Iran. Russia obviously has its own interests in the process. Regarding this last point, criticism should not be aimed at Russia for defining and defending its own interests, but rather at the means it uses to achieve them. The fact that Russia wants to be directly involved in establishing a post-war order in Syria, rather than being locked out like in the cases of Iraq or Libya, is not unacceptable.

This Vienna Process offers a chance to not just lay the groundwork for peace in Syria specifically, but to go further and develop a shared understanding of how the various actors in the region should deal with one another in the future.

In the long term, this region needs something like a Helsinki Process. The Helsinki principles were controversial in Europe, yet it was possible to codify them in 1975. There is of course no guarantee that such rules will always be observed. In Europe, they were openly violated in the recent Ukrainian crisis. Yet rules of conduct are useful, even if they are occasionally bent or broken.

The development of a rule book in the MENA region should be one of our strategic long-term goals. In light of the continuing wars in Syria, Libya, Yemen, and other countries, that may seem like a pipe dream at the moment; yet this vision should not be ignored or forgotten as the Vienna process is driven forward.

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François Hollande talks of war, deploying an aircraft carrier within a few days of the terrorist attacks in Paris and strengthening the French army’s air campaign against the so-called Islamic State (IS). Angela Merkel, meanwhile, promises to provide “all feasible support;” and while “all feasible support” sounds by no means indecisive, the formulation conveys her conviction that the fight to end jihadist terror and liberate Syria – and thus mitigate the flood of refugees – will require more than just military means.

“Decisionism” assumes that decisions are the means, measure, and goal of policy-making. In the worldview of a decisionist like Hollande, the present crises require quick decisions, while “false decisions” cause further crises – as Merkel’s decision to suspend Dublin II for a few days supposedly first triggered the refugee crisis.

Angela Merkel’s explanation of the refugee crisis is much simpler, and at the same time much more comprehensive. “The question of what resolution we want is just as important in this debate as the recognition that we do not live in a vacuum,” she said recently in an interview with the Frankfurter Allgemeine Zeitung. “We live in a world in which no country is sheltered from the crises and catastrophes in other regions, as perhaps they were fifty years ago.”

It was not the decision of a politician that triggered the refugee crisis; instead, the crisis can be traced back to a dynamic made up of many individual elements, including the unbearable situation in the countries of origin (and the refugee camps) and the expectation of receiving a reasonably friendly welcome in Europe, especially in Germany. The crisis drew on two further factors, which should not have come as surprises in this era of globalization and digital communication: first, a refugee economy, a market that adapted itself quickly and flexibly to meet a need, and which allowed not just professional transporters, but also anyone with knowledge of the migration routes and a boat or truck to play a role; and second, technology developed at Silicon Valley-level speed to transmit vital information over apps and websites about escape routes, transporters, approval periods for asylum applications in various European countries, and the conditions of shelters.

Long-Brewing Problems

Dynamics develop out of long-brewing, often easily recognizable problems, like the economic, political, and cultural stagnation in the Arab world or the corruption and kleptocracy in Ukraine, which had gone unchallenged for the past twenty years. It was never one bad policy that caused these crises, but rather the combined effects of many bad policies. It is, however, hard to say when a dynamic will finally boil over into a crisis; it is often a moment of self-emancipation, an “enough is enough”, as was finally the case in both the Arab world and Ukraine. These ground-level movements are not always democratic, either – IS is a ground-level movement, one that developed from the Iraqi civil war and advanced in Syria.

One does not need a crystal ball to see after the financial crisis, the uprisings in the Arab world, the crisis in Ukraine, the civil war in Syria, the strengthening of IS, and, above all, the refugee crisis, that there will be more long-brewing, fast-developing dynamics that demand our attention in the future.

The causes of a dynamic are unimportant to a decisionist like Hollande. He lacks the patience to untie complicated knots – or at least wishes to appear too decisive to be patient. He thinks in terms of legislative periods and opinion polls, and fears nothing more than to appear indecisive. The decisionist establishes an ultimatum – as did Horst Seehofer, who in October demanded Angela Merkel “end the waves of refugees by All Saints’ Day.” Or, like Hungarian Prime Minister Viktor Orbán, he has no patience to apply long-term tools to immediate crises. He wants solutions – and he wants them now. He does not rely on cooperation or consensus, because they take too much work. No wonder Horst Seehofer visited Orbán at the climax of the refugee crisis – decisionism unites them.

Don’t Disturb the Decisionist

Decisionism, however, is not only impatient – it is at its core autocratic, because it does not have room for those who want to change policy from below. When asked whether or not he understood that the Gezi Park demonstrators actually wanted nothing more than to participate in the shaping of their city, Turkish President Recep Tayyip Erdoğan answered full of consternation that he had already given the citizens of Istanbul a bridge over the Bosporus and a third airport, for which they should be thankful. It is, simply put, unacceptable to disturb the decisionist with unqualified backtalk. He knows what’s best for everyone.

Former KGB agent Vladimir Putin cannot imagine that protests – whether in Moscow, Kiev, or elsewhere – could be possible without the influence of some foreign enemy decisionist. He sets his own decisive actions against these (in his mind) externally directed dynamics – in this case the “heroic” annexation of Crimea.

Dynamism necessitates wide-ranging and concerted investigation of causes, and incorporates many factors when assembling a picture of an entire situation. Decisionism is the complete opposite – it crudely simplifies convoluted situations. Analysts have observed for some time now that Vladimir Putin surrounds himself exclusively with a small circle of advisors, refusing to accept input from different sources. In the Kremlin, lone decision-making and unilateral action rule, all the more so when other players, like the US and Europe, do not decide and act – as in the case of Syria.

Of course, for Putin, Russia’s intervention in Syria is really about the rescue of another once-strong decisionist, Bashar al-Assad. Aside from this relatively clear strategic goal, however, Putin seems to have gotten himself involved in this adventure without a deep understanding of the various actors in play. For anyone aside from Putin, Syria presents a complex puzzle: how can the interests of dozens of local groups – along with those of regional powers, wannabe superpowers, post-superpowers, and one-time colonial powers invested in the country – be reconciled? For a decisionist like Putin, these questions are hardly a concern at all.

In a 21st century of political, economic, and digital interconnection, however, decisionism may not be the most appropriate style of policy-making. Though it offers strong, aggressive solutions to urgent problems, it also risks phenomenal frustrations. If the refugee crisis is not immediately solved, the decisionist and his followers immediately begin to see democracy, the European project, and the entire Occident in danger – for the decisionist, each problem has its own switch, one that only turns on or off.

The Dynamist’s Mixing Board

But where the decisionist has a single switch, the dynamist uses a whole mixing board, one that can turn up the volume of some tools while muting the effects of others. The dynamist knows that they will never completely stop a dynamic, but hopes that, by applying many tools simultaneously, coordinated with each other if possible, they can steer it in a manageable direction. Dynamism is not about quick responses, but rather comprehensive and cooperative action oriented towards the long-term future. In the case of the refugee crisis, that means close cooperation between the chancellery and the various ministries, along with the federal states, communities, European neighbors, and Brussels, on national, European, and global levels, to find cooperative solutions – from the basic construction of refugee homes to ideas for ending the Syrian conflict.

A new realism does not necessarily mean a conflict between values and interests. Instead, it means recognizing dynamics, scaling down ambitions to the level of the possible, and, yes, working with a few unsavory partners to bring a little order. What is not sustainable in any way is an order that is achieved through rash interventions in the Middle East, or one that attempts to defend Arab autocrats at all costs. Orders are sustainable when they are flexible enough to accommodate internal dynamics; social contracts are sustainable when they guarantee a certain level of participation, and render “enough is enough” moments superfluous, or at least manageable.

The defining statement of Chief Dynamist Angela Merkel is not her now-emblematic “Wir schaffen das” (“We can manage this,” or, “We can do it”). Instead, it is her constant refusal to offer “Scheinlösungen”, or false solutions. Merkel, in her typically toned-down rhetoric, expressed it like this: “I want people in a few years to say that we have achieved something in an orderly manner in a complicated world.” That is today’s realism.

For centuries, Alexander the Great’s macho cutting of the Gordian Knot was considered the perfect example of decisive action. No one ever seems to remember that with this act a still-usable string was shredded, and the chariot of the Phrygian king irrepairably damaged. In the 21st century, a less heroic, perhaps even feminine ability is required: the patience to untangle.

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