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European AI competitiveness threatened by French political uncertainty

Paris (file photo)
Paris (file photo) Copyright Thomas Padilla/Copyright 2023 The AP. All rights reserved.
Copyright Thomas Padilla/Copyright 2023 The AP. All rights reserved.
By Tina Teng
Published on Updated
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The EU may further lose its artificial intelligence (AI) competitiveness to the US and China amid French political instability caused by the far-right’s stance on immigration controls and foreign investment restrictions.


European stock markets have been notably weaker than their US peers since the EU Parliamentary elections in the past two weeks.

While Wall Street repeatedly hit its all-time highs on an AI-led rally, benchmarks in Europe continued to be under pressure, highlighting dampened investment confidence in the regional market.

Aside from the political impact, another factor that made European markets less competitive is that the regional stocks are less weighed by technology components.

On monthly performance, France's CAC 40 tumbled 7.64%, the Euro Stoxx 50 slumped 3.74%, and Germany's DAX lost 3.7%. In contrast, the S&P 500 rose 3.37%, and Nasdaq rallied 6.34%. In Asia, major indices, such as the Hang Seng Index and ASX 200 are also higher for the month.

Most major stock markets followed Wall Street’s rally, which has been primarily driven by AI-related stocks. The US tech giants were particularly strong, with Nvidia, Apple, Broadcom, and Micron Technology up 47%, 13%, 29%, and 22% from last month, respectively.

In comparison, the European stock markets are much less weighed by technology companies but more by banks and energy companies. These sectors, however, have been significantly impacted by the political uncertainties, typically in the French banking stocks. Out of the ten most valuable companies in the S&P 500, eight are technology giants, while only two tech-focused companies are in the Euro Stoxx 600.

The divergent movements in the stock markets emphasise the ongoing challenges that the Eurozone has been facing – a lack of competitiveness in its technological advancements.

French political uncertainties post challenge for its AI ambition

France has become an AI hub in Europe in recent years, given its policies in supporting cutting-edge technology. The country has been fruiting from Emmanuel Macron’s tech ambition, with notable success in AI startups, such as Mistral AI and H. Macron prioritises support to tech companies, making it easier for them to employ skilled workers from overseas.

However, the French political jitters may challenge the country’s AI ambitions. The far-right party leader, Marine Le Pen, has called for a "France first" and protectionist agenda, including reducing migrant workers and imposing more scrutiny on foreign investments.

This stance poses risks to Emmanuel Macron’s plan to attract up to €15 billion in investment in fields including technology, artificial intelligence, and pharmaceuticals, which was announced at the annual “Choose France” summit a month ago.

At the summit, Microsoft announced it would invest €4 billion in France to operate a new data centre focused on artificial intelligence. Amazon also revealed a €1.2 billion investment plan for a data centre for its AWS cloud unit and a warehouse for retail operations. The main threat a far-right-led government could pose to these projects is the restriction on hiring qualified migrant workers, as Le Pen calls for a preference for domestic employment.

Hugo Weber, head of public affairs at e-commerce firm Mirakl, told Reuters that the National Rally party could undermine French startups’ ability to hire tech talent, particularly in AI.

Other factors that may limit Europe’s AI competitiveness

Other challenges that the Eurozone faces include regulatory issues and energy consumption for data centres.

The EU AI Act, which will come into force in July, outlines risks for prohibited AI systems, such as social scoring, manipulative or deceptive techniques, and the compilation of facial recognition databases.

Additionally, there are concerns that energy consumption in AI-focused data centres may lead to residential heating waste. Foreign projects will undoubtedly face challenges in meeting all regulatory requirements.

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