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Brussels, 1 February 2011

Innovation – key issues for the European Council

Common action at the EU level can add real value by improving the framework conditions for research and innovation in the EU. The Europe 2020 flagship initiative on an Innovation Union describes how Europe can deliver real added-value to boost innovation. Europe must become an environment conducive to innovation, through effective standardisation, better use of intellectual property rights, innovation-friendly public procurement and measures to help small, innovative companies to secure financing. This memo outlines some of the key issues that are on the table of this week's European Council meeting.

What does the European Commission want from the European Council as far as innovation is concerned?

The Commission is calling for strong backing from EU leaders for the Innovation Union (IP/10/1288), which is a Europe 2020 flagship initiative presented for the first time by Commissioner Geoghegan-Quinn and Vice-President Tajani in October 2010 (see IP/10/1288, MEMO/10/473).

The Competitiveness Council has already adopted conclusions endorsing the initiative. The Commission believes that a personal commitment from the European Council is crucial to delivery.

The Innovation Union will be the key to post-crisis recovery and to addressing major societal challenges such as climate change, energy, food security, health and an ageing population.

What are the specific deliverables expected as a result of reforms in the research and innovation area?

Research and innovation are the most sustainable engines of economic and productive growth. New research and innovation reforms should particularly tackle fragmentation and major societal challenges such as energy supplies and greenhouse emissions, deliver the European Research Area, modernise education systems at all levels, and aim at much more simple management procedures.

What is the Innovation Union?

The Innovation Union is an integrated innovation strategy to make Europe a global powerhouse of cutting-edge research, increase the extent and the quality of public private cooperation and remove barriers that prevent ideas from getting to market.

It includes among other things action on access to finance for innovative companies; social innovation; innovation support systems; tackling market fragmentation; intellectual property; faster and better standard-setting; and public procurement as a driver of innovation.

For further detail on the Innovation Union, latest news and debates, see:

What are European Innovation Partnerships?

A centre-piece of the Innovation Union is the creation of European Innovation Partnerships, which will tackle together the whole research-development-innovation chain in one go, putting together all public and private stakeholders. Focusing on a specific societal challenge, they will both improve people's lives and help position Europe as a commercial world leader in the sectors concerned.

The pilot partnership will be on active and healthy ageing, and will aim to increase healthy life for Europeans by an average of two years by 2020. The pooling of excellence through European Innovation Partnerships will make a real difference, for example to tackle ageing-related diseases and to improve technology to allow older people to remain safely in their own homes for longer.

The Commission will be asking the European Council for full backing both for the pilot and for further Partnerships in areas such as transport, energy and sustainable agriculture.

What are the other key innovation policy areas on which the Commission will be asking for backing from the European Council?

The Innovation Union is an integrated policy rather than a menu from which to choose individual items. The innovation Union Scoreboard (see below) shows clearly that countries that lead Europe and the world on innovation score highly on all indicators and that a high performance in a few cannot compensate for mediocrity in others.

That said, the European Commission will be emphasising, as well as the Innovation Partnerships, two further areas to EU leaders. First, completing by 2014 an unified, European Research Area in which all actors, both public and private, can operate freely, forge alliances and gather critical mass in order to compete and cooperate on a global scale. And second, the need to mobilize public procurement as a driver of innovation. Public procurement accounts for some 17% of the EU's GDP. The Commission believes that from 2011, Member States and regions should set aside dedicated budgets for pre-commercial procurements and public procurements of innovative products and services. This should create procurement markets across the EU starting from at least €10 billion a year for innovations that improve the efficiency and quality of public services. The ambition should be to increase these levels over time towards the level in the US, which is around 50 billion dollars per year.

What is the Commission's view on public funding for research and innovation in times of austerity?

The European Commission will be emphasising the importance of smart fiscal consolidation which maintains or increases public investment in research and innovation and which also better targets that investment, in order to leverage more private funding.

Some Member States are acting on this principle: for example, Germany and France are increasing their investments in education and research: by 12bn Euro over 3 years and 22bn Euro over 5 years respectively.

The European Council should take urgent action in line with our commitment to raising public and private spending on R&D to at least 3% of GDP by 2020. A recent study shows that achieving this target could create 3.7 million jobs and increase annual GDP by up to €795 billion by 2025. In effect this alone could close 43% of the "growth gap" left by the crisis (in other words the difference between the growth scenario pre-crisis and the likely growth scenario now).

(Source: P. Zagamé, L. Soete (2010) The cost of a non-innovative Europe)

How is the Commission proposing to adapt EU research and innovation funding to the Innovation Union objectives?

The Commission will seek the European Council's broad endorsement for a radically new approach to EU research and innovation funding, bringing together current funding instruments under a Common Strategic Framework. The aim is to focus on Europe 2020 strategy and Innovation Union priorities and increase impact on growth and jobs. The new approach will offer a seamless set of financing instruments, both grants and loans, supporting the whole chain from blue sky research to demonstration and financing of SMEs

A key element will be radical simplification and harmonisation of rules and procedures across the board, building on the changes Commissioner Geoghegan-Quinn has already announced for the remainder of FP7 (see IP/11/57). This will attract the brightest scientists and most innovative companies and ensure that they spend less time on red tape. The Commission will shortly publish more detailed proposals in a Green Paper for consultation and will table a legislative proposal in late 2011.

How does the Innovation Union Scoreboard link to the European Council?

The first edition of newly revamped Innovation Union Scoreboard was presented on 1 February, highlighting once again the innovation emergency in Europe (see IP/11/114, MEMO/11/56). On ten of twelve comparable indicators, the US is ahead of Europe and China is catching up fast. The Scoreboard also compares performance between EU Member States, based on 25 indicators.

The Commission is asking Member States to ensure that their Europe 2020 National Reform Programmes build on the strengths identified in the Scoreboard and address the weaknesses.

What is the latest on the EU patent?

On 10th December 2010, the European Commission presented a proposal (IP/10/1714) opening the way for “enhanced cooperation” to create unitary patent protection in the EU. Such unitary patent protection would allow those Member States that so desired to agree to establish a patent, valid in all participating countries that could be obtained with a single application. The proposal is now being discussed by Member States and the European Parliament.

Will the Innovation Union benefit all Member States?

Yes. The Innovation Union aims to involve all regions to avoid an "innovation divide" between the strongest innovating regions and the others. A better use of the Structural Funds (€86 billion for the period 2007-2013) will have a critical role to play. The Commission will propose a framework for post 2013 Structural Funds with more focus on innovation. Already starting in 2010, the Innovation Union proposes that Member States considerably increase and improve their use of existing structural funds for research & innovation projects, helping people to acquire the necessary skills, improving the performance of national systems and implementing smart specialization strategies and trans-national projects. Funding overlapping projects should be avoided.

Is the Innovation Union the only Commission policy initiative on innovation?

No. Innovation in the sense meant by Europe 2020 is much broader: while it includes the Flagship, it also involves the Industrial Policy Flagship (IP/10/1434 and MEMO/10/532), the Digital Agenda (see IP/10/581, MEMO/10/199 and MEMO/10/200)., the Agenda for New Skills and Jobs (IP/10/1541 and MEMO/10/602) , the Annual Growth Survey (AGS) (IP/11/22 and MEMO/11/11), the Single Market Act ((IP/10/1390 and MEMO/10/525) and so on.

Some statistics

The EU will need at least 1 million new research jobs if it is to reach the R&D target of 3%. More researchers are needed primarily in the business sector (Source: European Commission (RTD-Eurostat)

Business R&D in the EU is 66% lower than the US and 122% lower than Japan, as a share of GDP (Eurostat)

We are spending 0.8% of GDP less than the US every year and 1.5% less than Japan on Research & Development (R&D).

In 2008, EU-27 accounted for 24% of the total world R&D expenditure against 33% for the USA, 12% for Japan and 11% for China (Source: STC Key Figures Report 2010/2011; primary data sources: Eurostat, OECD, DG ECFIN)

In real terms, R&D expenditure has increased by about 50% in the EU and 60% in the USA since 1995 but it has more than tripled in Asia-5 (China, Japan, South-Korea, Singapore, Taiwan). (Source: STC Key Figures Report 2010/2011; primary data sources: Eurostat, OECD, UNESCO)

Private firms investment in R&D should be in 2020 at least €150 billion more than in 2008 for EU to reach the Europe 2020 target of investing 3% of GDP in Research and & Development. Source: European Commission (RTD-Eurostat; primary source: Member States preliminary R&D intensity targets)

An SME must disburse €192.000 of legal fees to obtain and maintain a patent protection for all 27 EU Member States. It would cost only €4.400 for a protection of the same duration in the USA. (Source: European Patent Office (EPO) and EU National patent offices, US Patent and Trademark Office (USPTO)

Venture capital funds in Europe are at about a quarter of the level in the US ((2008 data from EVCA/ Eurostat)

To date, contributions for the Risk Sharing Facility Fund of €430 million from the EU budget and €800 million from the European Investment Bank, as risk-sharing partners, have supported over € 18 billion investments (15 times the combined contribution to the RSFF and 42 times the EU budget contribution). The €400 million contribution to the CIP financial instruments up to the end of 2009 has leveraged investments of €9 billion (22 times the budget contribution), benefiting some 68000 SMEs. (Source: EIF report to the European Commission on CIP )

The EU's Seventh Framework Programme for Research is the largest in the world with a budget of more than €53.5 billion for 2007-2013. There will be substantial year on year increases in available funding between 2011 and 2013.

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