Days after it was discovered that a double agent working for Germany’s intelligence services was in the pay of the United States, it now transpires that another agent, this time in the Defense Ministry, was spying for Washington too, according to the federal prosecutor’s office.

The German public is furious. There was a hope that relations between Washington and Berlin were back on track after the NSA affair. Edward Snowden, a former contractor at the U.S. National Security Agency, had leaked documents that revealed how the agency had spied on German Chancellor Angela Merkel.

The latest scandal in Germany is not only about the extent of America’s snooping on its allies—anyone who believes that allies do not spy on each other is naive. The scandal also has a much deeper significance for Europe. It is about Europe’s dangerous dependence on the United States and, increasingly, on Asia. That reliance is so great that Europe could become a major loser in security and innovation in the twenty-first century.

Judy Dempsey
Dempsey is a nonresident senior fellow at Carnegie Europe and editor in chief of Strategic Europe.
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Europe is dependent on the United States on two counts. The first is security. Europe has relied on America’s security umbrella since 1945. Regardless of repeated calls by the United States for Europe to take on a much greater burden-sharing role, most European governments continue to turn a deaf ear.

That is despite the fact that European governments want to have their cake and eat it. They often complain that when it comes to conducting military missions, they are beholden to the United States. Yet they are not prepared to invest in the military capabilities that would give them the freedom and independence of action commensurate with Europe’s economic strength.

The second front on which Europe is overwhelmingly dependent on the United States—and, increasingly, on Asia—is communications and technology. Whether it be Google or Microsoft, Facebook or Apple, the technology that Europeans use is imported.

A few small European competitors, such as Nokia or SAP, do exist. But their market share is tiny, and dwindling, compared to the penetration of American companies in Europe and globally. Microsoft’s purchase of Nokia’s devices and services division earlier in 2014 left Europe with no representatives among the world’s top ten handset manufacturers, according to a study by consultants A.T. Kearney.

This dominance by the United States and Asia is beginning to hit European governments and consumers more and more because of the controversial issues of data protection and the NSA affair.

“The recent revelations about the U.S. National Security Agency’s clandestine electronic surveillance programs have highlighted the dangers of dependency on U.S. and Asian high tech players,” A.T. Kearney argues. Despite that, Europe is not in a position to protect itself against such spying because it lacks the technology and innovation to do so.

In the nineteenth century, Britain and Germany led the industrial revolutions. Until the Second World War, Europe led the world in innovation, mathematics, and science. Today, Germany excels in making superb cars and machine tools.

But can that leading role be sustained? By 2025, a car’s embedded software and electronics will account for 65 percent of its total value. That will require access to an innovative high-tech sector that, under present circumstances, Europe is unable to achieve.

Indeed, A.T. Kearney shows that Europe’s high-tech sector is declining in a way that will make it even more difficult for Europe to compete globally. Europe is already rapidly losing demand and market volume compared with the United States and Asia.

One reason for this is that markets in Europe are highly fragmented. Another is a shortage of funding. In 2012, Europe as a whole spent $4 billion on venture capital funding, against $20 billion in the United States. Europe also lacks engineers. Its share of students who take engineering, math, or computer sciences courses falls far behind the corresponding figures in Taiwan, China, or South Korea.

And Europe faces a demographic challenge, which governments have been slow to address. They lack a long-term strategy to make Europe a welcoming place for immigrants.

It’s not as if the European Union does not recognize this crisis. In December 2013, a report by the European Commission Directorate General for Research and Innovation showed that 70 percent of the world’s knowledge creation was taking place outside the EU. The report argued that the development of science and technology in Asia and the United States was more strategic than in the EU.

Both the United States and Asia are focused on transformative technologies oriented toward emerging global markets, according to the paper. In contrast, the EU’s technology assets are more focused on “established and traditional industries.”

The commission’s Horizon 2020 program is designed to support industrial leadership in key technologies. But even that, analysts believe, lacks a strategic master plan because it is not focused enough on stopping the decline of Europe’s high-tech sector. No wonder Europe is easy prey for foreign intelligence services.