by David Shaw
Political renewal is evolving priorities in Europe, inside and outside the EU. The opening of IBM’s first Quantum Data Center in Europe signals a new phase in quantum competition. Speaking at the launch of the new center, Olaf Scholz issued a rallying cry for those focused on building a quantum future based on collaboration and competition rather than national silos. How does Europe stand in the quantum race?
The Need for Growth
The vagaries of short term hype cycles aside, a wave of new technologies stand poised to define 21st century economies. The list varies: AI, quantum, bio-engineering, autonomy, space technologies and advanced materials typically figure prominently. Collectively known as deep tech, the technical uncertainties and potentially long timescales surrounding their development make these challenging areas, for policy makers and for investors.
Neither does the economic backdrop provide simplification. Deglobalization has seen a rise in economic nationalism. The challenge of climate change remains depressingly difficult to grasp. Geopolitical tension is increasingly spilling over into real regional conflicts. Migration is a political flash point.
Against this backdrop, countries in the West fear their economic lead is slipping, and traditional engines of growth are stalling. There is also no real consensus on policy responses. Can industrial strategy reignite a constructive spiral, or will it descend into destructive protectionism? Should it focus on supporting key technologies (see list above) or pursue more societal missions (specific objectives in climate, security or the environment)? How can the animal spirits of capitalism be harnessed to support this journey? Not just in funding startups, but also in intelligently steering the substantial funds needed to fund the scale-up of these technologies?
European countries in particular are waking up to the imperative of technology innovation to drive growth in an otherwise aging continent that simultaneously faces the major imperatives of decarbonisation and improving security. In a sweeping report on ‘The future of European competitiveness’, Mario Draghi has called for €800B per annum increased investment and a new innovation focussed industrial strategy for the EU. This envisages increased central EU coordination to mobilize the programme, ideally stimulated with new jointly issued EU debt. Elsewhere in Europe, Keir Starmer’s new UK government has identified growth as its own number one objective.
There are headwinds. Cautious Northern Europeans have traditionally resisted the direct EU borrowing that might fund major new investment. In some countries, those on the right retain a suspicion of industrial strategy, as a doomed attempt to ‘pick winners’. Even traditional champions like France find their current budgets constrained. In Germany, ever since the constitutional court’s decision to tightly interpret the country’s constitutional ‘debt brake’, Olaf Shultz’ coalition government has struggled for internal alignment and public popularity.
The Quantum Opportunity for Europe
What role can quantum technology play in helping Europe meet its ambitions? The promise here is strong. Based directly on our most fundamental science, quantum holds unique potential as a new general purpose technology, able to deliver impacts across a wide array of applications and industry sectors. It is naturally well positioned to support objectives in clean energy, better health, security and an improved environment. Crucially, Europe has real strengths.
Europe is the original home of quantum theory and boasts many strong academic institutions active in cutting edge research. It is strongly represented in many end-use industries that are ultimately expected to benefit from quantum technologies. In 2014, the UK (then still part of the EU) launched the world’s first national quantum program, The EU later launched its own €1B Quantum Flagship initiative in 2017 (set to run for 10 years); a clutch of national initiatives followed in other member states. EU programs such as Horizon Europe, EuroQCI, EuroHPC and more recently the EU Chips Act have sought to promote joint action (and significantly expanded spending). Beyond the EU, the European Space Agency (ESA) provides a natural focus for space elements. QuIC as an industry association is increasingly prominent in providing industry participants with their own voice.
However, challenges remain. After 2021, the technology-led flagship focus of Horizon 2020 was not carried forward to Horizon Europe, which instead was oriented around societal missions. The Quantum Flagship continued, but perhaps lost some of the prominence it might have enjoyed. Achieving real coordination across national quantum programs has also been elusive. Resources can seem spread thin across national interests rather than providing focus and scale. Multiple centers are being propped-up in national and regional competition to host nascent ecosystems. ESA illustrates the most extreme version of this, where geographical return rules means funds must be spent in proportion within each contributing nation.
Other policy objectives have also been at play. A consistent theme has been the EU’s desire for technological sovereignty: avoiding dependence on supply chains outside its borders, both in China and the US. This has been combined with what has increasingly seemed an antagonistic relationship with US Big Tech. The EU has sought to exploit its ability to lead on regulation, but many consider its recent initiatives on AI to simply hinder rather than guide the development of this important new technology within its borders.
Much has been written about the effects of Brexit on the UK. In the domain of quantum technology the reverse is also evident. Britain’s absence from Horizon Europe severely depressed collaboration with many strong UK institutes. The UK boasts 4 universities in the world top 10, all with leading quantum tech research activities, The UK quantum program, now in its 10th year, is the world’s most mature and unarguably a great success. London, though facing its own challenges, remains Europe’s most credible and deepest capital market. The continuing exclusion of the UK from terrestrial Horizon Europe quantum work programmes, even after the UK obtained associate country status, can only be interpreted as flowing from the hardest of lines on technological sovereignty. A lack of ambition for collaboration with the US likewise.
Other factors have started to act as a counterweight to these forces pulling apart Western collaboration. War in Ukraine has focussed European governments again on the need for collective security. NATO has been active in promoting quantum initiatives across member states: including the DIANA quantum accelerator, hosted by Deep Tech Lab in Denmark, the NATO Innovation Fund and most recently the proposed Transatlantic Quantum Community.
Many leading nations have implemented export controls on quantum technologies, including the US, UK, Germany, France, Canada, Japan and Australia. Though in practice this doesn’t yet seem to have impacted trade between traditionally friendly countries.
A Floating Moment for European Priorities
This summer has seen a clear evolution in these matters.
Within the EU
As part of Ursula Von Leyens reshuffle for her second term, the former EU commissioner most associated with a hard line on technological sovereignty, Thierry Breton, is now gone. Its most prominent political champion, President Macron of France, has been weakened electorally at home. Draghi’s report, set to have continuing influence on EU policy, is also notable for a more pragmatic approach, making a distinction between where technological sovereignty is an absolute requirement (e.g. in security, encryption and sovereign cloud services) versus where it is desired as part of a competitive outcome (with quantum computing named as such an example). Ursula Von Leyens new commission has separated responsibilities for Tech-Sovereignty and Industrial Strategy between two portfolios. It remains to be seen what this will mean in practice.
The Oct 1st launch of IBM’s first Quantum Data Center in Europe was an opportunity to see the direction in which both IBM and the German government would lead on these questions. IBM certainly seems clear that it prizes the opportunity to collaborate with the talent available in European ecosystems.
Delivering his keynote at the ribbon cutting in Ehningen, Olaf Scholz, the German Chancellor, spoke clearly for those that see foreign direct investment from a leading international business is part of the solution not part of the problem, Scholz also provided a joined-up vision of why this matters and why quantum is a particularly important area of opportunity.
Sholz recalled the role of Herman Hollerith in developing electromechanical processing using punched cards (and in founding one of the companies that would later merge and become IBM). Scholz pointed out “If everything remains the same, we are still sitting in front of a punch card machine”. This is not just an interesting historical anecdote, it goes to the heart of the quantum opportunity. Punched cards systems through to the latest AI superchip all share a common heritage – they are all Turing machines. Quantum computing is the standout leading technology that promises to break the glass ceiling on computational complexity that is thought to limit any such system.
In 2020 while still Finance Minister, Sholz signed off on Germany’s first €2B investment in quantum. Germany already had strong research infrastructure on which to build: a network of Max Planck Institutes for basic research, Fraunhofer Institutes for applied research, and prominent members of the Helmholtz Association such as the Germany aerospace research and technology centre (DLR).
The quantum investment distributed through these organizations has set the scene for and encouraged, but not directly funded, IBM’s investment. At a reported €290M this sets a new record for the sector. This stands in stark contrast to other recently announced quantum installations, where typically the host government or region has footed a substantial part of the bill. It is taking a A$940M combined investment from the Australian and Queensland governments to take PsiQuantum to Brisbane; $200M of incentives to take it to Chicago.
Accepting that an important part of the tech stack, the QPU, might come from outside of the EU is a compromise on full technological control. But it does ensure German and EU businesses seeking to explore potential quantum applications can do so based on the best platform currently available (notably the UK NQCC has also bought premium cloud access to IBM’s latest systems). The upside of the German location for the data center is that it helps assuage concerns on data and IP security, which are a strong focus within the EU.
Due to its combination of qubit scale (156Q), high fidelity (2Q 99.6%) and relative speed (making it more broadly compatible with error mitigation techniques), IBM’s Heron revision 2 chip is arguably the leading quantum processor available for commercial access today. However other platforms will very much continue to compete in this market, both against a short term and long term horizon. Applications in pure science are already of interest. Commercial applications are not certain with intermediate scales systems but remain a key development proving ground.
The new quantum data center is in effect in competition with other centers, such as the Leibniz Supercomputing Centre. This already hosts a 20Q trapped ion and 20Q superconducting circuit based QPUs. Leibniz (and other such centers across Europe) will be under pressure to upgrade their processors. (Below 50-60Q, quantum processors can in any event be simulated on conventional computers).
Ultimately, many believe that only much larger scaled-up systems will unlock the real potential of quantum computing and ultimately establish a dominant design. For an in depth review please read GQIs Outlook Report: The Road to Shor Era Quantum Computing (developed in conjunction with the NATO Innovation Fund).
The French quantum program has equally been forging its own success. Backed by €1.8B of spending over 2021-25, it has helped accelerate an already strong ecosystem. Consolidating both French innovation and attracting collaboration, in particular from across the EU. There is a danger that confirmation for new funding for the program beyond 2025 may be delayed due to the current political impasse in France. But such is the momentum already established behind the leading French quantum startups and early industrial champions, This shouldn’t be an existential threat to the sector in France. Strong centres exist around Paris and Grenoble with support from institutes such as Inria and CEA-Leti.
Other strong quantum ecosystems exist within the EU, notably in the Netherlands anchored on QuTech (established in 2012) and the Quantum Delta NL initiative. Also collectively in the Nordic nations, with a particularly focussed center developing in Copenhagen. Israel is a standout quantum center and an associate country for Horizon Europe. Basel has emerged as the champion of the Swiss ecosystem.
For an in depth analysis of quantum ecosystems across the EU and globally please read GQI Outlook Report: Quantum Ecosystems – PESTLE Analysis.
Somewhere on the Edge of Europe
The UK quantum program survived Brexit and the hiatus that followed over UK participation in Horizon Europe. Under Theresa May it developed as an important leg of a fully blown industrial strategy to encompass the set-up of the UKRI Quantum Challenge fund, and founding of the NQCC. When internal conservative party politics meant that ‘Industrial Strategy’ again fell out of fashion, it repositioned itself as part of the new focus on Britain as a scientific superpower. Over the initial 10 years of the programme £1B was invested, with a promise £2.5B more for the next ten years, headlined by 5 technology specific Quantum Missions.
All this was under Conservative governments. More recently, some UK industry voices have appeared nervous that the incoming Labour government might not sustain this level of commitment to the program. The new Chancellor (Finance Minister) Racheal Reeves is focussed on addressing a £25B ‘black hole’ she has identified in the government budget see inherited. £1.3B of AI spending announced by the previous government has already been cut. However the signs for quantum remain positive (within the resources available). The five new UK quantum hubs for the next phase of the program were confirmed in the first weeks of the new government (at a time when other spending commitments were being painfully put on hold pending a 2025 spending review). Keir Starmer has been pictured visiting PsiQuantum’s facilities in Daresbury, UK. Speaking at Quantum.Tech Twickenham, Tom Newby (Head of the DSIT Office for Quantum) highlighted the natural alignment between the targets of the existing UK Quantum Missions and the five new societal missions at the heart of Starmer’s program for government.
New Horizon Europe work programmes are expected to remove the anomaly whereby the UK was treated less favorably than other associated countries. However the UK cannot be expected to regain the former position of leadership it enjoyed in predecessor EU research programs. Conversely, Starmer can be expected to continue the UK’s strong commitment to the AUKUS military alliance including its pillar 2 activities which include AI and quantum technology. Other countries outside the EU with which the UK has already signed agreements on quantum cooperation include Canada and Japan, both with strong quantum ecosystems. Both have also expressed interest in joining AUKUS pillar 2.
For an in depth analysis of the UK quantum program, please read GQI Focus Report: UK National Quantum Technology Programme.
The Funding Imperative
The quantum race is far from over. There are many cutting edge quantum developers in Europe each with their own unique advantages to bring to the party. Their technology is well positioned to compete on its own merits. Europe has a wealth of software and business talent to bring commercial benefits to realization. European quantum businesses shouldn’t fear the technological challenge. However they do need to push their governments to address the mid and long term funding challenges, a key starting point for the Draghi report.
Europe’s capital markets are much less deep than in the US. There are quantum VC success stories (notably Quantonation and Amadeus Capital). However, many see the coming challenge as access to the growth capital to fund the likely expensive mid-lifecycle development of these technologies. This is difficult, particularly in Europe. It lacks the large tech corporations willing to invest heavily, and long term, in new computing technology. It lacks the large asset managers (c.f.. Blackrock and KKR) willing to step-up and fund what are not growth, but in fact large venture rounds.
Quantum computing companies will likely require significant funding to scale-up their systems well in excess of that easily justified on the basis of early commercial revenues. Quantum communications infrastructure likewise. Even where pools of institutional capital exist in Europe, such as in pension funds, national wealth funds or foundations, how can these investors be given the confidence to place large quantum bets? Who will lead the M&A activity likely to be required to consolidate the sector? Existing structures such as the European Investment Bank (EIB) are not currently structured to support the type of long-term patient finance demanded by deep tech, including quantum. Institutions like the Novo Nordisk Foundation are a rare bright spot in the European landscape.
In the UK, the Mansion House reforms promoted by the previous administration have not yet demonstrated traction. Labour originally claimed it wanted to go further. The recent King’s Speech included proposals for a new National Wealth Fund (coordinating the activities of the British Business Bank and UK Infrastructure Bank) and a Pension’s Bill (a 1% shift in investment priorities just from defined benefits schemes could move £8B more capital into UK tech). Whether reforms can turnaround London’s attractiveness as an IPO destination remains to be seen.
Source: GQI Investor Playbook
Challenges and Opportunities in the International Landscape
US vs China
The opportunity notwithstanding, Europe is not leading on quantum. Neither is it number two. The geopolitical competition between the US and China is already a key factor driving their respective quantum sectors forward. Both are cutting edge in many elements and the order of leadership is less clear than many in the West would like to believe. In the US, popular discussion often talks about quantum competition with China, but neglects to consider Europe.
Formal reauthorization of the US National Quantum Initiative Act is now overdue, however, support remains bipartisan. Crucially, institutional momentum for quantum is already strongly established within key US agencies with already large budgets, such as NIST, ARFL, DoE and DoD. Large deep pocketed tech majors are already strongly engaged,
Against this background, DARPA’s recently launched Quantum Benchmarking Initiative (QBI) has set out to send a powerful new signal to the market. It seeks QC developers targeting large ‘utility scale’ quantum systems, and proposes to undertake extensive verification and validation activities for those accepted on to the programme. Those passing this test can then expect milestone based funding support.
In some ways this is similar to existing programs such as the UK NQCC quantum testbeds initiative (seven contracts let in 2024) and France’s PROQCIMA program (five 1st round participants selected in 2024), or German DLR’s QCI (8 demonstrator projects). However the scale of resources is different, as is the focus on deep evaluation of large scale potential upfront.
QBI Participants can expect $1M of funding just for the verification and validation phase, followed by up to $300M in milestone based support. Strikingly this comes with no geographic strings, neither on HQ of developer or location of test systems; nor does DARPA expect any claim on resultant IP. DARPA envisages accepting as many companies onto the program as apply and it deems have realistic roadmaps. This program builds on the prestige of DARPA, and sets a new bar for quantum. Companies such as IBM can be expected to put themselves forward as will other US based competitors. Which players from Europe and elsewhere around the world will join them?
New Opportunities
A number of new non-aligned countries also standout as potential candidates for European collaboration. Singapore has a long established and vibrant quantum ecosystem. India has launched its only ambitious quantum programme, and against a backdrop that aims to take it much further down the tech stack than it has traditionally played. Qatar is a pilot case for how the resources and ambitions of Arab Middle East countries can engage with the sector. In each case the opportunity exists to find win-win modes of collaboration with these potential partners.
Academic work on pure science is an easy opportunity. Managing the potential impact of future export controls, and the protection of commercial IP will be more demanding challenges. All these centers will ultimately compete for talent and investment funding. Non-aligned countries will have their own ideas about how the 21st century should develop.
October 4, 2024
