The battle cry of last week’s Rebuilding Europe’s Sovereignty was “Europe is a superpower, it’s on us, we are BUILDING”. Powering up Europe’s tech muscle is now the recognised imperative to improve productivity growth, leveraging defence, manufacturing, our exciting industrial AI ecosystem (plus energy and services); in addition to reducing our exposure and security risks. Having confined tech and digital policy for years to the failing realms of antitrust and digital regulation (with a smattering of subsidies to a wild array of disparate projects), we are finally getting that tech sovereignty is an industrial project. This is not to say Europeans must wait for our institutions to dream up the shape of our digital future: far from it, they have power but no entrepreneurial competences and expertise. Industry must lead, select and invest. Meeting demand’s needs as well as shaping the path of innovation. The public sector must come in support.

EVP Stéphane Séjourné, the EC Commissioner for Industrial Strategy, sent a signal in this direction this week with an oped in multiple European news outlets (here in the French version), supported by nearly 2,000 European entrepreneurs, in favour of introducing a (mild) steer towards European suppliers in public procurement. Why it matters? Because without demand, industry cannot invest and build. That simple. The initiative is broad (officially placed in the context of the forthcoming Industrial Accelerator Act) but make no mistake: tech and digital are “in scope”, fair and square. As they are “in scope” in the revision of the Public Procurement Directive, also part of EVP Séjourné’s portfolio, which is due this year.

The diagnosis that Europe is a “digital colony” of the US – and we provide an attractive market for US tech players to exploit, instead of charting our own future and building our own assets and capabilities – is by now well understood. In addition to dependencies and risk exposure, the cost to Europe of throwing in the towel has been vast: billions syphoned off in revenues and profits, foregone investment in our own solutions, failing to develop local competences, inability to nurture startups and scaleups who are eventually lost to more dynamic environments.

A flywheel that does not turn

The reality is we have amazing tech in Europe. Hardware, software, connectivity. Budding industrial AI. What stands in the way of Europe flexing that muscle and regaining a larger share of the “addressable market”?

The answer one often hears is that Europe lags behind in terms of functional parity with the US hyperscalers, who have perfected the art of offering integrated service bundles that give customers reliable “turnkey” solutions (cloud, software and AI). Across the cloud and AI stack – hardware and software layers – hyperscalers provide end-to-end solutions that major on convenience. Customers can relax into a form of “learned helplessness”, trusting that these providers will always be there to take care of everything. Of course, convenience and integration matter – and buyers continue to emphasise that this “advantage” of hyperscalers remains a major driver of their current choices (see the discussion at the “Rebuild” conference, specifically the conversations with Philippe Van Damme DDG of DIGIT, and Tim Hoffmann of Mercedes Benz – kudos to both for speaking candidly at the event in the panel on Building European Digital Assets).

Yet bundle-to-bundle competition between the three integrated giants – effectively reducing competition to a small number of fully fledged integrated solutions – is undermining the ability of European component suppliers to compete for customer demand, especially as bundle providers are highly effective at locking customers in, and preventing switching. The economic textbook answer is: “bundle up”. Why can’t component suppliers create equivalent bundles by cooperating or coordinating in multiple ways? Europe has enormous talent and capabilities. It is teeming with component suppliers. We have data centres, software for every layer of the stack, world-leading open-source expertise, and a growing number of AI start-ups across multiple verticals. Why can’t these capabilities coalesce into comparable system offerings and present themselves to customers in this way?

This is the nub of the issue. It is eminently solvable, but needs to be addressed decisively and fast. The answer cannot be “risk-tiering” (a tentative suggestion on stage at the conference): separating “less critical” from “more critical” services, and retaining large parts of the stack with hyperscalers while carving out narrowly defined sovereign niches. This would entrench the very dependency we claim to address. Scale and scope effects operate across the entire stack. Identity, collaboration, telemetry, developer tooling, AI services and forensic analytics are not neutral or modular add-ons. They generate learning effects, data gravity and cumulative lock-in. If the bulk of demand remains with hypescalers because “it is not so critical”, assertions that European solutions are “too expensive” or “not mature enough” become self-fulfilling outcomes rather than objective assessments.

Yes, creating bundled solutions through collaborations for multiple user cases – including application interfaces, open-source standards and bidding consortia – involves transaction costs and non-trivial questions of value allocation: how is the price of the overall service going to be distributed across the component parts? From the customer’s perspective, further questions arise: how strong is the technical integration, and how robust is the commercial integration? Customers do not want to manage complexity; they want clarity of responsibility and accountability for service delivery.

To break the resulting doom loop, rather than talking about tiering the demand side must actively engage and be willing to experiment and sandbox. Repeatedly, CEOs, CIOs and CTOs express concern about their dependencies on extraterritorial providers, while simultaneously stating that they are “not ready to decouple from the US” and that doing so would be “too risky and too costly”. See here, an example among many. Yet no one is arguing for “decoupling” in the sense of wholesale replacement of existing US suppliers. That is neither possible nor desirable. What is untenable, however, is Europe claiming to want to strengthen its own technological capabilities while no one is creating real opportunities for those capabilities to supply deployable systems.

Architectures and solutions cannot be developed speculatively by the supply side alone. Without credible prospects of demand, no rational actor will invest in deep integration or sustained collaboration. This is where demand must step forward, engage, and co-design products and system offerings with suppliers. Recent discussions – including at the “Rebuild” conference – have brought this tension to the fore. We are now in the process of translating awareness into action, and we need effort from all actors whose engagement is essential.

A major problem is demand failing to shape systems

Europe’s debate on cloud and AI inevitably focuses on the supply side: scale, investment, fragmentation and parity gaps. What is addressed far less openly is that European demand structures actively favour ready-made integrated solutions instead of participating and fostering the integration that scaling requires. This is not a temporary coordination failure. It is a structural problem, confirmed both by discussions from EU procurement authorities and by private-sector demand.

The cloud market has evolved towards integrated system offerings because buyers behave rationally under uncertainty. Integrated stacks reduce operational, legal and personal risk: a single contractual counterparty, a unified security and compliance perimeter, integrated monitoring and incident response, one commercial framework and a clear escalation path. In such an environment, excellence at the component level is not sufficient. What matters is the ability to deliver and operate a coherent system.

European suppliers, by contrast, typically appear as high-quality but disaggregated components: advanced chipmaking lithography, processor cores, infrastructure here, middleware there, identity, security, data and AI tooling spread across multiple actors. Buyers then believe they are confronted with precisely the risks that careful procurement is designed to avoid: unclear responsibility, integration liability, fragmented SLAs and uncertain exit paths. Under these conditions, it is entirely predictable that public buyers and large incumbents default to vertically integrated stacks, even while expressing strategic discomfort with dependency.

This dynamic creates a self-reinforcing doom loop. Each procurement decision that favours an integrated non-European stack widens the perceived parity gap. That gap is then cited to justify the next decision. The result is a failure of market formation.

What is often described as a “lack of scale” on the supply side is also a lack of credible demand commitment on the buyer side. Integrated suppliers scale because demand is predictable and coordination costs are internalised within the firm. Fragmented suppliers face high transaction costs, uncertain revenue and unclear value allocation. Under these conditions, rational firms do not invest in deep integration speculatively.

The implication is uncomfortable but unavoidable: demand choices drive supply, and public procurement is not neutral. It already shapes the market by systematically rewarding integrated stacks. The choice is whether Europe continues to do so unintentionally, or whether it uses its demand (and procurement in particular) deliberately as a system-design instrument.

Credible supply does not emerge without credible demand. And credible demand does not exist where procurement structurally privileges an existing system architecture in which effective competition is distorted. Yet the answer does not lie in the traditional instruments of competition law (please no, not that path). It lies in the tools of public procurement and investment policy.

Procurement is a security decision

A debate framed in terms of “digital sovereignty” invites semantic questions which are a waste of time (what does “sovereign” truly mean? etc). It is clearer to frame the issue as one of operational security. Cloud and AI infrastructure has become a strategic dependency in the same way as energy systems, telecommunications networks and defence-related industrial capacity. Modern conflict and systemic disruption no longer operate solely through military hardware or traditional defence assets. They increasingly run through the digital infrastructures that underpin state capacity and economic continuity: electricity grids, communications backbones, satellite and undersea cables, data centres, identity systems, and the software supply chains built on top of them. Cloud infrastructure provides the access, coordination and service layer through which these systems are operated and delivered.

AI may well be on the way to displacing this cloud layer, and rendering SaaS-based demand obsolete – many see this as the direction of travel. But at least for the mid-term, public (and much private) demand will continue to rely on cloud-based applications as the primary frontend for service delivery, data access and user interaction – with the additional complication that for now the strategic focus needs to include the availability and control of AI-capable compute.

Against these shifting sands, the procurement question is not whether European buyers may “prefer” European suppliers. In a macro sense, directing procurement to European suppliers matters for productivity and growth, and for our capabilities to manage and develop ourselves in these sectors. But most urgently, the immediate question is whether Europe can remain operational under stress. If public administrations, critical infrastructure operators and defence-adjacent ecosystems are structurally dependent on external system stacks, Europe is not merely purchasing IT services. It is accepting a form of strategic fragility.

We hear far too often ill-informed pushback invoking “trade rules”. In fact, EU primary law already recognises legitimate exceptions. For instance, Article 346 TFEU allows Member States to take measures necessary to protect their essential security interests and relieves them of obligations that would otherwise apply where disclosure or dependency would undermine those interests. While this provision has historically been applied narrowly to arms and defence-related production, the relevant security perimeter has entirely shifted and Europe should assert that vigorously.

Cloud infrastructure and AI-capable compute increasingly perform today functions equivalent to traditional critical infrastructure. They host sensitive state data, support command-and-control functions, enable emergency response and underpin economic continuity. Treating these systems as ordinary commercial inputs no longer reflects the threat environment Europe itself now acknowledges.

The institutional irony is clear. The same public authorities that warn about strategic dependency default to the stacks that feel safest – not in geopolitical terms, but in procurement terms. Familiar vendors, mature compliance artefacts, low friction and low personal accountability risk for decision-makers create powerful incentives. This is not irrational behaviour; it is learned helplessness embedded in procurement structures.

Invoking security-based exceptions focused on Europe as a whole in procurement is neither discrimination nor protectionism. It is a proportionate response to a structural risk that cannot be mitigated through conduct regulation alone. The question is no longer whether such an approach is legally conceivable. Procurement instruments must therefore be designed to override national industrial and political interests at the point of implementation. Without binding mechanisms that force genuinely European purchasing decisions, collective ambition will continue to be neutralised by national carve-outs precisely where scale, coherence and investment certainty are decisive.

Public procurement has to become a capability-building instrument

It is eminently feasible to develop system offerings that buyers can adopt without assuming disproportionate risk, if there is anchored demand. Without it, frameworks remain aspirational. With it, they become instruments of market formation. Procurement needs to be reframed. The unit of decision cannot be the vendor; it must be the capability. This requires procurement design to achieve three things simultaneously.

First, it must create demand certainty for integrated European system offerings – providing incentives to aggregate rather than sell isolated components. Without predictable demand, no rational supplier will invest in deep integration across layers.

Second, it must shift integration from a private transaction cost to a shared task. Today, each supplier consortium must solve integration, liability and coordination independently. This is economically wasteful and systematically favours vertically integrated incumbents.

Third, it must treat switching as an operational capability that is designed and tested at procurement stage, not as a contractual aspiration. Dependency becomes irreversible not because switching is legally impossible, but because it is operationally untested.

If these conditions are met, behaviour can and will change. Suppliers will integrate because integration becomes investable. Buyers will adopt because procurement becomes defensible. Competition will emerge because systems become contestable at the bundle level rather than at isolated component layers.

This is where btw the Cloud Sovereignty Framework has genuine potential. By focusing on outcomes such as control, auditability, resilience, portability, legal exposure and operational independence, it allows procurement to specify system properties without naming vendors. It is a step in the right direction.

A final word for the faint-hearted, the Brussels Bubble and the hyperscalers’ lawyers sharpening their pencils: prioritising European suppliers is neither arbitrary nor contrary to competition law. This was clearly and unequivocally stated by the Heads of the main antitrust agencies at the “Rebuild” conference (see here in particular, for Martijn Snoep’s clear statement to a general chorus of approval – try it on, you will fail). “Directing demand” is a recognised instrument for addressing structural market failures and re-building effective competition. Comparable approaches are well established, for example in spectrum allocation and telecom licensing, where licence conditions and coverage obligations are deliberately used to foster new entrants and limit long-term concentration. Strategic procurement thus operates within the logic of competition policy by shaping contestable market structures ex ante, rather than relying solely on ex post enforcement once market power is already entrenched.

Urgently activating public demand

For the public sector, what we are looking for is not another layer of regulation. It is a shift in how public demand is defined and deployed.

If Europe takes security seriously, public procurement cannot stop at the infrastructure layer in a narrow sense. The entire cloud and AI stack must be considered a security asset. There is no a priori reason why services such as email, collaboration tools or identity management should be treated as low-risk commodities. When used by public authorities, these services form part of critical state capacity and must be designed, sourced and governed accordingly.

This requires a broader interpretation of what constitutes security-relevant infrastructure in procurement, supported by an updated legal framing. Once the state begins to specify coherent service bundles, it also creates the space to co-design these offerings together with suppliers.

The role of the state in this process is to act as an anchor customer. By committing demand at scale and over time, it makes investment, cooperation and responsibility viable. Suppliers, in turn, can collaborate on open standards, form accountable industrial consortia and jointly deliver integrated solutions, without being forced into full vertical integration.

Once this process is set in motion, it does not stop at central government. Universities, research institutions and public agencies at regional and local level can follow. The process activates a flywheel as the private sector also gains a credible alternative to adopt. Demand pulls supply, supply stabilises demand, and the market begins to reorganise itself.

And private demand?

Private demand cannot be directly at the receiving end of mandates, though if we are serious about “supporting Europe” at this critical point in time, the extraordinary demand muscle of our private enterprisers cannot continue to hide behind the narrative that “it’s too risky to decouple” and “we don’t have the same equivalent” and “the job of a CIO is to procure efficiently at lowest cost”. Senior management needs to pull the cart and set the mission. We are at also in the midst of a major technological revolution with agentic AI, and it is possible this will fundamentally transform how we think of infrastructure and who operates it.

Do we need to think about incentive-based mechanisms that can alter risk–return calculations for procurement decisions (the classic industrial policy tools: targeted fiscal incentives, risk-sharing instruments or resilience-related expectations)? This is not about directing suppliers, but about reshaping the economic conditions under which private procurement choices are made. That said, come on. The geopolitical shift is so extreme and radical that we cannot continue to think along the lines of peace-time conventions.

Governments must use informal channels to get CEOs to do their part. Europe should think of itself as being at the outset of an existential war-like effort to rebuild itself – with tech and AI a critical dimension. This is no exaggeration. Europe has shown itself capable of generating fantastic surges in industrial war production effort 80 years ago, in matters of weeks and months. All gone? Are we still too comfortable in the lingering hope we’ll “go back to normal” for real planning and action? Admiral Vandier (NATO HQ) at the conference was clear, and definitive. We are not going back. We should not be just sauntering along and looking the other way, hoping for the best. Demand side, customers, come out and engage: provide RFPs, sandboxes, natural experiments. Work with the suppliers to get the integrated solutions you need. This is an existential moment for Europe. All hands on deck.

Co-authored by Cristina Caffarra & Dr. Anne Sohns

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Mobilizing “Digital Commons” for European Industrial Sovereignty

The launch of the Digital Commons EDIC (DC-EDIC) by France, Germany, the Netherlands, and Italy last week in The Hague is a welcome recognition of digital sovereignty as a key goal for Europe, hopefully beyond promises and speeches  (Digital Commons EDIC launches to advance Europe’s technological sovereignty | Shaping Europe’s digital future). For the EuroStack Initiative—the coalition of European digital businesses and experts focussed on digital sovereignty—the DC-EDIC represents a potential strong institutional ally in the quest for powering up Europe’s tech industry.  While we believe only business and private capital can lead the way to shaping the future of the European tech industry, an institutional instrument can be important as long as it is not just a talk shop (“Digital Commons” has a very evocative civil society non-business ring to it…) and it operates under a strict principle of complementarity: acting as a market enabler and infrastructure guardian, and avoiding state-subsidized competition that would “crowd out” European private initiative.  

What should this EDIC do?  Some comments/suggestions from us to make their stated actions relevant and useful (see 29 October Statement: Commission to launch Digital Commons EDIC to support sovereign European digital infrastructure and technology | Shaping Europe’s digital future):

1. Unblocking the Market: the EDIC as a “Trusted Enabler”

The DC-EDIC is not a central purchasing agency, but its mandate allows it to remove the structural friction that currently prevents public administrations from buying European solutions.

• A “One-Stop-Shop” for Market Validation (Not Substitution):

• • • • • The Opportunity: The DC-EDIC’s planned platform to “promote sovereign alternatives” can function as a de facto “White List.” By referencing solutions that meet strict sovereignty and interoperability criteria as identified in the EuroStack Buy European Framework (A Proposed Framework for a “Buy European” Regulation of Strategic Digital Procurement – EuroStack), the EDIC signals to risk-averse Public CIOs that these tools are mature, legal, and secure. Additionally, it can work with the EuroStack-supported EuroStack Directory Project (EuroStack – European Open Solutions for Digital Sovereignty).
        • The Safeguard: The platform must function as a directory of existing, active industrial-grade European solutions (the EuroStack ecosystem). It must not become a repository for new, state-funded “zombie projects”, especially when they duplicate what successful European SMEs are already developing and selling. The goal is to channel demand TO the market, not to bypass it.

• De-Risking Migration via Technical Coaching:

  • • • The Opportunity: The EDIC’s mandate to provide “technical and legal coaching” is potentially very useful. The EDIC can act as a Technical Assistance Facility, absorbing the “migration cost”—helping administrations map their dependencies, handle data portability, and design interoperable architectures.
      • The Safeguard: This support must be neutral and focused on standardization. By guiding buyers toward open protocols (e.g., Matrix, OIDC, ActivityPub), the EDIC can create a level-playing field where private EuroStack vendors can compete on quality, rather than being locked out by proprietary legacy systems.

• • • • •  

•  

2. Sustainable Funding: The “Upstream” Mandate

The EuroStack ecosystem rests on a foundation of open source code (libraries, kernels, standards) that is often under-funded. The DC-EDIC, working with the Sovereign Tech Fund, is well placed to secure this “Digital Commons” layer, provided it adheres to the Market Investor Principle.

• • Funding the “Non-Commercial” Commons:

    • • The Opportunity: Following the German model (ZenDiS/Sovereign Tech Agency), the DC-EDIC should provide stable, multi-year funding for the maintenance, security hardening, and standardization of critical upstream components. This reduces the “technical debt” for all European companies and secures the supply chain.
    • • The Safeguard (Strict Subsidiarity): To avoid litigation risks associated with State Aid, the DC-EDIC must intervene only in areas of proven market failure or risk of default—specifically, the non-economic layers where no business model exists for European companies.
        
        • • Red Line: The EDIC should not use public funds to develop user-facing software products (e.g., a “State Office Suite”) that compete directly with Commercial Off-The-Shelf (COTS) products offered by European SMEs. Public money must leverage private value, not destroy it.
        • • Legal Risk: Such activity would expose the EDIC to litigation under EU State Aid rules (Article 107 TFEU). Where private European solutions already exist, there is no “market failure” to justify public intervention. Using state resources to duplicate these solutions would constitute a distortion of competition, effectively using public money to destroy private value rather than leverage it.

3. Governance & Leadership: Critical Factors

For the DC-EDIC to fulfill its potential without disrupting the market, the “Who” and the “How” are critical. The leadership role should not be a purely administrative appointment, but requires a combination of technological depth, business acumen, legal authority, and community legitimacy. To navigate the complexity between the “Commons” (public good) and the “Ecosystem” (private sector), the Director must possess a specific track record in four distinct areas:  deep technical literacy to bridge the gap between academic research and industrial application; economic enablement & acceleration, understanding of business models, financing, and the reality of the private sector; strong institutional credibility; and grassroot legitimacy – not an outsider imposed on the ecosystem but someone with the credibility to mobilize the developer community effectively.

EuroStack is willing to play a Consultative Role within the DC-EDIC governance structure: constant feedback from the industry is required to ensure that EDIC initiatives (Hackathons, calls for tenders) address actual market gaps rather than becoming theoretical or niche exercises.

Conclusion

The DC-EDIC can be an ally to EuroStack. By handling the “market friction” (legal uncertainty, interoperability standards, upstream maintenance), it can clear the runway for European companies to scale. We also see a clear division of labor:

1. 1. The DC-EDIC secures the Commons (the invisible yet fundamental infrastructure and standards).
   2. The EuroStack Industry builds and sells the Products (the value-added solutions).

If the DC-EDIC operates under these conditions, it can be a useful contributor to Europe’s digital recovery.

The post The DC-EDIC as a Strategic Ally to EuroStack appeared first on EuroStack.

To kick things off, the (non-profit) EuroStack Initiative Foundation e.V. has a number of European tech business leaders on the initial Board – including Wolfgang Oels (Ecosia), Andy Yen (Proton), Yann Lechelle (Probabl), Frank Karlitschek (Nextcloud), Stefane Fermigier (Abilian), Fred Plais (Upsun) and is supported by multiple others. It will serve as a hub for coordinated collaboration between public and private actors to strengthen Europe’s digital ecosystem. Cristina Caffarra, Acting Chair of the Foundation Board, described the initiative as “a pragmatic response to a political and industrial challenge. We need less talk about principles and more cooperation on how to build the infrastructure that reduces Europe’s dependencies.”

The foundation’s work will focus on three main areas, implementing the main pillars: Buy European, Sell European and Fund European. This means connecting European tech businesses to develop products customers need, simplifying procurement and promoting investment.

“Digital sovereignty starts where people actually use the technology. The goal is not to create something entirely new, but to make what we already have work together and easy to adopt. The foundation will bring together public and private actors with industry and economic experts to further digitally sovereignty in Europe.”
Frank Karlitschek, CEO Nextcloud

One of the foundations core ambitions is to provide impetus for action in a field increasingly crowded with vague declamatory talk. We are under siege from “sovereignty-washing” – projects that weaponise the language of independence while relying on non-European infrastructure. We have already shared our views (“the “Buy European” paper) on what criteria would need to be met.

“We designed our ‘Buy European‘ framework as the antidote to sovereignty washing. It replaces vague trust labels with a concrete, multidimensional definition of a sovereign provider—one that is accountable to EU law, offers freedom from technological lock-in, and contributes to our economic ecosystem.“
Stefane Fermigier, Abilian

This also includes the development of a future EuroStack Certification – a framework to recognize technologies and infrastructures that truly reflect Europe’s principles of openness, interoperability and independence.

“If we want trust and adoption, we need transparency. A clear, credible certification process could help public and private actors identify truly sovereign solutions and strengthen European providers in the long term.”
Wolfgang Oels, Ecosia

Buy European, Sell European, Fund European

The EuroStack Initiative is acutely aware that commercial products carried out by industry are the only ones that can make sovereignty an economic reality. Discussions around “our principles” and “our values” do not create economic incentives. By promoting the principles of “Buy European, Sell European, Fund European”, the foundation will encourage investment into European providers. It also seeks to simplify the often complex procurement processes that currently disadvantage smaller, innovative players.

Europe’s private wealth and institutional funds need to the primary engine for building the EuroStack. Existing public funding programs need unlock private capital at scale, bridge gaps where commercial funding does not suffice and embrace an investment logic that accounts for a “sovereignty dividend”. We are in discussions to promote this.

“Europe has world-class innovators. What we lack is coordination and the willingness to prioritize our own ecosystem. EuroStack can help create that missing link between policy, market and technology.”
Cristina Caffarra

Strengthening Europe’s capabilities is what matters

Digital sovereignty requires more than digital infrastructure – it needs the capacity to act independently. The Foundation will foster further research, education and collaboration aiming to support sustainable growth and strategic independence from non-European suppliers. The Foundation will promote science and research as well as education and vocational training in the digital economy.

Through publications, advocacy and public visibility it aims to raise awareness and understanding of digital sovereignty among policymakers, academia, economy and the public.

More to come…

What begun as a collaboration among a few like-minded pioneers has grown into a broader movement – bringing together hundreds of companies that share the goal of strengthening Europe’s technological independence. The Foundation’s work will focus on tangible outcomes: interoperable technology, reliable procurement frameworks, rising awareness, and stronger ties between European innovators.

Over the coming months, the foundation will implement its governance model, define its membership program and expand working groups focused on integration, procurement and communication. While the vision is long-term, the first steps are pragmatic – connecting, testing and showcasing what European cooperation can achieve. The establishment of the EuroStack Initiative Foundation sends a clear signal: digital sovereignty is not a political slogan, but a technical, economic and cultural project that requires consistent collaboration across Europe.

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The topic of today’s debate is alas a common tech trope – especially from Americans and tech giants: “Europe is too late for X [replace X for any digital domain: hardware software connectivity], you hapless little Europeans let us do it all for you”. In chips the story typically goes: “Today Europe accounts for less than 10% of global semiconductors, it once produced nearly half of the world’s, it has fallen from grace and just cant catch up.”  

Indeed the loss of first mover advantage is the story of the European tech industry:  we were pioneers, trailblazers, we are now a digital colony. Which is why we have EUROSTACK to reverse this decline.

 “IT IS TOO LATE FOR EUROPE TO COMPETE IN THE CHIP WARS”? But what does “COMPETE in the chips wars” mean?  Does it mean can we meet our entire chip demand with a wholly domestic value chain? And what chips?  What size? Across all applications?  Does it mean can we export chips?

The narrative our opponents are pushing is that “catching up” (whatever that means) with “global domination in supply chains” by the US and Asia is entirely elusive for Europe given the disparate size of respective investments (hundreds of billions vs tens at best) – so Europe should then what? Just give up?

This is not realism or pragmatism. It gaslighting of Europe, trying to psyche us out.

Of course there are complicated political economy reasons why Europe, once a pioneer, ended up not playing in the same league as current industry giants – but in a globalised world of free trade it did not matter much, we could all live with Ricardian comparative advantages to drive regional specialisation around one’s strengths.

Then we learned this is vulnerable to trade disruption with COVID. We are now in profoundly transformed geopolitical landscape, with export controls, economic coercion and supply disruptions leading to sharp redirection and reconfiguration to improve resilience – by everyone.

And this is happening just at the time when the technical landscape is massively evolving from legacy larger chips towards smaller cuts and architectures – below 5mn (advanced chips) for ai applications, cars, defence – going ever smaller.

We are in a chips gold rush, especially in fabrication where everyone is taking steps to become more resilient. The global spend in semiconductors in the next decade is estimated at $2-3 trillion, whatever the number turns out to be – Taiwan has the lion’s share incl $100bn in the US; the US itself accounts for over ¼ ($646 bn capex), growing share of fabrication from 10% to 14-15%, Korea investing massively also in memory (HBM), Japan in chips and wafers, and China racing for self sufficiency with giant state incentives to offset export controls, achieving major growth in legacy/mature chips.

In Europe yes, we only have slightly under 10% in share of global fabrication, all in mid and legacy/mature range for sensors, imagers, power/telecom components, microcontrollers for automotive, industry, defence – the stuff we actually demand.  We don’t have fabrication below 5nm, because demand has been limited.

But two things:

1. We are in a very different imperative today – with very changed perception of the sovereignty and security risk, just at the time when demand for advanced chips is expected to grow strongly because of (a) cars – as we shift to clean mobility (EVs), software-enabled cars, assisted/autonomous driving cars, (b) AI (c) defence.  Cars are an imperative for Europe: we will support our car industry, which accounts for €1tr in GDP and employs 13 million Europeans, come what may. AI is an imperative. Defence is an imperative. We are not going to stand still.  
2. Europe already has superpowers in critical parts of value chain/chokepoints:
   • Europe is super strong in chip design, which determines today’s critical trade off between speed, power and temperature that in turns drives development costs.  We have multiple design heroes supporting an  ecosystem of flexible fabless companies, need I mention ARM in the UK, and multiple Research and Technology Organizations that go from early stage research to pre-industrialisation – French/Italian CEA-LETI in Grenoble, Belgian Imec, German Fraunhofer, Finnish VTT…
   • Enters the king: Europe’s ASML has a global monopoly in advanced photolithography machines of incredible complexity, on which the whole world depends to produce the smallest chips at scale. It also has a powerful ecosystem of European partners like German Zeiss for mirrors, Belgian Imec, and plans to pump up ecosystem in Eindhoven, Netherlands (Project Beethoven).  China and the US are nowhere near in this part of the value chain.  It has huge strategic significance, there is no alternative on horizon – it is a “natural monopoly” super difficult to challenge because it comes from “hardware matching” – i.e. the benefit in yield and ROI to running one scanner vendor (which is why Nikon’s machines aren’t making it).

But also, fabrication in Europe is not going to stand still. Spend will more than double to 2032 and will at least preserve Europe’s 7-8-9% share of global foundry capacity – not just in the mid range but including plans for advanced nodes:

• Most likely scenario: expansion of the facility in Dresden below 5nm, through consortium involving Globalfoundries, Bosch, Infineon, NXP and TSMC, a planned investment of €10-15bn, could start production of 3nm nodes in 2027
• Also discussions to create a European Boutique Fab for sub-2nm and A-size nodes. Initial investment €20bn, 20bn public/private consortium, idea is to strategically leverage research institutions (Imec, CEA-LETI, Fraunhofer) and equipment suppliers (ASML, Zeiss), timeline 2030.

We absolutely can and will stay in the game for Europe

In conclusion:  we are being gaslit with the trope that “Europe cannot compete”.  When globalisation was a collective drug, we were fine with chips as a global industry with regional specialisations. We are now reacting to a new geopolitical reality of hard power and trade wars where we’ve all suddenly woken up to the need for self reliance.  It does not happen overnight and there are still strong interdependencies criss-crossing the globe.

But the point is Europe has tremendous capabilities and assets and know how. Europe is a superpower in selected but essential parts of the supply chain the world needs too. This does not mean it needs to just “specialise”. Europe is not going to let its car industry fall over: cars are not negotiable for Europe.  Europe needs a defence, and AI is also not negotiable. It is a dangerous time and an uncertain time but the direction is clear and we can reduce our dependencies, become more sovereign and muscle up along the way – absolutely.

The post Is Europe Too Late to Compete in the Chips War? appeared first on EuroStack.

As EuroStack supporters we have indeed expressed impatience about the endless contemplation and philosophical navel-gazing by the ecosystem of think-tanks, academics and civil society around the topic of digital sovereignty – how we are long on diagnosis and self-pity, while short on “solutions” and “doing”. We also made clear that the version of EuroStack that we stand for (the “Industry Initiative”),  is only an industrial policy  mission – reversing at least somewhat the decline of Europe’s tech industry in the share of European tech consumption and innovation. Not a semantic question (“what does sovereignty mean?”), not an ethical one, not one about “our democracy” and “our values” (which we care about, but are not the main point). And the reason is fundamentally that we need to maintain and develop capabilities as a Continent in a critical sector (digital technology) where we have lost major ground.  That’s it.

Of course Europe let itself fall woefully behind, and it is fragmented, and US digital giants cemented their first-mover advantages with anticompetitive behavior – so finding our way up is hard. And indeed by now we should be past the point of talkshops and roundtables and more blah. But remember, this discussion really did not exist till a year ago and it is remarkable in 11 months it found itself at the top of the policy agenda in so many countries – as well as Brussels. The banging of drums has been necessary – we had years of sole focus on digital regulation sucking all the oxygen out of the debate, and we needed to redirect some of the energy in a different direction.

Where the blog is highly disingenuous is where it dredges up every single straw man anyone can ever think of around the idea of digital sovereignty/EuroStack. It sets up as pillars of the initiative things no one is seriously arguing for.  One reads it and repeatedly wonders: why do you fight that point? No one is arguing that. This cannot possibly be in good faith. At the very least it is classic Big Tech proxies’ technique: erect a series of straw men to then knock them down as foolish or unreasonable – making the whole idea look exaggerated, misguided, delusional. But no one is seriously making these points.

Here’s the first canard: “If sovereignty is defined as owning every layer of a technological stack (emphasis added), it can quickly become counterproductive. This leads to fragmented systems, limited interoperability and a retreat from global cooperation”. Let’s cut to the chase: no one is arguing sovereignty should mean “owning every level of the digital stack”. The concern is about local capabilities having withered at multiple stages of the supply chain, and a legitimate aspiration to reverse that decline. This does not mean wholesale replacing what’s there (we can’t), but powering up local assets.

Next: “Europe depends on an accessible and growth-focused transatlantic digital hemisphere. There is no economically viable alternative (…) Furthermore, the establishment of a separate European digital hemisphere (emphasis added) would not be in the interest of European-based global companies. Access to best-in-class digital technologies is absolutely crucial for European companies to grow globally. Making the employment of such technologies more difficult is the opposite of smart industrial policy-making”.  But who is advocating any of this? No one is pushing for the creation of a “separate European digital emisphere” – what does that even mean? We are highly reliant on non-European tech today, and that is not going to change any time soon. No one thinks that is the goal.

Then we veer towards the old chestnut: it will cost gazillions! “In the Euro Stack debate, some voices seem to neglect the significant cost of achieving complete digital self-reliance (emphasis added). Creating a separate European IT stack (emphasis added) would be extremely costly — estimates go in the trillions of euros. (…) These investments would necessarily divert capital from other strategic priorities (…) Europe would struggle to fund such investments, and even if this were possible, the opportunity cost of foregoing alternative investments would be substantial”.

This is truly disingenuous. Where to begin? “achieving complete digital self-reliance”? who is arguing for that? Of course, IF anyone was indeed trying to “achieve complete digital self-reliance”, and “create a separate European IT stack”, it would be costly. But again, this is not what anyone is arguing for. This is fantasy.

The blog makes yet more of Big Tech’s classic arguments. For instance, the other old chestnut that we are all in it together, so we should trust US companies to be benevolent and treat us well because it’s in their interest:  what we need to do is “optimis(e) for mutual interdependence, where both sides of the Atlantic have strong incentives to cooperate, and the cost of decoupling is too high for either to bear (emphasis added)” – Decoupling? Says who? No one with any sense argues for this. We will remain intertwined. But we should have more choice and more optionality.

Next straw man: ”Digital ecosystems do not emerge from top-down engineering or pristine stack diagrams (emphasis added). They evolve from real-world, user-driven needs: a messy, iterative process grounded in solving specific problems. (…) Amazon did not start by building its cloud service AWS — it began by selling books online. The infrastructure came much later, shaped by real commercial demand. (…) Rather than building abstract infrastructure in search of applications (emphasis added), we should focus on solving real problems for users and businesses”. Again trying to beat at something no one is pushing for. The EuroStack Industry Initiative is certainly not pushing “top down engineering” nor relying on “pristine stack diagrams”. Indeed we have argued against a “top down” approach in which the future of the digital industry should be designed top down, by some regulator. And who is “building abstract infrastructure in search of applications”? The real issue is how can European suppliers meet the demand for services that European customers need?  This involves the supply side providing indeed products customers want to buy, not “abstract infrastructure”.

The discussion of the role of public procurement is also disingenuous: no one is saying public procurement must shift 100% of public sector demand to European suppliers; but that digital purchases by the public sector each year are chunky, and redirecting a share of that spend towards European suppliers would be a major benefit to European industry. Of course, cost considerations must continue to play a part – the idea is not “buy European whatever the cost”. The shift would be gradual, and modest – perhaps 20-30% of annual spend.  We have made this very clear in every position paper and talk we give. Yet the blog admonishes: “Public sector procurement cannot become a playground for digital sovereignty … procurement alone cannot — and should not — carry the full weight of a country’s digital strategy”. How boring. No one says this. And indeed we agree with an approach that “involves creating tenders that ask for modular, multi-vendor systems in which critical components, such as chips, cloud services and software, are considered replaceable commodities rather than permanent dependencies. The goal is strategic flexibility, not self-sufficiency for its own sake”.  Yes, quite. But this means European supply must go from the current “nowhere” to “somewhere”. That’s what we are saying.

Same is true for Open Source: “open source is not a silver bullet. (…)  It is common sense that some layers of the technology stack should be open source (…) However, insisting that open source solutions deserve preferential treatment simply because they are open misses the point. (…) What is often lacking is a clear-eyed, comparative view. What is the actual total cost of ownership at feature parity? Which option delivers the best long-term value for the public sector? This is not about being for or against open source. It is about intellectual honesty and focusing on outcomes rather than slogans”. Agree with this, but you are erecting a straw man we are not pursuing.

Finally, the geopolitical canard: “The idea that the US political leadership could suddenly force American tech companies to shut down services for European clients — the so-called ‘kill switch’ — is largely a doomsday scenario used for rhetorical effect. Such an action would represent a severe breakdown in transatlantic relations, bordering on economic warfare. Disabling digital services used by public administrations or critical infrastructure would be considered an act of aggression and would almost certainly provoke retaliation by European governments. Such counter-measures would inflict crippling economic pain on both sides — just imagine European business software would be ‘kill switched’ in the US”.  Where to begin with this. Of course the ‘kill switch’ is not about the US political leadership suddenly requesting US tech companies to make all of Europe “go dark”.  No one is suggesting this, again. The reference to “kill” is just to the potential for one, two, more services being disabled or degraded. Not all at once, but in ways that can inconvenience and inflict harm to European stakeholders. It’s about agency: customers can be deprived of functionalities and the decision lies completely outside of European hands. In a world where it is obvious that digital regulation is being explicitly demised in exchange for better trade terms, this lack of agency is problematic. Can Europe retaliate and disable SAP in the US? We know where SAP stands: with Big Tech. Come on, we know what the appetite for retaliation is. We need at least some alternatives.

Overall, the Berlin blogpost pretends to be the voice of reason – calm, collected, rational – against the irrational, delusional, hyperbolic, wooden, backward-looking, fantasyland approach of those arguing for “digital sovereignty” or “EuroStack”. In reality every single one of the propositions the blog attributes to our camp are gratuitously exaggerated and do not represent what supporters are saying. The stance is more subtle, more nuanced, less dogmatic; the goal is not to decouple from or extirpate US tech, but to reverse at least in part the decline of European industrial capabilities in digital, and create a larger role for European suppliers in serving European demand, with products that are attractive and competitive. Thus increasing competition for European demand, not reducing it.  

The cause of the European digital industry is not helped by semantic discussions, theoretical debates, more workshops and roundtables. But it is also not helped by rehashing Big Tech’s talking points and dressing them up as the constructive, responsible European voice. We know whose voice we are really hearing here. 

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