EU to boost chip output and curb US cloud dominance

The European Commission has finally unveiled its long-awaited technological sovereignty package, a set of four legislative proposals designed to reduce the bloc’s heavy reliance on American and Asian tech giants in semiconductors, cloud computing, artificial intelligence, and open-source software. Announced on Wednesday, the package frames the EU’s ambition to become an “AI continent,” but the draft texts reveal a more defensive strategy: clawing back control over critical digital infrastructure.

At the heart of the package are two measures with real regulatory teeth. The first is the revised Chips Act 2.0, which shifts the focus from subsidizing chip fabrication plants to stimulating demand for European-made semiconductors. The original 2023 version fell short of its goals, a failure underscored when Intel scrapped plans for two massive factories in Germany. Now, the Commission is proposing crisis powers that would allow it to force chipmakers to prioritize orders for crisis-critical products during shortages, override existing supply contracts, centrally purchase chips for member states, and fine companies up to €300,000 for failing to disclose supply-chain capacity.

The urgency is clear. The EU currently produces less than 10 percent of the world’s semiconductors and remains almost entirely dependent on the US and Asia for the most advanced chips below five nanometres, the kind essential for training AI models. Despite committing over €52 billion in public and private funds, the bloc’s share of global production has barely budged.

The second major instrument is the Cloud and AI Development Act, which would establish a single EU-wide framework defining four tiers of cloud sovereignty. Public authorities would be required to conduct sovereignty risk assessments, evaluating how much of their infrastructure depends on non-EU firms. The tiers are based on control over the service and supply chain, where AI inference data is processed, the physical location of infrastructure, and cybersecurity standards. In practice, this would restrict member states from using US cloud providers for sensitive public-sector data in healthcare, finance, and judicial systems, while leaving private-sector use unaffected.

Henna Virkkunen, the Commission vice-president for tech sovereignty, explained that the goal is to ensure providers of critical workloads do not hold a “kill switch” over European data. She noted that US companies would struggle to reach the highest sovereignty tier because of the US CLOUD Act, which can compel American firms to hand over data regardless of where it is stored. Commission President Ursula von der Leyen put it bluntly: the bloc cannot afford to depend on others for technologies that keep its hospitals running and its power grids stable.

The remaining two measures are softer. An open-source strategy aims to fund European alternatives and push public administrations toward open-source tools, while a roadmap focuses on digitalisation and AI in the energy system. The entire package draws heavily on the Draghi competitiveness report, which found that the EU relies on non-EU suppliers for more than 80 percent of its digital products, services, and infrastructure.

What happens next depends on politics as much as drafting. The texts must be approved by all 27 member states, and they are deeply split. France and Germany advocate for a stricter European-preference line, while the Nordics and Ireland, where US cloud firms base much of their European operations, favour a softer approach. The package also includes the EU’s first formal legal definition of “digital sovereignty,” a term Brussels has used for years without pinning down.

Whether these instruments will actually move the needle remains an open question. Earlier efforts, from the 2023 Chips Act to the bloc’s stalled AI gigafactory programme and its sovereign cloud contracts, set ambitious targets that spending has not yet met.