Zach Meyers / Jan 2026
Mario Draghi. Photo: Shutterstock
Europe’s policy priorities have swung wildly in the past 18 months. Mario Draghi’s September 2024 report on European competitiveness initially seemed to have captured European political leaders’ attention. This raised hopes that Europe would finally enact long-needed reforms to boost its sluggish economic growth. But since then, the re-election of Donald Trump and his antagonistic approach to Europe has radically shifted the EU’s policy priorities towards promoting economic security over economic growth.
Nowhere is this shift clearer than the digital sector. In his report, Draghi highlighted the need for Europe to adopt and better use global technologies to increase its productivity. He highlighted that there were sectors where the EU should, for its own security, rely only on European technologies – but emphasised that these were costly and should be limited in scope, implying that Europe should otherwise remain open to global technologies. But since then, the US president has imposed travel restrictions on former European Commissioner Thierry Breton and threatened to impose “responsive measures” on European tech firms operating in the US – both in response to the EU’s tech laws. Adding to long-standing concerns about excessive reliance on US technology, European leaders are now fearful that the US could trigger a “kill switch” – turning off critical services like cloud computing – to cause massive economic damage to Europe if it adopts digital policies the US does not like.
This question about whether Europe can afford to rely on US tech services – and can do so while still enforcing tech laws that reflect European values – poses an acute dilemma. For now, the EU is not a global leader in key technologies like AI and cloud computing expected to be key to future economic growth: so economic growth demands that the EU remain open to the best (and best value) foreign technologies. However, a path to digital sovereignty requires Europe to develop more of its own technology champions and ensure their success – often in markets where European alternatives cannot, at least in the short term, offer a more compelling product than their American equivalents.
Several different models of industrial policy are emerging in Europe to solve this dilemma, with different trade-offs between competitiveness and sovereignty:
- The first advocates creation of an end-to-end tech stack – from basic connectivity through to data centres, operating systems, AI models and end-user software. However, since tech markets rely on specialisation, the EU is unlikely to have competitive options throughout the end-to-end tech stack. This approach is therefore likely to rely extensively on protecting ‘strategic’ European tech firms from foreign competition – directly or via discriminatory regulation or public procurement rules – rather than promoting economic dynamism.
- A more balanced approach is to pursue (and protect) European alternatives in a few targeted parts of the tech supply chain which are seen as particularly sensitive to reduce the EU’s existing dependencies, for example if Europe is (nearly) fully dependent on one other country for its supplies. This approach involves some potential cost to economic growth, since sensitive areas will not necessarily be those in which Europe has a comparative advantage, so Europe should also aim to deliver a ‘minimum viable product’ rather than a ‘European champion’. And it would need to ruthlessly prioritise which parts of the supply chain to target.
- A third option is to look more offensively. Instead of solely plastering over the EU’s vulnerabilities, the EU could focus instead on emerging technologies where Europe could dominate globally in future. This would increase other countries’ dependencies on the EU – giving Europe more leverage in its trading relationships. This approach is potentially the most growth-enhancing and consistent with competitiveness, since it would rely on leveraging Europe’s strengths and would boost its exports. But achieving leadership would require exploiting existing non-European technologies, like cutting edge AI models, to maximise Europe’s technological progress.
In all of these options except the first – and least competitiveness-enhancing – one, Europe will have to accept that its dependencies will not disappear overnight. An important component of Europe’s strategy should therefore be to use its market strength to mitigate political risk. This could be by requiring firms to localise their data storage or invest in physical assets in Europe, or to ensure workable fall-back options if a foreign country was to trigger a “kill switch” or otherwise weaponise Europe’s reliance on it. This is likely to be one option pursued by the upcoming Cloud & AI Development Act.
Over the long run, slow economic growth fuels political polarisation and poses huge challenges to democracy – and to Europe’s heft in the world. And in the short run, China and the US have both shown growing willingness to exploit Europe’s dependencies.
Europe therefore faces no easy choices. But a combination of tactics – defensive investments to ensure Europeans have choices of suppliers from core technologies, offensive steps to build out EU capabilities in areas where it can act as a global ‘chokepoint’, and measures to mitigate political risks from using non-EU providers – are likely to form the optimal mix, protecting Europe’s sovereignty while ensuring European economic growth. Policy-makers now need to take tough decisions about which tactics to adopt in which parts of the value chain. Too often, Europe’s past attempts to boost its digital sector have ended in failure. A change is essential because, until now, Europe’s strategy has delivered neither faster growth nor greater sovereignty.
