The European Commission’s new Digital Sovereignty package proposes a Chips Act 2.0 that would pour taxpayer money into a sovereign artificial intelligence chip factory. A wise strategy would instead build on Europe’s existing semiconductor strengths and boost the continent’s AI appetite.
Europe’s first Chips Act, from 2022, aimed to increase the EU’s global market share to 20% by 2030, up from 10%. Its report card is mixed. Taiwan Semiconductor Manufacturing Company invested in a multibillion-dollar German fab to supply automotive chips. But Intel backed out of an investment for advanced AI chips in 2024, citing financial problems and lack of demand.
Although the new Chips Act 2.0 “prioritizes” subsidizing a foundry for advanced semiconductor manufacturing capabilities, European chip demand comes primarily from the automotive sector and industrial applications, which rely on 28/22 nanometer technology, not cutting-edge chips. Demand for much thinner, two-nanometer AI chips remains concentrated across the Atlantic.
“If you had a fab like this in Europe, all the wafers that would be manufactured would be exported to the United States,” warns Christophe Fouquet, CEO of ASML, which produces almost all of the machines used to manufacture high-level semiconductors. “So, then you’ll be in a situation where Europe subsidizes a big project, and the output of this project goes somewhere else.”
Rather than subsidize American AI, Europe needs to boost domestic demand. In Fouquet’s view, a good start would be to water down the bloc AI Act, which he believes hobbles European companies from adopting the new technology. ASML recently joined Airbus, Ericsson, Mistral, Nokia, SAP, and Siemens in warning that the legislation risks hobbling European companies before they can compete with US and Chinese rivals.
Without strong European AI demand, a new state-backed mega-fab would be enormously expensive, politically sensitive, and likely to depend on permanent subsidies. At present, two American companies, NVIDIA and AMD, dominate AI chips — and American companies Google, Amazon, and Microsoft are among their largest customers, according to Jan-Peter Kleinhans, a semiconductor expert at the OECD’s Science, Technology and Innovation Directorate.
Since the global leading-edge foundry market is an oligopoly defined by scale, experience, and process know-how, Kleinhans says Europe cannot simply buy its way into that club, especially not in the AI era where learning curves are brutal and capital requirements are massive. An EU chip factory would, in fact, be a German chip factory. Among EU members, Berlin alone boasts the financial firepower to subsidize such a project. Yet asking EU taxpayers to bankroll a flagship factory in Germany would also reopen familiar fights inside Europe over who would benefit from “European” projects.
In practical terms, public money would be best deployed to make Europe a better place for the existing tech leaders to build and for new firms to design, rather than trying to force a European champion into existence. The goal should be to level the cost equation so that building in Europe becomes commercially comparable to building in Asia, while relying on world leaders such as TSMC and Samsung who already know how to run advanced fabs at scale. That would give Europe a real manufacturing foothold without pretending it can instantly become an independent leader in the most capital-intensive part of the industry.
Europe also should move away from subsidizing “national champions” such as Germany’s Infineon or Franco-Italian STMicroelectronics and instead use tax breaks, R&D incentives, and scale-up finance to create a dynamic fabless AI-chip ecosystem. A pan‑European “AI Chip Growth Facility” could co‑invest alongside VCs in places like the Netherlands, Poland, or the Baltics, where talent is strong, but capital is thin. The model should be Arm, the UK design leader whose intellectual property powers almost all the world’s mobile phones.
This strategy plays to European strengths, design talent, niche IP, research depth, tools, and selected manufacturing nodes. Belgian-based Imec is the world’s leading independent nanoelectronics R&D hub. ASML, Zeiss and other European optical companies dominate chip imaging. Public money and leading universities should be encouraged and funded to leverage these strengths into true start‑up factories, helping researchers spin out AI‑chip firms with shared design tools.
In this way, Chips Act 2.0 would no longer be a fight over one large German factory that could become a permanent subsidy sink. Europe would remain open to the broader allied semiconductor coalition, rather than insisting on a purely European answer to a global industry.
Europe cannot try to outspend China or the US into a sovereign AI-chip future. It should work to boost AI demand, seed the next wave of fabless design firms, and strengthen its existing ecosystem rather than focus on creating a politically symbolic but economically fragile national champion.
Christopher Cytera CEng MIET is a senior fellow with the Tech Policy Program at the Center for European Policy Analysis and a technology business executive with over 30 years of experience in semiconductors, electronics, communications, video, and imaging.
Bandwidth is CEPA’s online journal dedicated to advancing transatlantic cooperation on tech policy. All opinions expressed on Bandwidth are those of the author alone and may not represent those of the institutions they represent or the Center for European Policy Analysis. CEPA maintains a strict intellectual independence policy across all its projects and publications.
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