Picture a poker table. Someone across the table convinces you that your cards are bad. Eventually, you believe them and react accordingly: you are timid, don’t take big risks. Turns out, your opponents are tricking you. Your cards are better than you thought.
Europe finds itself sitting at this tech poker table. American and Chinese governments are convinced that the continent is weak and holds poor cards. But Europe enjoys more leverage than most think.
How it should wield these cards remains an open question. If the US threatens Europe, should it respond with equal threats — or would that cause more pain than gain? If China attempts to swamp the continent with products, will Europe lose more by retaliating than negotiating? While Washington may hold a “kill switch” over European data, Europe could respond by advertising a kill switch of its own.
Europe starts off by believing it has lost the tech race. The much-cited Draghi report, written by the former Italian Prime Minister, blames the productivity gap between the US and Europe on tech. It warns that if Europe doesn’t start innovating, it will fall behind other geopolitical powers.
Even if it is undeniable that Europe remains dependent on US tech, the continent holds strong chokepoints. Dutch ASML holds a monopoly over the manufacturing of lithography machines required to make the most advanced AI chips. German technology leader Merck produces chemicals needed in chipmaking and has focused its efforts on AI chips. Belgian Imec consistently produces world-leading research on semiconductor technologies.
Without Europe, even the most advanced AI chips cannot be made.
Europe holds additional leverage in other parts of the AI stack. The frontline of the digital sovereignty battleground is in cloud infrastructure. Europe is worried — understandably — about relying on a few large US cloud providers to store sensitive public data. But it is not just Europe that depends on American companies. A large part of the US public sector depends on European companies. Software giant SAP, Germany’s most valuable company, is the third-largest software vendor to the US government.
Even in AI models and other end-user software, Europe holds some valuable cards. AI depends on good data, and Europe possesses some of the best industrial data in the world. The UK government recently put a price on the value of its industrial data, pledging £100 million to invest in a National Data Library.
The appetite for developing large language models is shrinking — and instead, many startups are turning to small language models as economically viable alternatives. These specialized models are deployed in science, industry, and B2B. Europe’s database will prove a great asset in developing AI models with a narrower focus.
While it is true that Europe remains dependent on foreign technology, which underpins much of its economic and political systems, protectionism will prove counterproductive. It has weapons to retaliate if others pull “kill switches.” Rather than erecting a digital stack from scratch, Europe should build digital sovereignty on the foundation of its pre-existing expertise.
The upcoming Chips Act 2.0 is a good example. The first European Chips Act aimed to build chip production capabilities in Europe, doubling the continent’s market share to 20% by 2030.
The European Court of Auditors warned that this is an unrealistic goal. But rather than abandoning the project or replicating capabilities that exist elsewhere, Europe can leverage its existing strengths in lithography and chemicals, as the Dutch-led Semicon Coalition urged.
Europe looks set to double-down on digital sovereignty in 2026. The US is convinced it has the upper hand, and that the EU will try and fail to duplicate the tech stack. But if Europe reinforces its existing strengths, this may help send a message to the US that it depends on European technology, too.
Clara Riedenstein is a tech policy analyst and writer whose work examines how emerging technologies shape existing political, legal, and social institutions. Her research has been featured in Bandwidth, Tech Policy Press, and European View. Clara holds an MSc in Political Theory Research from Oxford University, where she studied as a C. Douglas Dillon Scholar and focused on the implications of large language models for theories of state and jurisdiction.
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.
2025 CEPA Forum Tech & Security Conference
Explore the latest from the conference.
