Over the past few weeks, US President Donald Trump’s administration has delivered a series of devastating blows to Europe’s remaining illusions about the US’ enduring support.
US Vice President J.D. Vance’s confrontational speeches at the Paris Artificial Intelligence (AI) Summit and the Munich Security Conference set the tone, followed by Trump’s executive order directing his administration to retaliate against foreign efforts to regulate US tech companies.
However, it was only after the Oval Office confrontation with Ukrainian President Volodymyr Zelenskiy that European leaders finally got the message: They are on their own.
Illustration: Louise Ting
This shock therapy might be just what Europe needs to heed former Italian prime minister Mario Draghi’s desperate plea to the European Parliament: “Do something.”
Though long overdue, the EU still has time to get its act together and implement bold industrial policies. By leveraging its manufacturing strength and repurposing its robust aviation, machinery, cleantech, shipbuilding and steel industries, Europe can gear up for a quasi-war effort while shielding itself from a second “China shock.”
Responding to major pressure, Europe’s digital sector is also beginning to mobilize. Until now, the EU has focused almost exclusively on regulating apps and services, but this has not created the conditions for European industry to compete and thrive. Across every layer of the digital supply chain — from hardware to software to intermediation — Europe has increasingly become a colony. More than 80 percent of its digital technologies are imported and most of its digital infrastructure is now owned by non-European, primarily American, companies.
In truth, Europe has itself largely to blame. Inadequate coordination, incoherent policies and insufficient market integration, with internal barriers — equivalent to a 45 percent tariff on goods and a 110 percent tariff on services, according to the IMF — have impeded the development of marketable products and dampened all incentives for investment in European digital infrastructure.
The potentially catastrophic implications are obvious. Without control over its digital infrastructure’s “kill switch,” Europe is in an extremely vulnerable position. A single decision in Washington — whether on security or regulatory grounds — could force US tech companies to sever contracts with key European entities. Remarkably, while Europeans take for granted that essential infrastructure like water, electricity and transportation is under European control, they seem blissfully unaware that the continent’s digital “backbone” is not.
The recent AI frenzy has raised hopes that Europe can establish itself as an “AI continent” — still lagging behind the US, but developing a suite of competitive AI products and applications. Yet, pinning Europe’s technological hopes on AI alone would be a grave mistake, as Europe’s digital capabilities across the digital supply chain have steadily eroded in recent years.
Major American firms, adept at operating seamlessly across borders, have thrived, while European suppliers have struggled to achieve scale on a continent divided by national regulations and language barriers. The entrenched power of US incumbents — often built on extractive business models and reinforced by vast industrial ecosystems — has narrowed the space for European suppliers to compete globally.
Given these realities, regulating conduct at the top layer of the digital “stack” — search, e-commerce, social networking and app stores — was never going to be enough to create real opportunities for European companies. Scratching at the castle door, begging for entry, neither levels the playing field with those who own the castle, nor contributes meaningfully to Europe’s GDP.
Consider European cloud suppliers. The EU’s highly fragmented sector has been all but crushed by the relentless expansion of the three US hyperscalers: Amazon Web Services, Google Cloud Platform and Microsoft Azure. These giants rapidly expanded and entrenched their incumbency by tying up demand through egress fees and high switching costs. Multiple ongoing antitrust investigations are not changing the reality on the ground.
Unsurprisingly, European businesses are growing tired of regulators’ promises. The lack of real progress on the Digital Markets Act — Brussels’ worst-kept secret — has led to a growing recognition within the digital sector that the “status quo” is unsustainable.
The Trump administration’s recent actions have reinforced these dynamics, spurring European tech companies to take the initiative in pushing for an industrial policy that safeguards the continent’s digital assets and capabilities. Against this backdrop, EuroStack — an informal, non-lobby initiative aimed at expanding the EU’s presence throughout the digital industry and strengthening resilience in areas critical to European sovereignty — is rapidly gaining traction across industry sectors, and among EU and national policymakers.
European Commission-led digital initiatives have historically been fragmented and devoid of commercial focus. Funding has largely gone to research institutions and universities rather than to projects with real market potential. As a result, the commission’s programs have failed to slow the decline of European suppliers — let alone reverse it.
However, the landscape has shifted dramatically, as the US’ sudden policy shift has placed immense pressure on European governments to ramp up defense spending. Digital sovereignty and cybersecurity are now central pillars of the EU’s push to achieve strategic autonomy.
Unlike previous initiatives, EuroStack is not a top-down, bureaucratic, multiyear plan to shape the future of the European digital industry. Rather than focusing on subsidies or state aid, this pragmatic, industry-driven effort aims to form concrete partnerships and ensure that European institutions support market-led initiatives capable of creating viable alternatives to non-European digital assets.
Rooted in European values and democratic governance, EuroStack aims to channel European demand (public and private) toward European suppliers, while pooling assets and adopting common standards to generate economies of scale. Its goal is to enable European companies to compete against global players by delivering services of comparable quality at attractive prices.
In line with emerging industrial-policy proposals in other vital sectors and mirroring aspects of the US Inflation Reduction Act, EuroStack recommends strategic demand-side measures to promote “buy European” policies. This includes public-procurement mandates and targeted incentives to encourage private actors to support European suppliers.
On the supply side, EuroStack calls for federating and pooling assets to create economies of scale. As defense spending rises, sovereign funding is also expected to play a key role. With renewed industry momentum and governments under pressure to deliver a “European resurgence” in defense and technology in the new geopolitical reality, there has never been a better time to revitalize Europe’s digital infrastructure.
Cristina Caffarra, cofounder and vice chair of the Competition Research Policy Network at the Centre for Economic Policy Research, is an honorary professor at University College London.
Copyright: Project Syndicate
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