In what may be the perfect expression of Europe’s current strategic priorities, the European Union will convene a “Summit on European Digital Sovereignty” tomorrow in Berlin. The choice to hold a “digital sovereignty” summit, rather than a “competitiveness” summit or a “technology of tomorrow summit,” arguably says a great deal.
Alas, this notion that the EU should reduce its dependence on foreign technology might be a luxury belief, and it is emerging at precisely the moment that Europe is running out of luxuries.
As the September 2024 “Draghi Report” noted, real disposable income in the EU grew roughly half as fast as in the United States over the past quarter century. EU labor productivity, once close to U.S. levels, has slipped to roughly 80%. Europe’s venture-capital environment also remains anemic, and the union’s ability to scale innovative firms across borders is famously poor. Of the world’s top 50 largest tech companies, only four are European—an astonishing figure for a bloc of 450 million people. Meanwhile, the United States, with just 60% of the EU’s population, has produced a whole ecosystem of globally dominant digital firms. Europe has given us little beyond Spotify and Booking.com.
Against this backdrop, Europe’s leading policymakers seem to believe the way forward is to reduce reliance on foreign (mostly American) technology companies by regulating away their dominance in cloud, artificial-intelligence, and digital-platform markets; expanding foreign-investment screening; and using procurement and public spending to advantage European champions. The Digital Markets Act, for example, is openly designed to constrain U.S. firms and create favorable conditions for European access seekers, even compelling dominant firms to share infrastructure and intellectual property at little or no cost.
The list of participants at the impending summit—largely government officials and commissioners, with no meaningful private-sector presence beyond European firms like Orange and OVH that stand to benefit from EU favoritism —reveals who Brussels expects to drive this project, and for whom.
The problems with this strategy are significant. Europe “depends” on—though one could also say it “benefits” from—U.S. technology because it has not produced credible substitutes. It could bar government agencies and critical sectors from using U.S.-based cloud services, but Gaia-X—the great European cloud hope— has become a costly, bureaucratic tangle. There is no guarantee Europe will succeed in producing anything close to the quality it seeks to replace, and the opportunity costs are steep.
The Draghi Report estimated that Europe must boost investment by roughly €800 billion, with others putting the tally at closer to €1.2 trillion if the EU hopes to meet its digital, green, and defense ambitions. But this is easier said than done. The capital required to build digital infrastructure of global scale is enormous. While U.S. AI firms like OpenAI and Anthropic have raised billions from private investors, Europe’s fragmented markets and regulatory burdens make such private capital formation far more difficult to accomplish.
If public funding is supposed to fill the gap, taxpayers in deficit-laden member states will rightly question why their money is being used to reinvent services already available at competitive prices. Indeed, Germany and especially France—the two political engines behind the digital-sovereignty agenda—are currently running their largest fiscal deficits in years. Every euro taken from already overburdened taxpayers (a typical Belgian single worker pays roughly 20% more in taxes than his U.S. counterpart) in an effort to displace U.S. tech firms represents funds not spent improving Europe’s own business environment: modernizing its single market, encouraging entrepreneurship, or reducing the regulatory and administrative burdens that more than half of European small and medium-sized enterprises (SMEs) cite as their biggest obstacle to growth.
There is also a deeper conceptual confusion. “Digital sovereignty” should properly be understood as the ability to produce competitive firms, not the power to shelter uncompetitive ones. As Tyson Barker noted in Foreign Policy, digital-sovereignty advocates sometimes describe their goal as empowering citizens—giving them control over their data, their privacy, even their “digital destiny.” But the project is also often framed as an effort to grant governments more control over digital infrastructure and the technological systems that operate within their borders. That conception is difficult to reconcile with any liberal or democratic understanding of sovereignty.
If Europe is to produce successful firms, they will be private actors with fiduciary duties, not patriotic instruments of state strategy and certainly not embodiments of “European values.” Mistaking protectionism or state control for sovereignty risks steering Europe toward a command-and-control industrial model, with reduced innovation, politicized industrial policy, diminished consumer welfare, and a profound question about who is truly meant to be sovereign: governments or citizens?
“Digital sovereignty” is an idea that sounds impossible to oppose: it promises democracy, autonomy, and control. Who wouldn’t want to be in control of their digital destiny (whatever that means)? But at a time of record government spending, rising taxation, weak productivity growth, and an aging population, digital sovereignty might be a luxury idea the EU simply cannot afford.
The good news is that it may not need to. There is a better course, although it might grab fewer headlines and appease fewer powerful local interests looking for easy public money or a regulatory leg up. Rather than trying to decouple from U.S. technology or artificially creating space for European firms by dragging others down, the EU should focus on fostering organic growth and building on the immense benefits already provided by companies like Meta, Microsoft, Google, and Amazon.
Doing so likely involves implementing the Draghi Report’s more liberal proposals. These include simplifying regulation; cutting red tape; completing the single market in practice, rather than simply in rhetoric; and making the EU a place where entrepreneurs and investors want to build.
There are narrow areas—defense systems, critical infrastructure, genuinely sensitive data—where Europe is right to demand strict safeguards. For instance, it is true that U.S. law—particularly the CLOUD Act—can compel American companies to provide data stored overseas. The EU has long worried that this may conflict with its own regulatory framework and thus with its notion of sovereignty.
But the United States is not a strategic adversary. It is Europe’s closest ally, its security guarantor, and its largest export market. Treating allied legal frameworks as if they pose the same threat as authoritarian surveillance regimes risks confusing a manageable governance issue with a geopolitical one.
And some of these tensions arise from the EU’s own design choices: the General Data Protection Regulation (GDPR) set extraordinarily stringent and often impractical data-protection norms whose rigidity now amplifies transatlantic frictions. As the EU expands its regulatory reach, in an attempt to fulfill its manifest destiny as a regulatory superpower, its homegrown regulations are bound to clash with the laws of other countries who see themselves as no less sovereign.
Rather than policies that reflexively bless anything European and penalize anything American, Europe’s legitimate concerns call for surgical tools. Aiming to eliminate “dependencies” on technologies from which Europe greatly benefits risks steering the continent into a cul-de-sac of second-rate substitutes. The smarter path is to improve Europe’s business environment so that the technologies of tomorrow can emerge organically, while leveraging the enormous positive externalities of existing ones, whatever their source.
In the end, true digital sovereignty is neither achieved nor maintained by walling Europe off from its closest ally. It can only emerge from giving innovators a reason to build in Europe. That belief may not glitter quite so attractively in Brussels policy circles, but it will do far more to make Europeans wealthier in the long run.
