Can Europe reconcile digital sovereignty and competitiveness?
Thursday, 2 October 2025
As geopolitical tensions rise and technology becomes ever more central to growth, the European Union faces a fundamental question: can it build digital sovereignty without undermining its economic competitiveness? This was the theme of the latest episode of Future is Blue, where I spoke with Zach Meyers, Director of Research at CERRE and author of a new paper on this subject, and Miguel Ángel González Simón, economist at Funcas.
The conversation revealed the scale of Europe’s challenge, but also offered a pragmatic way forward. You can listen to the full episode here.
A competitiveness problem rooted in productivity
When discussing competitiveness, we often focus on exports, jobs, or preserving traditional industries. But as Zach Meyers pointed out, these outcomes reflect a deeper structural challenge.
“Mario Draghi’s report framed competitiveness as a problem of low economic growth, and more specifically, lack of productivity growth,” Meyers explained. “When you compare Europe to the United States, which has had years of blistering growth, it’s all been around productivity — doing more with what you’ve already got.”
This productivity gap is closely tied to Europe’s underinvestment in technology, particularly in information and communication technologies. While U.S. companies pour resources into AI, software, and digital infrastructure, European firms have lagged behind. “It’s not that Europe lacks ideas,” Meyers added, “but we struggle to both make investments in ICT at scale, and then to turn technological investment into efficiency gains.”
Why “Eurostack” couldn’t be the answer
One proposal gaining traction in recent years is to build a European major player at every stage of the tech value chain — from data centers and chips to office software. Advocates have called this “Eurostack.”
“It’s exceptionally difficult to see where the money would come from. Proponents say it could cost €300 billion. And even then, trying to promote technologies in all parts of the stack, including where Europe has no comparative advantage, means Europeans would pay more for something of lower quality.”
The problem, he argued, is that such policies confuse sovereignty with growth. “We might need limited sovereign capacity for sensitive areas like defense-related cloud computing,” Meyers said. “But that shouldn’t be mistaken for an economic growth strategy.”
The case for targeted sovereignty and emerging technologies
Instead of chasing a full stack, Meyers recommended a mix of approaches. In some areas, targeted European alternatives might make sense — for example, ensuring that defense data is stored on European-controlled servers. In others, regulatory safeguards could mitigate risks when relying on foreign suppliers.
But above all, Meyers argued, Europe must look ahead. “We need to accept some areas where we’re already behind and focus on emerging technologies. If we put our efforts into niches that are growing, that could give us leverage in a more power-driven world.”
Scale, funding, and efficiency
For Miguel Ángel González Simón, the competitiveness challenge is just as pressing from a macroeconomic perspective. “Over the last decades, the EU has lagged behind the U.S. and China, especially in technology,” he said. “And today the pressure is even higher because of trade restrictions and the so-called second China shock, which is hitting Europe’s high-value sectors like automotive.”
There are two structural weaknesses: scale and funding. “Only 6% of global AI startup funding goes to European firms. Without a real capital markets union, European companies face enormous obstacles to scaling up. Good projects struggle to grow across the EU market.”
Efficiency, he argued, is the missing link. “In the U.S., firms fail faster and restart faster. That cycle is part of their innovative edge. Europe, in contrast, is more risk-averse, and firms are slower to exit and slower to try again. If we just look at economic efficiency, the conclusion is simple: Europe needs more risk-takers, and better tools for firms to fail and bounce back.”
The Single Market as priority number one
Europe’s fragmented market is one of its biggest barriers. “Industrial policy works best when it targets market failures,” González Simón stressed. “And in Europe, the fundamental failure is fragmentation across member states. Completing the single market and advancing capital markets union is the necessary condition for any strategy, whether on technology, regulation, or European alternatives.”
Meyers echoed the point: “Even when European firms find innovative ways to use technologies, they don’t get access to customers quickly enough. It’s much easier for them to move to the U.S. We need to make sure successful firms can grow across Europe as fast as possible, rather than propping up those that can’t keep pace.”
Balancing sovereignty with openness
The debate often frames sovereignty and openness as opposites. But González Simón offered a nuanced conclusion: “Europe’s choice is not between open markets and sovereignty. The EU became an economic power in an open, multilateral world. Our options to prosper will be much lower if this is no longer the case.”
Meyers agreed, adding that safeguards, not isolation, are the best way forward. “Divesting from U.S. technologies isn’t plausible. But regulatory safeguards can provide certainty, while we invest in emerging technologies where Europe can genuinely lead.”
A realistic path forward
Europe’s competitiveness challenges cannot be solved by slogans or unrealistic industrial projects. Instead, the EU should focus on what it can control: completing the single market, creating a functioning capital markets union, and targeting investments where Europe has competitive advantages.
Addressing these challenges involves accepting disruption, allowing innovative firms to grow, and resisting the temptation to shield incumbents from change.
Policy decisions made in the coming years will shape Europe’s position in global technology markets. Whether the EU can maintain regulatory influence while building competitive capacity in key sectors will depend on its ability to integrate the Single Market, mobilize private and public capital, and target resources strategically.
You can read here Zach Meyer’s paper:
Here you can listen to the podcast.
Carlos Carnicero Urabayen