For Europe, Digital Sovereignty Hinges on New Chips Act   

Europe’s ambition for digital sovereignty is at a crossroads. While global rivals and allies aggressively invest in semiconductor design, the EU’s strategy remains dangerously fragmented. From stalled policy initiatives to reliance on foreign technology, the bloc’s actions—or lack thereof—are undermining its strategic and economic independence. The message is clear: without immediate and decisive action to fortify its chip design ecosystem, Europe risks being left behind in the race for technological supremacy. 

Ongoing global conflicts and rising tensions related to access to advanced technologies underscore a brutal truth for Europe: true sovereignty is built on silicon. As conflicts on the Eurasian continent grind on—highlighted by events like Poland's engagement with Russian drones and Israel’s actions in Gaza—the EU is ramping up defence spending to a record $402 billion.  And this decision is reflected in the local chips market as the technology is foundational for modern weapons systems: the region's semiconductor sector for aerospace and defence is now expected to grow from $4.58 billion in 2025 to $6.11 billion by 2030. 

Meanwhile, other crucial sectors are threatened, too. From critical infrastructure to AI and clean energy transitions, every core strategic sector depends on semiconductors. This is best reflected in an unprecedented shortage of chips around the globe that unfolded in late 2020 after the Covid-19 outbreak. The crisis hit Europe hard, stalling auto assembly lines, wiping billions from automakers' revenues, and driving up costs for consumers on everything from cars to electronics. Now, the industry in the region is slowly climbing up, projected to reach $113.43 billion in revenue in 2025 and forcing the European Union to solidify its semiconductor strategy. 

The EU responded to the COVID-era chip crisis with its 2023 Chips Act, a policy designed to fortify the bloc's semiconductor industry. Initially focused on boosting manufacturing capacity, the Act represented a clear first step. However, experience has revealed a more complex reality: production is only one part of the puzzle. 

The initiative primarily subsidized fabrication plants. Yet, modern chip production requires far more than physical factories; it demands massive R&D investment to develop customized designs. These specialized architectures—protected by intellectual property and licensed at high cost—form the industry’s high-value core. Market power is concentrated among a handful of firms that master this design-led model, creating a critical gap the Chips Act ignored. 

Manufacturing Alone Isn't Enough 

According to a recent PWC report, global industries—from automotive and computing to industrial equipment—are growing increasingly dependent on advanced chip designs. These are the same sectors that were crippled in Europe during the COVID-19 supply shock. Yet, the EU Chips Act, passed three years ago, overlooked this critical need. 

The legislation focused narrowly on subsidizing manufacturing capacity, failing to set integrated policy goals for the entire supply chain—especially its high-value design phase. This narrow focus is reflected in its key performance metric: the primary tracked target of the annual European Digital Decade status report remains its share of global chip manufacturing capacity, a single data point that overlooks broader technological competitiveness. Even the Act’s design-related component, Pillar I, prioritized moving R&D into fabrication—providing little practical support to the commercial chip designers who turn intellectual property into market-ready products. 

Furthermore, the final version of the EU Chips Act reveals a stark under commitment. Of the widely touted €43 billion package, the European Commission itself was responsible for only a small fraction—approximately 10% of the total public funding. The vast majority relied on member-state budgets and private industry investment, fragmenting both strategy and accountability. 

This level of centralized investment pales in comparison to global rivals. For instance, in 2023 Taiwan has launched an €8.8 billion program with explicit targets: capturing 40% of the global integrated circuit design market and 80% of advanced semiconductor production by 2033. The disparity underscores a troubling reality: the EU’s centralized commitment to its own strategic sovereignty in chips has been, to date, critically insufficient. 

Isolated Wins and a Systemic Gap 

The fragmented semiconductor strategy has already resulted in a critical shortage of advanced chips. The European Court of Auditors has labelled the EU’s position in this sector as “limited,” lagging behind leaders like the U.S., South Korea, Japan, and Taiwan in R&D and production. 

Yet, despite the broader stagnation, some national-level initiatives show targeted aid. In July 2025, Spain awarded a €5.4 million grant to VLC Photonics, a Valencia-based specialist in photonic integrated circuit (PIC) design and testing. The funding supports the company’s efforts to enhance R&D capabilities in semiconductor-based photonics, with the goal of accelerating commercial applications in optical communications, signal processing, and sensing technologies. 

Private market participants are driving progress as well. France-based chip designer SiPearl recently released a reference server design built around its Rhea1 processor, a key component in several European collaborative projects aimed at strengthening the continent's open-source software ecosystem. The company, funded from both public and private sources, recently sent Rhea1 for production. Once assembled, the cutting-edge processor will power Jupiter, a European supercomputer in Germany backed by the EU for strategic research in fields like medicine, energy, and defence. Now, SiPearl is getting ready for Rhea2 and Rhea3, which will target not only the high-performance computing (HPC) market but also European data centres. SiPearl has just announced the launch of Athena 1 processor for dual-use applications. The company is on a very positive trajectory, but as the development costs increase dramatically, the company is compelled to seek new public and private investors to move on.  

Companies like VLC Photonics and SiPearl remain exceedingly rare in Europe, representing only a small bit of the world’s overall semiconductor design industry, and this has not gone unnoticed by other market players. Recognizing both the vulnerability and the opportunity, Taiwan's manufacturing giant TSMC—which traditionally focuses solely on production—announced in May it will establish a chip design centre in Munich, with the stated goal of helping European clients architect high-performance semiconductors, filling a crucial void in the region's ecosystem. 

This development, however, comes with a caveat. The Taiwanese company's decision to open the Munich centre is a direct response to a core weakness: Europe's severe shortage of advanced semiconductor design expertise. And while this investment will undoubtedly boost the local ecosystem, it highlights two stark realities. First, it underscores the paramount importance of chip design itself; the fact that the world's largest foundry is altering its strategy to provide it is a powerful testament to its value. Second, the centre is a foreign-led venture, funded by private Taiwanese capital. Its presence, while beneficial, ultimately operates outside the EU's framework for strategic autonomy, highlighting the continued gap between the bloc's sovereign ambitions and its on-the-ground capabilities. 

All Talk, No Support 

Meanwhile, European policymakers show little urgency in correcting the lack of support for domestic chip designers. In May, industry leaders called on the European Commission to launch a follow-up to the 2023 Chips Act—one that would, among other issues, specifically address chip design. Yet, as the year draws to a close—marking the midpoint of Europe’s Digital Decade 2020-2030—there has been no concrete action, nor any sign of a “Chips Act II.” 

More strikingly, the European Commission recently committed to purchasing a significant volume of foreign-made AI chips as part of a new trade agreement. European Commission President Ursula von der Leyen stated, “The EU also intends to purchase €40 billion worth of AI chips,” adding that the deal “will help the US to maintain their technological edge.” This was not a misstatement—the agreement is explicitly framed around foreign policy objectives rather than strengthening European competitiveness. Taken together, the silence on a design-focused Chips Act and the decision to subsidize foreign semiconductor dominance openly contradict the EU’s stated goal of digital sovereignty. 

America’s strategic role in this situation is particularly noteworthy. When the U.S. passed its CHIPS Act in 2021, it allocated $52 billion to strengthen its semiconductor industry—including dedicated, separate funding for chip design. This reflected a deeper understanding of the sector’s interconnected nature. As then Deputy Secretary of Commerce Don Graves emphasised: “You can't divorce the design side, the innovation side, the research side, from the manufacturing side,” adding that “once the CHIPS Act gets passed, we'll be very focused on investing to make sure that part of the ecosystem is getting the investment and support that it needs.” 

Four years later, that integrated strategy is paying off—so much so that the U.S. is now positioned to export advanced chips, including to allies in Europe. Meanwhile, recent growth in semiconductor design and fabrication research is increasingly concentrated in China and India. This global repositioning raises a pressing question: where does Europe fit? And the answer will depend entirely on the speed of its decision-making and the level of future support the EU provides to its own innovators.