As Brussels suggests layering certification on top of certification in the name of digital autonomy, a harder question goes unanswered: can a continent regulate its way to technological leadership? European entrepreneurs are sceptical. The geopolitical instability that is reshaping the global technology landscape has hit Brussels with predictable force. Concerned about growing dependence on US hyperscalers and Chinese semiconductor supply chains, the European Union has reached for its most familiar instrument: regulation. While the instinct to build moats and fortress walls is understandable, the consequences for the continent’s entrepreneurial ecosystem might be very damaging.
“The ability to build capacity, resilience and security by reducing strategic dependencies, preventing reliance on foreign actors and single service providers, and safeguarding critical technologies and infrastructure,” so reads a definition provided by the European Commission in June 2025, laying the groundwork for the EC’s approach to digital sovereignty. That was followed in November 2025 by the Declaration for European Digital Sovereignty in Berlin, honing in on the definition as the “ability to act autonomously and to freely choose their own solutions.”
The compliance labyrinth
European businesses working in the technology sector are no strangers to regulation. They already comply with the AI Act, General Data Protection Regulation (GDPR), the NIS2 directive, the Digital Operations Resilience Act (DORA), and a range of national cloud certification frameworks. Combined, these regulations risk hobbling entrepreneurialism as they are hardest to manage for smaller businesses and startups.
According a recent survey, more than 32% of EU SMEs describe regulation as an obstacle to investment. Every certification requirement that a large incumbent (such as the US digital giants the EU wants to reduce reliance on) absorbs as overhead may put a smaller challenger out of the market.
Lack of infrastructure
The EU currently hosts only around 5% of the world’s AI compute capacity, compared to approximately 75% held by the United States. Complex permitting, grid congestion, and energy cost disadvantages are largely accountable for this gap, not lack of regulation.
Although the Special Compute Zones proposed within the EU’s AI Continent Action Plan, pre-permitted sites with fast-track grid connections, are a step in the right direction, Europe’s data centre market grew at roughly half the average global rate over the past decade, reducing the region’s share of global capacity from over 25% in 2015 to just 15% in 2024. Cities including Dublin and Amsterdam have already had to pause new projects due to grid constraints. The infrastructure activity required to close even part of the gap with the US is huge, and it demands private capital.
Europe has relatively strong connectivity in fibre, 4G and 5G, and houses some of the world’s leading research institutions. What it lacks is land and energy. EU data centre power demand is forecast to reach 150 TWh by 2026, up from 100 TWh in 2022 and getting there on clean power requires accelerating renewable deployment and grid expansion.
Improving capital flows
European venture funding grew a modest 9% year-on-year in 2025, compared with North American venture investment which soared 46% year-on-year, driven by AI companies and the venture capital firms that back them. For founders trying to scale, a shallow pool of domestic capital may be the difference between building a European champion and relocating, hence taking their innovation with them. Europe needs to provide startups with healthy access to funds to build resilient, sovereign businesses.
Competition as a driver of resilience
The policy debate misses the role of competition in building sovereignty entirely through the freedom for organisations to choose or switch provider, negotiate contracts from a position of genuine market power, and compete fairly. Sovereignty defined as “who owns the servers” is a particularly limited construct if the entities owning those servers are protected incumbents propped up by procurement preferences rather than companies that have earned market positions through competition. History shows that government-selected champions are rarely able to build genuine resilience, as they tend to get “addicted” to government subsidies that do not stimulate real innovation.
Europe’s predominantly pay-as-you-go pension systems generate little investable capital compared to the funded models in North America that pour billions into private equity and venture. Reforming the pension systems, removing barriers for institutional investors to allocate to venture capital and actively incentivising them to do so, would help boost the startup environment and build sovereignty through competition.
Finally, true digital sovereignty is the result of competitive markets that produce excellent, trustworthy technology at scale. Europe already has the research talent and the connectivity base but it needs the conditions that convert those assets into companies capable of competing globally: faster permitting, cheaper energy, deeper capital markets, and a regulatory position that supports entrepreneurialism.
