Tech sovereignty and a new EU foreign economic policy

Summary

In a global tech sector dominated by the United States and China, the EU faces critical challenges in maintaining its competitiveness, which will likely be aggravated by Donald Trump's return to the White House. The recent bankruptcy of NorthVolt and struggles of Germany’s AI champion Aleph Alpha highlight the need for a more robust technology ecosystem. Following the Draghi report on EU competitiveness, advocates are calling for meaningful reforms and investments with the aim of driving industrialisation and innovation, and developing sovereign digital infrastructures rooted in democratic values.

With potential US tariffs in the offing and a need for labour, resources and markets, the EU must build alliances with a wide range of global partners – from likeminded tech leaders like Japan and Korea, to major emerging economies like Brazil, India, Indonesia and Nigeria. The EU has taken some steps to develop its digital diplomacy and launched the Global Gateway strategy focused on infrastructure investments in the Global South.

We argue that the EU needs a more coherent narrative and a stronger external digital technology offer. This should integrate responsive technology diplomacy with an attractive packaging of key tech solutions and approaches that it is developing at home. This requires scaling up the EU’s policy dialogue with global partners and engaging actors across the EU’s economic, technology and foreign policy sectors. 

Introduction

With the return of Donald Trump to the US Presidency and as China continues to push its global tech agenda, the EU’s economic security is more at risk than ever. The bankruptcy of NorthVolt and the travails of German AI start-up Aleph Alpha lay bare some of the challenges of building competitive tech startups in Europe. For the EU to play a role in shaping the future of global digital innovation and governance, it needs to take urgent action to ensure that its tech sector can survive and remain competitive in the face of US big tech and Chinese state-centric development.

With potential US tariffs in the offing and a need for labour, resources and markets, the EU also needs, perhaps more than ever, to be able to build alliances with a wide variety of actors across the world. Building a meaningful EU ‘foreign economic policy’ in the area of technology will require moving beyond defensive ‘economic security’ measures, and embracing ambitious political and economic partnerships. This means bringing together the rich domestic conversations about competitiveness and democracy taking place within the EU, with agile digital diplomacy and a responsive strategy as regards international investments.

Behind prominent calls to action in Mario Draghi’s competitiveness report, and from tech sovereignty advocates such as Marietje Schaake, Francesca Bria and Cristina Caffara, there is a call to build a ‘full-stack’ sovereign European tech sector, from control of hardware (notably data centres) across various interim layers of infrastructure and software applications (Schaake 2024, Bria 2024). Wrestling back market share in cloud computing is a key concern, but stakeholders are also mapping the wide array of innovations that exist across the EU. Although motivations vary, there is growing support for a model of European digital infrastructure that incorporates democratic values and human rights, but also emphasises industrialisation, innovation and a common European approach, building on open source solutions where possible.

Against a backdrop of growing concern about digital sovereignty across the world, various actors are rapidly advancing alternative sovereign approaches to digital infrastructure. With Global Gateway, an initiative that focuses on hard and soft infrastructure investments across the Global South, the EU has joined the fray, presenting its own digital infrastructure offer, gradually scaling up support to connectivity in particular, data centres and data governance, regulatory support and standards, and digital public infrastructure(s). In recent years, the EU has also relied on the soft power impact of the Brussels Effect to spread its regulatory influence across the world, but this is not enough if the EU wants to have real global influence into the future, and help shape global digital governance.

Europe's ability to integrate innovation, sovereignty and international cooperation may well determine whether it will overcome its current challenges and become a decisive force in shaping the global digital landscape. The EU needs a more coherent narrative around its external digital technology offer, integrating a joined-up and responsive digital diplomacy with a coherent packaging of the important tech solutions and approaches that it is developing at home. This discussion must bring together different parts of the European Commission and of member states – both those focused on technology and those focused on foreign policy – as part of the new ‘economic foreign policy’.

This brief aims to drive a conversation about how the EU can develop a competitive global digital offer by partnering with other countries around the world. Even if calls to action do not materialise into decisive new policies, the EU still has the potential to build on certain strengths to develop a competitive global offer – but this will rely on a better narrative and better packaging of Europe’s existing strengths.

In the first section we explore the emerging European discussion around tech sovereignty. Secondly, we look into the conversation about sovereign digital infrastructure in Europe. Thirdly, we explore democratic control of digital technologies. Fourthly, we look at the growing global marketplace for digital sovereignty and how different global tech actors are responding, and finally, we provide some recommendations for the EU on developing the offensive dimension of its economic foreign policy.

From the Brussels effect to tech sovereignty
 

The 9 September 2024 release of the Draghi report, titled ‘The Future of European Competitiveness’, has been a catalyst for several conversations in the EU about its need to achieve strategic independence and increase its geopolitical influence. The report’s central observation that “the key driver of the rising productivity gap between the EU and the US has been digital technology” (Draghi 2024) has sparked discussions about a much-needed ‘digital grand strategy for the EU’ (Torreblanca and Verdi 2024), that can foster an independent technology ecosystem and reduce European dependence on foreign tech giants. The July 2024 'Crowdstrike outage', which paralysed airports and other critical systems across the world, provided the backdrop of a growing sense of the vulnerability of much of the world’s public infrastructure to privately-owned and controlled technology (Morozov 2024).

Digital sovereignty “lacks a clear definition and is deployed inconsistently across EU policy documents.” (Roberts et al. 2021) It has been best defined as “legitimate, controlling authority over – in the digital context – data, software, standards, services, and other digital infrastructure” (ibid.). Until recently however, the EU’s actions in this area have mainly focused on regulation and antitrust, with the slow but effective process of building the so-called EU 'digital constitution', including GDPR, the Digital Services Act, the AI Act and the European Media Freedom Act (Bria 2024). The stronger, more political objective of achieving ‘tech sovereignty’ departs from the notion that regulation and its global repercussions via the 'Brussels effect’ will suffice. Noting that “the EU relies on foreign countries for over 80% of digital products, services, infrastructure and intellectual property,” the Draghi report argues that the EU must reduce “strategic dependencies [over] critical technologies for the digitalisation of Europe’s economy” (Draghi 2024).

The Draghi report centres the question of investments in the digital agenda, highlighting the lack of sufficient investment in European innovation ecosystems as the key to Europe’s falling behind in terms of digital leadership and overall productivity. Draghi argues that the EU has focused too much on regulation and must do more to stimulate investment and bring new ideas to market. One of his three core areas for action is in bridging the innovation gap in advanced technologies by focusing on an enabling environment to bring innovations to market and scale up, as well as a focus on advanced skills (Draghi 2024). His conclusion ultimately echoes much of what leaders in the European digital industry have been arguing for some time. For example in June 2024, Digital Europe argued that Europe is falling behind because of its fragmented market that makes scaling difficult, lack of deep capital markets and regulation that stymies growth (Bonefeld-Dahl 2024).

Commission president Ursula von der Leyen has clearly taken Draghi’s suggestions to heart, creating a new executive vice president (EVP) for tech sovereignty, a role in which Finnish commissioner Henna Virkkunen has just been confirmed. In her hearing, Virkkunen stuck closely to the letter of her mission letter, outlining her commitment to enacting existing legislation, as well as pointing to new measures that are planned for the early days of the new Commission, including the development of the EU Cloud and AI Development Act, the implementation of the AI Factories initiative and a new Digital Networks Act (von der Leyen 2024, EP 2024). What is noticeable is the strong focus being placed on initiatives that aim to invest in selected infrastructures and to kick start innovation, particularly in the AI sector. Thus the EU Cloud and AI Development Act will aim to address the EU’s growing dependency on big tech for cloud services, while the AI Factories initiative aims to support start-ups in accessing compute power and other support in order to boost AI innovation. The European Commission White Paper ‘How to master Europe’s digital infrastructure needs?’ and recent Council Conclusions on the white paper on 6 December 2024 point to a strong focus on “cutting-edge digital network infrastructure” as the basis for the digital economy and society (EC 2024, CoEU 2024).

Indeed, the competitiveness agenda is clearly present throughout the agenda of the new Commission. Ursula von der Leyen and her pick for EVP and competition commissioner Teresa Ribera have notably laid out a complete overhaul of competition policy (von der Leyen 2024b, EP 2024b), while EVP for competitiveness Stéphane Séjourné will be in charge of developing and overseeing a future European Competitiveness Fund (von der Leyen 2024c). The focus on competitiveness also carries over to the external-facing Commission portfolios, with EU foreign policy chief Kaja Kallas in charge of developing a new ‘foreign economic policy’ (von der Leyen 2024d). Trade and economic security commissioner Maroš Šefčovič will be responsible for not only promoting the EU’s vision of trade, but also for a new European economic security strategy (von der Leyen 2024e), while international partnerships commissioner Jozef Síkela will “take Global Gateway from startup to scale-up” (von der Leyen 2024f).

Investing in Europe’s ‘public’ digital infrastructures

A core dimension of the debate around technology sovereignty centres on the notion of digital infrastructure that is ‘public’. This idea is perhaps best understood as a continuum: At its most basic, it is about ensuring interoperable and non-exclusionary population-wide digital systems that allow citizens to access public and private services. This already has the potential to have a transformative impact and to achieve important goals. At its most extensive, it expands into an all-embracing conception of technology sovereignty which views full national ownership (or regional for EU) over the full technology stack – and notably data centres – as a sine qua non. The same applies to the recently coined phrase ‘Euro Stack,’ which is used as a rallying cry for full technological sovereignty, notably in the face of dependency on American hyperscalers (Caffara 2024). Yet, technology sovereignty is also used to designate more modest attempts to provide choices in terms of technologies, such as building a suite of open source software solutions for the European public sector. 

Keller and Krewer recently aimed to break down emerging conversations about digital infrastructure in the European context through a visual representation that tries not to comprehensively represent all key technologies, but to describe the “discourses about support for digital infrastructure”. (Keller and Krewer 2024. See visual below.) They lean on Bratton’s metaphor of the stack as a way of thinking about global digital infrastructure in terms of interconnected layers of technology that include hardware, software, protocols and data. (Bratton 2016). “Unlike traditional hierarchical models of infrastructure, the stack is dynamic and flexible, allowing for different views depending on one’s goals. Rather than seeing infrastructure as a fixed, ordered system, the stack approach treats it more like a web, open to different perspectives depending on your priorities.” (Keller and Krewer 2024).

Visual 1: Layers of the stack and related policy discourses, as per Keller and Krewer (2024)

Building European tech sovereignty will require a deeper look at the components of the various horizontal layers of the stack, as well as considerations about specific verticals where the EU might have a competitive edge. A vertical may include components from across different layers of the technology stack. Identifying these different horizontals and verticals will require more work, but it is clear that interesting components are to be found across the EU. We touch on this in the conclusion, and will also be doing further work in this area in the months ahead. 

Democratic control of digital technologies

As the debate around a more comprehensive European approach to digital infrastructures gathers steam, this raises a wider array of questions about how to build and govern truly democratic technology. Democracies are built on infrastructures that are designed to deliver public value for their populations, not (just) profits for their stockholders. These debates ultimately touch on every layer of the technology stack, from securing cables and building sovereign data centres to rolling out secure and trustworthy digital public infrastructure (DPI) and developing participative digital platforms.

In the EU, democratic control and individual rights have been central to how the bloc approaches digital regulation and new technologies, with the European Declaration on Digital Rights and Principles developed to undergird the European approach to digital governance. A wider global discussion is also taking place, with Latin American and sub-Saharan African advocates also playing a central role (for example, Open Knowledge 2024). The conversation around democratic governance of technology is thus by no means a European one alone, although Europeans are very active in this conversation.

Within Europe, digital policy experts, MEPs and digital rights activists have called for European nations to “shrink their overdependence on powerful tech companies” and fight back against the ‘Tech Coup” (Schaake 2024), by creating independent, democratically governed digital infrastructures that uphold collective values’ (Bria 2024). Indeed, analysts argue that the concentrated power of big tech, including “its concentrated data, AI talent, and digital infrastructure” allows it to now control the whole AI value chain, with the result that it can dictate “how and what AI models and applications are developed.” (Rikap 2024) This thinking has been behind calls for “a democratic, public-led digital stack” in Europe, and indeed across the world (Rikap et al. 2024).

The concept of digital commons is one of the most widely used in conversations about democratic governance of digital technologies. The French Presidency of the Council of the EU in 2022 spearheaded the European Initiative for Digital Commons, defined as “non-rivalrous and non-exclusive digital resources defined by shared production, maintenance and governance” (France Diplomacy 2022). This initiative highlighted the importance of digital commons for European digital sovereignty, culminating in a report (Digital Assembly 2022). Yet, digital commons is a term that is understood differently by different actors, and experimentation will still be needed to demonstrate what it means to govern technologies as digital commons in practice.

Related to the discussion about digital commons, there is a growing open source community advocating for a strategic approach to open source technology in Europe and across the world, with a view to building sovereignty and developing technologies that respect democracy and human rights. Advocates of open-source solutions argue that European competitiveness in digital technologies cannot be built on the basis of proprietary technologies, even if these are European, because the exit strategy for many start-ups is still to sell to big tech before reaching a certain scale. Meanwhile, even if European companies could reach critical mass, there is no guarantee that European big tech would be any more democratic than its US counterpart. In the AI sector in particular, the argument thus holds that only a public option can counter the gatekeeping role that big tech currently exerts over the AI ecosystem (Tiwari 2024). There has been a growth of support for developing open source usage within the public sector in selected EU countries – notably with the Open Source Programme Offices in France and Germany. Yet, interviewees argued that there is still insufficient funding to support the open source ecosystem in the EU as a whole, and that the EU lacks a meaningful open source strategy – both for the public sector and for industry.

Despite the many risks that digital technologies pose to democracies – from disinformation to election manipulation – technologies that are ‘sovereign by design’ also have a role to play as an enabler of greater democratic participation. Ukraine and Taiwan – both facing tenuous situations given the cyber attacks and indeed existential threats posed by their large neighbours – have shown the potential for technology to play a role in democratic resilience. In Ukraine a commitment to digital openness is exemplified by Diia, a state application launched in April 2020 that now enables 21 million citizens to access government services and digital documents – performing tasks ranging from renewing driver's licences to reporting damaged property after shelling. It was made available worldwide as open source code on Github in early 2024 (gov.ua 2024, Ingram and Vora 2024). Combined with an intense focus on cybersecurity, Ukraine has demonstrated that digital technologies can play a key role in supporting democratic resilience.

Taiwan has gone even further in rolling out digital technologies that enable stronger participation in democratic decision making. The country's first digital minister, Audrey Tang set up the online platforms that enabled millions of regular citizens to propose and comment on hundreds of pieces of legislation and budgets. The emphasis on the democratic and civic nature of Taiwan’s digital infrastructure is such that together with Beth Noveck, she proposed Taiwan as “an approach for Digital Participation Infrastructure” which they define as “the platforms and processes that enable communities to engage in sustained dialogue, resolve differences, and collectively participate in decision-making that affects our lives” (Price and Rodriguez 2024). Barcelona’s Decidim platform aimed to do this on a smaller scale, giving the cities’ residents a platform to directly input into the city’s strategic plan.

There is a lively debate taking place in Europe and across the world about what it means to democratically govern digital technologies. What all of these conversations have in common is the sense that the current model is not working, and that there is a need for new approaches. Europe can play a role in forging a new approach, but this alternative model will be stronger if it is built on cooperation with others.

The digital sovereignty marketplace

Whether from a sense of state security or a desire to protect human rights, a growing number of countries and regions are adopting the language of digital sovereignty. Different countries and blocs are pursuing different approaches to this question. In almost all geographies, this concern has grown from the sense of the all-encompassing nature of US big tech, and its omnipotence in terms of access to citizens’ data. This has only become more urgent with Trump’s return to the White House, with multi billionaire tech entrepreneur Elon Musk in his wings. The concern about Musk’s potential influence on US policy making had members of the European Parliament on high alert during the hearing of Henna Virkkunen, and undoubtedly raises the stakes for the European digital industry.

Fear of US interference – often dating back to Edward Snowden’s 2013 revelations about the extent of the US National Security Agency’s eavesdropping and heightened by the 2018 US CLOUD Act – has led several countries to seek alternative offers, most notably from China to date with its Digital Silk Road initiative. Coming from quite a different starting point, India is now very actively promoting its own India Stack and the concept of DPI, highlighting its developmental outcomes. The EU’s Global Gateway meanwhile hopes to provide a unique European offer focused on safe, secure and resilient infrastructure.

As part of China’s Digital Silk Road, Chinese state-controlled companies Huawei Cloud and Alibaba Cloud are capitalising on the increased demand for ‘sovereign’ cloud services. They are building ‘cloud regions’ (localised data centres) that provide heightened cybersecurity and compute power to train AI models in national languages using local data. Huawei’s ‘One Cloud + One Network + Public Services’ strategy (Huawei 2022) consists “in building national cloud solutions to support government services, AI innovation, education, healthcare, and scientific research, while connecting it to a national dedicated network connecting cities, government branches, and even remote areas, including villages, schools, and hospitals” (Guardian Nigeria 2023). Huawei launched the first of those public cloud services in May 2024 in Egypt, together with an Arabic large language model (LLM) (Dutton 2024).

China's cyber protection however may represent a Faustian bargain: in return for purportedly shielding digital operations from Western scrutiny, many Western analysts worry that recipient countries grant China backdoor access to their systems. This is due to China’s 2017 National Intelligence Law that they fear opens the door to Beijing gaining access to all data processed by Chinese companies (Fabbri 2023). These fears of Chinese surveillance were encapsulated for many observers when in 2017, the African Union Secretariat discovered that its Chinese-built computer network had been feeding data to servers in China continuously for five years (Aglionby 2018).

The Indian approach to developing its DPI and its successful promotion of its model through fora such as the G20 and the UN, backed by Indian and international foundations, have demonstrated the potential developmental impacts of its comprehensive DPI layer, and encouraged many countries in the Global South to aspire to build their own DPI(s). This advocacy has also been supported by the Bill & Melinda Gates Foundation and Nandan Nilekani’s foundations, which have funded the emergence of a full ecosystem of think tanks, non-profits and specialised organisations. UN Tech Envoy Amandeep Gill, himself an Indian national, has also championed the DPI approach. In August 2023, the United Nations Development Program identified DPI’s potential to “turbocharge progress to deliver on the SDGs” (UNDP 2023).

The recognition in September 2024 in the Global Digital Compact that ‘Resilient, safe, inclusive and interoperable digital public infrastructure has the potential to deliver services at scale and increase social and economic opportunities for all’ (UN 2024) was a resounding victory for India on the world stage, coinciding with the first Global DPI Summit, a large gathering held in Egypt on 1-3 October. India has aggressively marketed its Stack as a solution for digital sovereignty, positing that a stack built on open source systems can be 'sovereign by design'. (Burwell and Propp 2022). However, India's DPI remains limited to what is essentially an intermediate layer of digital infrastructure that is scalable and interoperable, and does not cover the whole technology stack.

In response to the growing focus on ‘sovereignty’ in the digital sphere, US big tech companies have begun to use the same terminology, particularly when marketing their cloud services. For example, Microsoft offers “Innovate faster and improve cybersecurity while helping meet local data sovereignty requirements.” (Microsoft). Alphabet developed an extensive strategy to meet European sovereignty concerns, laying out three pillars of sovereignty in Google Cloud: data sovereignty, operational sovereignty and software sovereignty (Kurian 2020). Later, Google proceeded to launch Google Cloud’s new Digital Sovereignty Explorer (Google Cloud) so that organisations can balance “control and innovation.” (Sadowski 2023). These efforts, which aim to reassure European governments that their citizens will be shielded from the US CLOUD Act’s ramifications, do little to alleviate the concerns of those that worry about where the ultimate power lies.

Different global actors are thus approaching the concept of digital sovereignty from very different angles, and using the language of digital sovereignty to push very different agendas. In recent years, the EU has begun to make its pitch to partners across the world, developing a more unified approach to digital diplomacy, through more structured dialogues with selected partners and by launching the digital Global Gateway. Yet, there is work to be done to make this pitch more coherent and to truly integrate domestic conversations around competitiveness and democracy with the EU’s global pitch.

From tech sovereignty to economic foreign policy

The European Union has yet to develop a more strategic approach to presenting its digital technology offer on the global stage as part of a new ‘foreign economic policy.’ The full-stack approach to sovereign and democratic technology, advocated by the ‘Euro Stack’ initiative and others, could eventually become the EU’s own calling card. Yet, in the short term the EU will need to identify a number of verticals and horizontals within the technology stack where it has a meaningful offer and can be globally competitive, and should integrate an international agenda from the early days. Indeed, by building international alliances early on, the EU could potentially position itself more successfully as a leader for a new democratic approach to tech innovation. Beyond this idealistic dimension, a competitive economy needs skilled labour, resources (including data) and markets. Further, key value chains, such as that for advanced chips are unlikely to be completely reshored, and must be secured by means of diplomacy and partnerships.

This requires a comprehensive diplomatic strategy that effectively communicates not only the EU’s regulatory approach, but also highlights innovative technological solutions and frameworks emerging from within the EU-27. Policy dialogues should be complemented by meaningful efforts to develop business and research links with key partners. Mobility and skills partnerships must also be part of the conversation. The EU should build on digital partnerships with Asian countries like Japan and Singapore, but widen this net to include dialogues with a wider range of partners. In particular efforts should be made to identify and build bridges with emerging regional powers. Thus despite the difficulties in reaching concrete results, initiatives like the EU-India Trade and Technology Council should be further developed and built on. 

Such an approach demands closer collaboration across the European institutions, member state governments and agencies, the private sector and research community, bridging economic, technology and foreign policy communities. By building this more comprehensive technology diplomacy, the EU can more effectively position its digital innovations as a key component of its emerging economic foreign policy, and more effectively respond to priorities of its partners. This would at one create a more coherent and compelling narrative about Europe's technological strengths and international aspirations. 

The EU’s Global Gateway should be responsive to this political and diplomatic agenda. Alongside the existing focus on basic connectivity, it should prioritise investments in those key verticals and horizontals that build on the EU’s existing strengths. At the same time, it must be accompanied by policy dialogue with partner countries, allowing for co-creating major infrastructure initiatives on terms that make sense to both partners. Finally, as we have written elsewhere, the EU’s financial toolkit will need to be revisited in order to allow greater flexibility, particularly when it comes to engaging with the private sector (Bilal and Teevan 2024). 

In the coming months, ECDPM will work on identifying and building out those key verticals and horizontals within the technology stack which should be central to the EU’s technology diplomacy and to the Global Gateway as part of a new economic foreign policy. We will also continue to work on the EU’s external financing toolkit, and the reforms that might make it more fit for purpose.

Acknowledgements

The authors would like to thank Sabine Muscat for peer reviewing and Joyce Olders for editorial support and formatting. The authors are grateful to the numerous officials, private sector and civil society representatives, and other experts consulted who shared their insights and comments. The views expressed in this paper are those of the authors only and should not be attributed to any institution or ECDPM. All errors remain those of the authors. Comments and feedback can be sent to Chloe Teevan (cte@ecdpm.org).

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