Artificial Intelligence is not simply another wave of innovation, it is the next industrial revolution: a profound technological and economic shift that redefines how nations produce, compete, and exert influence. Leadership in AI shapes productivity, narrative, and, ultimately, sovereignty.
For Europe, 2025 is a pivotal year, the moment to decide whether it will be an active participant or a just a spectator in this defining global race.
Europe’s position in the global AI race: competing with U.S. and China
Europe is not starting from pole position in the AI race. The U.S. advances through massive private capital, China leverages state-backed industrial strength, while Europe is navigating a patchwork of regulations and consensus-based decision-making.
The numbers are clear. American cloud providers control more than 70% of Europe’s cloud market, while European providers account for just 13%. Every dataset, every model, every startup relying on foreign infrastructure is effectively building on rented land, governed by laws beyond its control.
Beyond the economic aspect, it highlights a strategic dependence on resources outside Europe. China’s lead is equally visible in research: in 2024, Chinese AI researchers published more academic papers than their European, American, and British counterparts combined, with 24,000 publications compared with 19,000.
On the demand side, the gap is not smaller. In 2024, only 14% of EU companies had implemented AI solutions. Across the Atlantic, small U.S. businesses, from hair salons to car dealers, were already using AI tools for marketing, logistics, and operations. By mid-2025, 58% of U.S. small businesses had adopted generative AI. In Europe, many SMEs were still exploring what “prompt engineering” means.
Why digital sovereignty is the foundation of Europe’s AI future?
Digital sovereignty goes beyond slogans, it is Europe’s ability to develop, store, and deploy technology independently.
Dependence on U.S. cloud providers and imported semiconductors limits both flexibility and choice. As the Draghi Report notes, in AI, “winner takes most.” Without rapid scaling, Europe risks falling behind in a decisive global sector.
European cloud infrastructure remains modest compared to global leaders, and current compute investments are insufficient. Strengthening sovereignty is therefore not optional, it is a prerequisite for competitiveness. Without it, Europe will continue to operate under rules set by others rather than defining its own technological path and freedom to operate.
How smart regulation can drive AI Innovation in Europe?
Europe has established itself as a global leader in responsible technology governance, yet it remains a cautious actor. GDPR set an international benchmark for data privacy but also created a compliance burden for startups.
The new AI Act is an improvement, adopting a risk-based approach to balance safety and innovation. Yet the paradox persists, regulations designed to protect citizens can inadvertently slow and hamper those developing solutions for them.
Europe’s challenge is not to compromise on ethics, but to enhance the effectiveness of implementation. Regulation should provide direction and clarity, not create unnecessary obstacles. Well-designed frameworks can support innovation, but only if they enable progress rather than hinder it.
The AI Continent Action Plan: Europe’s roadmap for technological independence
2025 marks the start of Europe’s strategic counteroffensive. The AI Continent Action Plan identifies five priorities:
- Expand compute capacity
- Open data access
- Train and retain talent
- Streamline regulation
- Accelerate AI adoption
At the centre of this initiative is InvestAI, a €200 billion program of investment in artificial intelligence across the European Union, including a €20 billion fund earmarked to build four to five AI gigafactories by 2027. These will not be just data centers; they will be powerplants of innovation, powered by clean and reliable energy, hosting training clusters of 100,000 chips, and providing startups and SMEs with open access to massive computing resources, reducing dependency on foreign providers.
This represents Europe’s plans to shift from reliance to ownership of its AI infrastructure.
Ambition alone is not enough, turning plans into tangible impact requires effective execution, which is where public funding plays a central role.
Public-private funding as a strategic lever for AI growth in Europe
In Europe, blended public-private funding is more than support, it is a tool to enable signalling quality, de-risking and scaling-up. The U.S. has venture capital; China has state direction. Europe has committees and co-financing rules… which can be powerful when properly deployed.
The experience from the IPCEI Microelectronics and Batteries since 2018 demonstrates that EU-wide State aid can attract billions in private investment, align national strategies, and deliver industrial scale.
For AI gigafactories, public funding should:
- De-risk bold, multibillion-Capex projects
- Guarantee open access and prevent national monopolies
- Ensure sustainability and interoperability
- Operate at the speed of technological development, not bureaucracy.
When properly designed and implemented, public funding becomes both a shield and an engine, safeguarding sovereignty while accelerating innovation.
How Europe can build markets that reward AI innovation and risk-taking?
Subsidies can spark transformation, but they don’t make champions: markets do.
Europe’s AI future depends on designing contestable markets, open infrastructures with transparent pricing and equitable access. The objectives are clear: lower the barriers, empower innovators, and reward ambition.
Public support should avoid creating foreclosed markets, otherwise, we risk replacing foreign monopolies with new domestic ones – and very little progress will be made.
Dynamic competition also demands deep capital markets. Today, Europe’s venture ecosystem looks like a cautious accountant compared to America’s adrenaline-fueled trader. Without liquidity and scale, Europe’s most promising startups may stagnate or be acquired abroad.
The focus should be on fostering a competitive yet regulated market environment that delivers speed, scale, and innovation.
AI talent shortage: why Europe must retain its smartest minds?
Infrastructure and funding alone are not enough. Talent drives outcomes, and Europe risks losing too much of it.
In 2025, 62% of EU AI postdocs said they planned to move to the U.S. or China, drawn by larger projects, higher salaries, and broader opportunities. This is a severe leak in Europe’s innovation engine.
Addressing this requires more than competitive pay. Europe must create ecosystems where AI professionals can thrive in dynamic environments, collectively develop ambitious projects. and be rewarded for innovation rather than bureaucracy. Talent remains the scarcest resource in the AI economy, one that cannot be manufactured or substituted.
From principles to leadership: Europe can lead the global AI revolution
Europe needs momentum as the future will not wait for consensus. It has the opportunity to convert strong principles into real leadership. To succeed, it must:
- Build sovereign AI infrastructure that innovators can trust and access on fair, reasonable and non-discriminatory conditions
- Develop capital markets that reward risk and scale ambition
- Retain talent by fostering an ambitious, inspiring, and globally competitive ecosystem.
This is not a choice between ethics and efficiency, it is about demonstrating that Europe can lead in AI responsibly, sustainably, and effectively.
If executed well, Europe can become a global benchmark, a continent where AI is powerful, principled, and innovation thrives under European standards.
The time to act is now, Europe has established the moral compass, it must now build the engine.
Article written by Hedi Bairam, Project Director at european economics, Marie Lambert, Sales & Marketing Director at european economics, and Marc Isabelle, Founder & CEO at european economics.
