Europe’s Chips Act 2.0 must start with demand
Technology Industries of Finland publishes its recommendations on the Chips Act 2.0. The Commission has built the right framework. Whether it works depends on where the money goes and who decides.
Artificial intelligence has put the chip industry on a steep climb. Global sales reached $701bn in 2025, will pass $1trn this year and, by the European Commission’s reckoning, reach $1.6trn by 2030. AI data centres drive most of the growth. The robots, vehicles and networks that come next will need more.
Europe makes less than a tenth of the world’s chips and covers about a fifth of its own consumption. That matters because chips have become an instrument of power. Governments restrict exports, attach conditions to supply and bring technology into trade talks.
In such a world, sovereignty comes from being indispensable. A region that holds positions others cannot work around has something to bargain with. Europe holds several, in manufacturing equipment, specialty materials and power and sensor chips. They last only as long as they stay competitive. The Chips Act 2.0 should be judged on whether it strengthens them and adds new ones.
The right framework
The Commission’s proposal gets a lot right. For the first time the Chips Act tackles demand as well as supply, through Grand Challenges, industry-led Demand Accelerators and innovation procurement. First-of-a-kind status, which unlocks State aid and faster permits, now spans the whole value chain. Permitting is capped at 12 months. Quantum chips and photonics get dedicated support. Industry asked for all of this, and it should survive the legislative process intact.
Chips follow customers
European semiconductors are stuck in a circle. Fabs are not built without customers. Firms building cloud infrastructure, telecom networks, defence systems or industrial machinery will not design advanced chips for European fabs until those fabs can credibly make them. Each side waits for the other, and ideas born in European labs are too often manufactured elsewhere.
The way out is to create demand. The proposal’s demand instruments are the right tools, but they remain loosely defined. Industry, which is where the demand sits, should lead their design and use. They should also reach beyond the biggest buyers to fields where European firms, many of them small, already lead: MEMS and sensors, photonics, power semiconductors and quantum technologies.
Physical AI shows the prize. Europe already has the building blocks in robotics, automation, machinery and sensors. A serious Grand Challenge could turn them into a new growth engine and a steady source of orders for European chips.
Strategic projects are where the money goes
Most of the money will flow through strategic projects. The Commission’s preferred option rests on targeted EU funding for large cross-border projects, and its impact assessment models an example investment of €40bn. The priority areas chosen for these projects will decide how Europe spends its chip budget for a decade. They must be right first time.
Our test is simple. Priorities should follow the needs of the critical digital systems Europe cannot afford to lose control of: cloud and AI, telecoms, defence, industrial automation and energy. Design capability in the firms that build these systems comes first. Manufacturing and advanced packaging should follow to serve them. If the EU backs these firms’ chip design and pools their demand, it can generate the orders an advanced open foundry in Europe will need. That breaks the circle.
The proposal’s own list shows why this matters. It rightly includes advanced manufacturing, AI chips, memory and leading-edge design. However, it leaves out quantum and photonic chip manufacturing, where Europe has a real chance to lead the next generation.
Choosing well requires those who know the demand. The proposal gives the Industrial Alliance for Semiconductors formal status, which is welcome, but expects it to meet the European Semiconductor Board only once a year. For decisions worth billions in a market that shifts by the quarter, that is far too little. Consultation with industry should be structured and mandatory whenever priorities are set and projects chosen.
The money is negotiated elsewhere
The Regulation itself contains almost no new money. Its funding will be settled separately, in the EU budget for 2028 to 2034 and the European Competitiveness Fund. The Commission’s impact assessment concedes that without a much bigger budget the benefits will be “more subdued”. The Parliament, the Council and Member States should negotiate the two as one package. Industry has suggested a ring-fenced EU semiconductor budget of €30bn to €60bn, drawn from all four technology windows of the Competitiveness Fund.
Open to partners, light on obligations
No region can make all its own chips, and trying would raise costs and slow innovation. Europe’s resilience depends on trusted partners such as Japan, Korea, Taiwan and the United States. The rules defining a domestic company should keep firms with partner-country owners inside the tent, and trusted non-EU firms should be able to join the Industrial Alliance and the Demand Accelerators. Much of what is known about the technological frontier sits with them.
The new security-of-supply obligations need equal care. Procurement declarations and duties for risk-prone sectors can steer demand towards trusted suppliers, provided they are narrow and precise. Mandatory dual sourcing is often neither technically nor economically viable and should be kept for exceptional cases.
Speed decides
Europe is behind, and its rivals are not waiting for Brussels. Finland brings strengths in chip design, MEMS and sensors, advanced materials and processes, photonics, quantum technologies and pilot lines. Its industry-led strategy, Chips from the North, aims to triple the sector’s revenue to between €5bn and €6bn by 2035. That ambition, like Europe’s, needs a Chips Act that is agreed and working soon.
Our seven recommendations
- Act at speed and aim to lead the next generation of chip technologies.
- Secure EU funding of critical mass, drawn from every window of the European Competitiveness Fund.
- Keep the wider first-of-a-kind definition and extend it to quantum-chip manufacturing.
- Use strategic projects to build demand-led critical capacity and anchor an advanced fab in Europe.
- Give industry a structured role in setting priorities and strengthen EU-level coordination.
- Build resilience through trusted international partnerships.
- Keep the new security-of-supply obligations precise, proportionate and narrow.
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