Digital sovereignty – the ability to build capacity, resilience, and security in the technology sector by reducing strategic dependencies and reliance on foreign actors – is a doctrine many governments worldwide are considering adopting due to concerns about data security, supply chain fragility, and complex international relationships. In Europe, this concept has evolved into an initiative aimed at bolstering a competitive technology sector.
The concept of digital sovereignty was defined by the European Commission in June 2025 as a strategic move to safeguard critical technologies and infrastructure. The Berlin Declaration, issued in November 2025, further refined the definition, emphasizing the ability to act autonomously and freely choose their own solutions. However, the practical implementation of these principles into policy poses its own set of challenges.
Global Concerns, Varied Responses
Europe is not the only region grappling with the concept of digital sovereignty. Canada’s Digital Charter, which underwent updates in 2024, also reflects concerns about dependence on foreign technology platforms for critical public services. Nevertheless, the approaches taken by different regions vary greatly. While Canada seems to favor data localisation requirements and procurement preferences, Brussels appears to be leaning towards a layered certification architecture. Critics argue that data localisation rules could serve as non-tariff barriers, stifling trade.
India’s Digital Personal Data Protection Act of 2023 adopts a more selective approach, permitting cross-border data flows by default unless specific government restrictions apply. In contrast, Singapore’s Digital Economy Framework, considered a model for smaller open economies, emphasizes interoperability and mutual recognition agreements.
Compliance Burdens
European tech businesses are currently navigating a labyrinth of regulations, including the AI Act, GDPR, NIS2 directive, the Digital Operational Resilience Act, and various national cloud certification frameworks. While these laws individually address valid concerns, collectively they impose a significant compliance burden. This burden is more easily borne by large incumbents, like the U.S. hyperscalers, than startups and small companies. The Draghi report on European competitiveness, published in 2024, noted that the regulatory environment has become a source of competitive disadvantage relative to the United States and parts of Asia.
Infrastructure Challenges
The European Union accounts for only about 5% of global AI compute capacity, with the United States holding about 75%. This disparity is due to complex permitting processes, grid congestion, and higher energy costs in Europe, making it a less attractive location for power-intensive computing workloads. This situation is further exacerbated by the fact that two of Europe’s main data centre hubs, Dublin and Amsterdam, have had to halt approvals for new facilities due to local grid capacity constraints.
However, the EU’s AI Continent Action Plan proposes Special Compute Zones, pre-permitted sites with fast-track grid connections designed to reduce the time between investment decision and operational capacity. This approach mirrors Australia’s model for renewable energy zones, which has notably reduced development timelines.
Achieving Digital Sovereignty
While venture funding in Europe grew by 9% year-on-year in 2025, North American venture investment increased by 46% over the same period. The gap indicates the impact of the domestic funding environment on the global competitiveness of a business. Europe’s predominantly pay-as-you-go public pension systems generate relatively less investable capital compared to North America’s funded models, which have historically been a significant source of venture and private equity investment. This issue requires more than just regulatory solutions; it calls for pension system reforms and incentives for institutional investors to allocate to domestic venture capital.
However, Europe has significant assets, including world-leading universities and research institutions, advanced connectivity infrastructure, and global-scale technology companies. To truly achieve digital sovereignty, Europe needs faster infrastructure permitting, cheaper and cleaner energy, deeper capital markets, and a regulatory outlook that encourages growth without adding friction.
The real challenge for European policymakers is to strike a balance between a form of sovereignty that protects incumbents and one that fosters challengers. The only version of digital sovereignty worth pursuing is one that creates the conditions for European companies to build top-level technology and compete in open markets, both domestically and internationally.
Daniele Viappiani, Economics and Venture Capital Adviser, GC1 Ventures
