Europe and countries and the EU have spent two decades of hand-ringing over their lack of competitiveness in online platforms, resorting (largely) to investigating Google, fining Apple, writing the Digital Markets Act, failing to properly implement it, and finally, in the era of Trump, pleading with home-grown companies to develop sovereign capabilities. All while still buying most of its critical digital infrastructure from US companies. It’s as if a drug user had tried to castigate their pusher. It’s time European companies took things into their own hands.
That is at least part of the message the indefatigable personality Cristina Caffarra, wants to get across.
A competition economist by trade, Caffarra is also chair of the EuroStack Industry Foundation and co-founder and vice chair of the Competition Research Policy Network at the Centre for Economic Policy Research. She says the lesson is now unavoidable: regulation cannot substitute for a real industrial strategy.
“The mistake Europe has made in the last 15 years has been the magical thinking that if we regulate the tech giants, then some magical thing will happen and we will create our own industry,” she told the Pathfounders podcast.
Her point is not that all regulation is bad. It is that regulation does not create companies, customers, products or markets.
“How does regulating Google Search create me a Cloud? How does regulating the Apple App Store create me a software capability? It doesn’t,” she said.
For Caffarra, Europe’s “Brussels effect” era has produced process, not power. “Tell me, how is Europe winning?” she said. “We haven’t won a single battle.”
The public sector must stop defaulting to US tech
The most immediate battleground is procurement, and the biggest procurer is the public sector.
Caffarra argues (and she’s correct) that Europe’s public sector has become structurally dependent on US Cloud and software infrastructure. Governments talk a lot about about “sovereignty” all while spending taxpayer money on AWS, Microsoft and Google.
“Uniformly the European public sector is using AWS or Microsoft. This in itself is a scandal,” she said.
Of course, changing the public sector approach alone will not transform the market, but it can create the first serious demand signal, she argues. If governments, central banks and agencies continue buying American by default, European alternatives wil remain starved of reference customers and scale.
Her ask of government is blunt: “Eurostack is an effort which essentially gathers the private sector, because, what I want the regulators to do, and the Commission, and the public sector, is just TRY and buy European. Please!”
“Sovereign cloud” is not sovereignty
Caffarra is particularly sceptical of US hyperscalers selling “sovereign cloud” products in Europe. Her argument is that data localisation is not the same as strategic control.
“The reality that is inescapable is that the Cloud Act of 2018 in the US puts all of this into the bin,” she said. “Every one of these companies, which is an American company, is subject to the jurisdiction of the United States.”
For her, sovereignty is not only about where data sits. It is about agency, ownership, investment and resilience.
“If you have an infrastructure that is 80% owned by non-European, the revenue and the profit gets sucked out of Europe,” she said.
Europe’s digital spending becomes American revenue, American margin and American reinvestment capacity. “We need to invest in our own stuff.”
Europe has “lost” the foundational AI battle
Caffarra is equally unsentimental about the battle to have European-made AI. She does not believe Europe is about to produce a foundational model champion that rescues the continent any time soon.
“Europe has lost the LLM battle,” she said. “We are not going to be saved by Mistral.”
However, she tempered that point, saying that does not mean Europe should “give up”. The realistic opportunity, she argues, is the application layer: industrial AI, specialised models and products built around Europe’s strengths in manufacturing, machinery, engineering and automation.
“Sovereign AI is going to be the application layer which is going to be European,” she said. “It’s going to be using the industrial data, it’s going to be using our capabilities in mechanics and machinery.”
But she warns against pretending this is full-stack sovereignty. If European AI applications run on US cloud, US chips, US models and US platforms, the sovereignty claim is still partial, she said.
The productivity gap is the tech gap
For Caffarra, this is not an abstract policy debate. It goes to the viability of Europe’s economic model.
“Unless we reduce that productivity gap with the United States, Europe as an economic model is not viable in 20 years,” she said.
It’s fairly simple. The US has invested more technology capital per worker. Europe has not. If banks, insurers, pension funds, retailers and industrial companies continue buying overwhelmingly from US vendors, European tech companies cannot scale into serious challengers.
And while she thinks early or even mid-stage startup still matter, the demand from large European buyers probably matters more.
Founders need buyers, not another Brussels process
Caffarra is deeply scathing about Europe’s repeated reflex to look to Brussels for salvation.
“We have become a continent whose first reaction is always, how do I get Brussels to do something for me? How do I get the government to do something for me?”
She argues that founders, including the lobbyists behind the EU-INC project, have too often been led “down the garden path” by lawyers, lobbyists and policy processes promising relief through regulation.
Her advice is not to ignore policy, but to stop mistaking lobbying for market creation.
European suppliers must bundle, not fragment
Caffarra also has a challenge for European tech companies: customers do not want fragmented platforms.
Large buyers do not want to stitch together dozens of small tools. They want reliable, integrated services. That is what AWS, Microsoft and Google offer.
“Customers don’t want to buy a bit here, a bit there, a bit there,” she said. “What I get from AWS is wall-to-wall service.”
This is where EuroStack’s industrial logic comes in. The task is not to build one monolithic European cloud, but to help European suppliers organise into credible bundles that customers can actually procure in one go.
“If your product isn’t attractive to the customer, then you have to do serious soul-searching as to why that is.”
Capital is starting to move
One reason Caffarra is not entirely pessimistic is that she sees a shift among funders. Family Offices, institutional investors and other pools of capital are beginning to ask how to back European tech infrastructure.
“Funders are now coming to me saying, we want to create a EuroStack Catalyst Fund which invests in European tech,” she said.
Admittedly, this is still nowhere near the scale of US-based AI and Cloud spending. But she sees appetite for a more patient asset class between venture capital and private equity, and one focused on durable European capability.
“The future of European industry is going to be decided by tech, by industry and by funders. That's it. There isn't anything that we can hope coming from, by magic, the European Commission, getting smarter all of a sudden and becoming an entrepreneur.”
Europe’s problem is learned helplessness
Caffarra accepts that Europe is fragmented. But she rejects fragmentation as an excuse for inaction. As she points out, Amazon entered Europe, dealt with multiple countries, languages and rules, and built anyway.
“How do you overcome the linguistic fragmentation of Europe? Are you serious?” she said. “This is a feature, not a bug. And with AI, it is irrelevant anyway.”
The old European approach of regulating US tech, buying US tech, and then complaining about dependency has now, for very obvious reasons, reached its limit. Sovereignty will not come from slogans, white papers or enforcement actions, she said.
It will come only when European buyers put money into European products, European suppliers make those products genuinely competitive, and European capital backs them long enough for them to get traction and become global players in their own right.
Her closing message was blunt: “Get off your ass and do stuff.”
