The European Commission published its Chips Act 2.0 proposal today — and it reads like an admission. The original 2023 Chips Act set out to double Europe’s share of global semiconductor production to 20% by 2030 through factory subsidies and investment incentives. The European Court of Auditors has since judged that target “very unlikely” to be met. The revised strategy does not abandon the manufacturing ambition. But it starts from a different problem: Europe has been trying to build chips that nobody in Europe was committed to buying.
What Went Wrong With the First Chips Act
The original European Chips Act, introduced in 2023, set an ambitious target of €43 billion in combined public and private investment. It aimed to double the EU’s share of global semiconductor production to 20% by 2030. That is not happening. Slow progress and fragmented funding across member states turned a bold industrial policy into a cautionary tale about setting targets without clear mechanisms to hit them.
The most visible failure was Intel. The US chipmaker announced plans for two mega-fabs in Germany — precisely the kind of advanced manufacturing investment the Chips Act was designed to attract. The facilities would have employed thousands and anchored a European advanced semiconductor ecosystem. Intel subsequently scrapped both projects as its own financial position deteriorated. The EU had provided the subsidy framework. It could not guarantee the commercial logic.
That episode exposed the supply-side model’s fundamental weakness. You can offer incentives to build factories. You cannot mandate that customers exist for what those factories produce. The original Chips Act focused heavily on public subsidies to support the construction of semiconductor manufacturing facilities. That approach suffered a setback after Intel scrapped its planned investment.
The Demand Problem the New Strategy Is Trying to Solve
The Chips Act 2.0 places greater emphasis on demand-side measures. “The two dimensions are mutually reinforcing: cultivating robust local demand supports the strengthening of local semiconductor supply,” an early draft reads.
The practical mechanism is demand aggregation — essentially the EU trying to act as matchmaker between chip manufacturers and the European industries that should be buying from them, particularly automotive and cloud computing. Governments would receive incentives to prioritise EU-made chips in their procurement. Startups producing chips would get support to scale to the volumes that make manufacturing viable. AI Factories and AI Gigafactories — large-scale computing infrastructure — would serve as anchor demand for European-produced advanced semiconductors.
A notable project under discussion illustrates the scale of ambition. It involves a proposed €30 billion foundry dedicated to advanced AI semiconductors, targeting 3nm chips. Funding would be split between the European Commission, member states, and private enterprises. The total investment target has been raised from €43 billion to €120 billion by 2035 — nearly three times the original figure.
What Europe Is Actually Good At
The strategic reorientation reflects a more honest reading of where European competitive advantage actually lies. Europe does not lead in advanced chip manufacturing — Taiwan’s TSMC and South Korea’s Samsung dominate the leading-edge nodes. What Europe does have is ASML, the Dutch company that holds an effective monopoly on the extreme ultraviolet lithography machines without which no advanced chip can be made anywhere in the world. It has strong positions in chip design, materials, and specialised industrial applications.
Member states propose that strategic objectives should include securing a reliable semiconductor supply for critical sectors. They also aim to develop technology leadership across key parts of the value chain, including R&D, materials, chip design, equipment, manufacturing, and applications. That list more realistically describes what a genuine European semiconductor strategy might look like. Instead of replicating Taiwan’s manufacturing model, it focuses on securing the chokepoints that matter most to European industrial and defence interests.
As explored in “When Intelligence Becomes Infrastructure, Who Owns Culture?,” the concentration of AI infrastructure in a small number of companies and geographies raises structural questions about dependency that go well beyond economics. Chips are where that dependency starts. The EU’s anxiety about semiconductor supply is inseparable from its anxiety about AI infrastructure control.
The Crisis Management Problem
The Chips Act 2.0 also addresses a gap the original legislation ignored: what happens when supply chains break. The draft proposes changes to how the EU manages semiconductor supply chain crises. It calls for companies to share information more proactively and for a more structured process to activate emergency measures. In the event of a crisis, the Commission would be able to organise joint purchasing and request priority orders from publicly subsidised fabrication plants.
This matters because the 2020–2022 chip shortage clearly showed Europe’s dependence on Asian supply chains. European automotive and industrial manufacturers have little leverage over these supply chains. During the shortage, car plants across Germany, France, and Spain shut down or reduced production because they could not source €2 chips. The Chips Act 2.0’s crisis provisions are an attempt to ensure that never happens again — with the Commission explicitly empowered to direct production toward European needs in a supply emergency.
Demand Is the New Subsidy
The conceptual shift in Chips Act 2.0 is significant beyond semiconductors. It represents a broader evolution in EU industrial policy — from subsidising supply and hoping demand follows, to designing demand and using that as the foundation for supply.
This logic is already visible in other domains. The EU Taxonomy for sustainable finance is designed to steer capital toward defined economic activities. Public procurement rules give EU institutions leverage over which technologies and products gain critical mass. The Green Deal’s carbon price creates demand for clean energy solutions. The Chips Act 2.0 applies the same logic to semiconductors: instead of offering factories money to exist, create the conditions under which factories have a reason to exist.
Whether it works depends on execution — and execution has been the consistent weakness of European industrial policy at scale. The Intel episode was not primarily a failure of ambition. It was a failure of follow-through. The revised strategy is better designed. The harder question is whether the institutional machinery to implement it has improved at the same pace as the policy thinking.
Key Sources
- Euronews, “EU seeks to boost Europe’s chip demand in tech sovereignty bid”: https://www.euronews.com/my-europe/2026/05/28/eu-seeks-to-boost-europes-chip-demand-in-tech-sovereignty-bid
- Crypto Briefing, “EU plans reset for Chips Act to boost local chip demand and production”: https://cryptobriefing.com/eu-chips-act-reset-demand-production/
- Reuters / AOL, “Semiconductor firms call for EU Chips Act 2.0”: https://www.aol.com/news/semiconductor-firms-call-eu-chips-141216749.html
- Science|Business, “EU governments set out priorities for Chips Act 2.0”: https://sciencebusiness.net/news/semiconductors/eu-governments-set-out-priorities-chips-act-20
- European Commission, EU Chips Act official overview: https://digital-strategy.ec.europa.eu/en/policies/european-chips-act
- Value The Markets, “The EU’s New Semiconductor Strategy: Insights on Chips Act 2.0”: https://www.valuethemarkets.com/cryptocurrency/news/the-eus-new-semiconductor-strategy-insights-on-the-upcoming-chips-act-20
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