11th Aug 2022

EU joins semiconductor race with €43bn plan

  • The EU aims to produce 20 percent of the world’s chips by 2030 in response to efforts from the US and China (Photo: tec_estromberg)
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The European Commission on Tuesday (8 February) unveiled its multi-billion euro plan to boost European production of semiconductors — a response both to economic and geopolitical concerns amid trade tensions between the US and China.

"Securing the supply in the most advanced chips has become an economic and geopolitical priority," EU commissioner for the internal market, Thierry Breton, told a news conference.

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"Europe cannot stay out of this technology race," he added.

Breton said Europe needs huge investment in the next generation of semiconductors to reduce dependency on third countries and keep global supply chains running in times of crisis.

The proposal met with some scepticism, particularly since the new subsidy rules would oblige manufacturers established in the EU to prioritise orders to European sectors in case of a crisis.

Global semiconductor shortages have hit Europe's automotive sector, forcing factories to cut production in some member states. It has also played a role in pushing up inflation.

The EU is currently lagging far behind Asia in what amounts to a highly-concentrated market characterised by limited manufacturing capabilities and strong inter-dependency on chip-design, packaging and assembly.

Now the bloc wants to mobilise €43bn of public and private investment in order to put the EU back at the forefront of the next generation of digital technology. But there are other concerns: namely that the proposed level of investment is comparatively low compared to the US, China and South Korea.

"It would be pointless to think that we can do everything by ourselves in Europe… but the balance of power needs to be straightened out so everybody can play a part," Breton said.

The so-called European Chips Act aims to produce 20-percent of the world's chips by 2030, quadrupling current manufacturing capacity.

Semiconductors, also referred to as microchips, can be found in all types of electronic devices from computers, medical equipment, car apps, to industrial machinery or artificial intelligence.

But their production can be very complex and expensive.

Without rapid investment, Europe's market share is estimated to drop to less than five percent, putting Europe's strategic autonomy and security of supply at risk.

Investment in advanced facilities will likely require significant public support.

Margrethe Vestager, the EU competition commissioner and head of digital, said covering up to 100 percent of a proven funding-gap with public money would be justified given the strategic importance of chip-production for the EU's long-term competitiveness.

Such decisions would be assessed case-by-case and finally approved by the commission.

Increasing subsidies would make Europe much more attractive to both European and foreign companies, according to economist Heiner Röhl of the German Economic Institute.

"It is impossible to move forward without subsidies," Röhl said.

There is a strategic reason for companies to diversify their supplies chains in case of a conflict between the US and China, he said.

These subsidies, however, would come with conditions attached.

In its proposal Tuesday, the commission also put forward a toolbox of measures that would force companies to report on production supplies - and even prioritise orders for critical sectors in Europe in case of crisis.

Other possibilities included the introduction of export controls, the commission said.

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