Europe's semiconductor strategy: Coordinating efforts for a strengthened industry

In a move to bolster European competitiveness and strategic autonomy in the semiconductor sector, nine EU member states launched the Semiconductor Coalition in March 2023. The coalition, comprising Austria, Belgium, Finland, France, Germany, Italy, Poland, Spain, and the Netherlands, aims to improve cooperation and strengthen Europe's position in the global semiconductor market.

The Semiconductor Coalition seeks to navigate an increasingly transactional global order, dominated by the confrontation between the US and China, especially in the semiconductor sector. One of the coalition's key objectives is to de-risk private investment in the semiconductor sector by advocating for an envelope for semiconductors under the EU budget.

The coalition members are European champions in R&D, equipment manufacturing, and materials and testing. For instance, Dutch company ASML holds a monopoly on the production of extreme ultraviolet lithography machines, a crucial technology in the semiconductor industry. German firm Zeiss manufactures the optical systems necessary for ASML's machines to be produced.

However, the European Commission's mapping of the semiconductor sector currently lacks the detail needed to guide policy. To address this, the EU is planning a new Chips Act, and it should focus on the cards it holds in the semiconductor game, such as ASML's monopoly and Zeiss's expertise.

The EU already plans to streamline existing financing for critical technologies under its Competitiveness Fund in the next budget. Financing for the semiconductor sector remains fragmented, with only €3.3bn of the €100bn announced since the Chips Act proposal expected to come from the EU budget, with member states expected to do the heavy lifting.

Industry groups in the EU have criticized the 2023 Chips Act for excessive red tape and a focus on manufacturing at the expense of other types of companies along the supply chain. The coalition can help highlight the synergies between semiconductors and the defence sector, making a budget allocation for semiconductors even more relevant and palatable as member states increase their defence spending.

The EU's court of auditors has warned that the target in the bloc's 2023 Chips Act to double its share in the world's semiconductor supply from 10% in 2020 to 20% in 2030 is considered aspirational. European policymakers should look to Japan for inspiration on how to proceed, as Japan is implementing an economic security strategy based on maintaining, boosting, and obtaining strategic indispensability.

The Biden-era US Chips and Science Act aims to accelerate the growth of America's domestic semiconductor industry. In response, the EU should aim to make strategic indispensability the base of its new industrial recipe to ensure it is at the semiconductor table and not on either Washington's or Beijing's menu.

For instance, the Japan Investment Corporation bought and delisted JSR Corp, the world's largest photoresist maker, to ensure this indispensable company remained in Japanese hands. Similarly, the coalition can help ensure that European champions in the semiconductor sector remain European, bolstering the continent's strategic autonomy in this critical industry.

The Semiconductor Coalition's being made up of the biggest EU member states is one of its greatest strengths, as they have the sway to shape the bloc's next seven-year budget negotiations. By focusing on building strong public-private partnerships, the coalition can help overcome hurdles and guide the EU towards a more competitive and autonomous position in the global semiconductor market.

Europe's semiconductor strategy: Coordinating efforts for a strengthened industry