Breakingviews - Europe will struggle to get Big Tech off its cloud

Reuters

4 hours ago

LONDON, June 26 (Reuters Breakingviews) - European businesses have an unanticipated and undesirable problem. Just as the continent has long depended on the military heft of the United States, its companies rely on U.S. cloud computing providers. The huge networks of servers and data centres, used to store information and run critical software, are dominated by a trio of American firms known as hyperscalers.
To CEOs, and even governments, that may seem increasingly risky. President Donald Trump has an uneasy relationship with Europe, and U.S. law permits Washington in certain cases to access foreign data stored on hyperscalers' cloud services. The problem, however, is that breaking away is tough.
Amazon.com (AMZN.O), opens new tab, Microsoft (MSFT.O), opens new tab and Alphabet's (GOOGL.O), opens new tab Google control around two-thirds of the European Union's cloud market, according to a report, opens new tab on the bloc's competitiveness by former Italian Prime Minister Mario Draghi. That's largely because the multitrillion-dollar tech giants have the capital to sink into massive data centres, allowing them to offer reliable and relatively low-priced services.
Yet U.S. words and deeds arguably make this dependence imprudent. Think of Vice President JD Vance's now-infamous Munich Security Conference speech in February, Trump's reluctance to express full-throated support for Ukraine, and the ongoing uncertainty around his reciprocal tariffs. One CEO of a major European company told Breakingviews that it now makes sense to consider alternatives.
No wonder. The U.S. government could in theory access European data stored by the hyperscalers through two legal routes. Courts can issue orders to cloud providers and ask them to hand over customer data to aid criminal investigations. Separately, Section 702 of the Foreign Intelligence Surveillance Act (FISA) gives Washington's National Security Agency the power to request access to stored information via a special court. It can then share the data it receives with intelligence agencies, meaning the Federal Bureau of Investigation or the Central Intelligence Agency.
They could conceivably target companies, individuals or institutions that the administration has a problem with. In an even more extreme scenario, the U.S. government could theoretically put political pressure on hyperscalers to shut off cloud services in countries that the White House doesn't like, via a so-called kill switch.
Hyperscalers could push back on these concerns by pointing out that FISA, first enacted in 1978, is nothing new. It's supposed to curb international terrorism rather than steal business secrets or help the government pursue political grudges. Europeans have in the past tacitly accepted the possibility of surveillance by a powerful ally in exchange for cutting-edge technology.
Yet transatlantic relations are testier now, and even a small possibility of political cloud interference is arguably scary enough to justify action. That's especially true since hyperscalers' data centres also help to power artificial intelligence models, which could in theory play a role in future national defence.
European companies have a few options, none of which are perfect. A belt-and-braces approach would involve mobilising local talent and resources to undertake a mass buildout of strategic digital infrastructure. This is essentially the proposal of the EuroStack, opens new tab initiative, an industry coalition pushing for total tech sovereignty in the region. But doing everything from chipmaking to data centre construction won't be fast, easy or cheap. U.S.-based tech trade group Chamber of Progress estimated that building a fully European ecosystem could cost 5 trillion euros, opens new tab. Though a report from the EuroStack group suggests that total investment should be more like 300 billion euros over 10 years, that's still a huge undertaking.
Only slightly more plausible is the option of switching to European-made cloud software hosted entirely in European-owned data centres, while accepting that much of the underlying equipment may have a U.S. origin. Companies like $2 billion OVHcloud (OVH.PA), opens new tab or Scaleway, part of French telecoms group Iliad, can provide the servers and data centre resources, for example. But it would be costly and time-consuming to ditch popular subscription software tools, like the Microsoft 365 suite or Google Workspace, and shift away from cutting-edge hyperscaler data centres. Queen Mary University of London researcher Johan David Michels interviewed, opens new tab industry experts for a report – and one heard from a bank that switching cloud provider could cost hundreds of millions of dollars. It's also not clear that the European alternatives have capacity to meet local demand.
Mindful of their clients' worries, the big three cloud providers are touting alternatives of their own. Microsoft launched, opens new tab a suite of so-called 'sovereign solutions' last week, stating that these options allow EU customers to control their own data access. Amazon, opens new tab and Google, opens new tab have both flaunted similar products. Whether these services offer Europeans the level of control that they're after is another matter. One EU-based cloud provider told Breakingviews that the flurry of recent hyperscaler launches amounts to 'sovereignty washing', because they can't guarantee that U.S. security agencies won't get sight of sensitive data.
That assessment probably goes too far, not least because some of the hyperscalers' options are more secure than others. A relatively palatable one, for Europeans, involves local companies using Microsoft's cloud technologies in a controlled 'walled garden' environment, where the client owns the underlying infrastructure. An example is Bleu, a joint venture between French groups Orange (ORAN.PA), opens new tab and Capgemini (CAPP.PA), opens new tab. It provides data centres and servers, but lets customers use Microsoft's Azure cloud service and 365 productivity applications, like Outlook and Teams. All the data is stored and managed in France, according to French law. U.S. tech giants have no way of gaining access to the information stored by Bleu on behalf of its clients.
But walled gardens, which align with local data protection regulations, require a lot of skilled people to build and maintain, potentially raising the cost compared with standard public clouds. An alternative is 'client-side encryption', where customers' data is cryptographically protected and only clients have the keys to read it.
Amazon, Microsoft and Google can also take comfort from the fact that major European clients are locked up in multi-year contracts, and many have more pressing matters than switching. Some continental cloud providers are also subject to U.S. jurisdiction by virtue of their operations in the country.
Even the European Commission has bemoaned the lack of local offering to reduce its own reliance on Microsoft 365, according to a report, opens new tab by news website Euractiv that cited internal documents. The upshot is that deep-pocketed clients who are particularly exercised about security – perhaps those in strategically important areas like defence or state agencies – may use more elaborate offerings like Bleu. Hyperscalers still get a slice of the action in those cases. Europe quite literally runs on U.S. tech. Breaking away is easier said than done.
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