BRUSSELS — The EU is scrambling to redo its homework on building a secure supply of microchips after it was forced to accept it has made little progress on tackling its dependence on the U.S. and China. The EU recently dodged a bullet for the second time this year when a weeks-long disruption fueled by trade tensions between the U.S. and China saw European carmakers warn in October that their assembly lines could grind to a halt. That left the bloc reckoning with the reality that its first EU chipmaking plan — launched in 2022 to huge political fanfare in the wake of pandemic supply-chain disruptions — has had little impact on the bloc’s exposure to foreign production. The European Commission announced it would accelerate a planned review of its chipmaking efforts, with a new proposal expected by the first quarter of 2026. The latest crisis centered on Dutch-based, Chinese-owned chipmaker Nexperia — a key supplier to European carmakers. In late September, the Dutch government seized control of Nexperia due to concerns that its technology was being leaked to China. The U.S. and China imposed export controls on the company. With chips essential for everything from electric cars to artificial intelligence, both the U.S. and China showed a willingness to weaponize microchip supply chains to gain an advantage in the development of new technologies. Industry insiders say it was a reality check for Brussels. The EU’s first chipmaking effort was “like a band-aid” and now the patient — the bloc’s microchip economy — needs a “full, general operation,” said Alison James, a senior director at the Global Electronics Association, which represents the electronics industry globally. Among the criticisms are that the EU failed to properly address geopolitical realities in its 2022 plan, and that it also targeted the wrong type of chips, dazzled by hype about the most advanced microchips. Most industries function on basic microchips, with each car produced in Europe needing hundreds of these. WHAT WENT WRONG? The bloc’s first chipmaking plan had a clear goal: It wanted to boost the region’s market share, which had been in decline for decades, to 20 percent of the global industry by 2030. In reality, it has hardly moved the needle from the 9 percent share it held three years ago. The plan, in the form of a Chips Act, introduced the possibility of designating some factories as “first-of-a-kind” if they introduced new technology to the bloc, with manufacturers to be offered extra encouragement such as more flexibility on permitting and subsidies. Much of the political headspace went into efforts to convince leading manufacturers, such as U.S.-based Intel and Taiwanese TSMC, to build factories for high-end chips in Europe. | Robert Michael/picture alliance via Getty Images Much of the political headspace went into efforts to convince leading manufacturers, such as U.S.-based Intel and Taiwanese TSMC, to build factories for high-end chips in Europe. Initially, Intel pledged €30 billion for a factory in the east of Germany, but canceled the plans after landing in financial trouble. TSMC is building a factory in Germany, but on a much smaller scale than its projects in the U.S. In parallel, Europe’s remaining chip assets have become further entangled in a geopolitical tit-for-tat. The U.S. piled pressure on the Dutch government to block exports to China from Dutch company ASML, the world’s leading manufacturer of high-end chipmaking machines. In the final week of the Biden administration this past January, the U.S. restricted the supply of AI chips to certain EU countries. That led to calls from both EU countries and European Parliament lawmakers for a second go-around at a chipmaking strategy. “This new chips proposal should feature a long-term strategy rooted in current geopolitical realities,” read a March letter sent by dozens of lawmakers. BORING IS FINE The Nexperia case served as an example of how the chips war is now being fought through export controls and national security tools, which aren’t yet part of Brussels’ repertoire. It also reinforced the importance of “boring” chips after a year-long craze about AI chips, which are built to handle tasks such as machine learning and language processing. Yet in announcing plans for the second effort, the EU’s tech sovereignty commissioner Henna Virkkunen said: “We are now preparing Chips Act 2, to make sure that Europe will be able to design and manufacture AI chips.” She later hinted it might also focus on stockpiling. Experts argue Brussels needs to examine the entire chip industry, rather than focusing on providing billions of subsidies for factories that produce advanced AI chips. “Up until a few weeks ago, the conversation on chips was really driven by advanced chips, AI chips,” said Chiara Malaponti, the geoeconomics program coordinator at the European Council on Foreign Relations. “But then you also have the case of Nexperia, which isn’t really about that, but about mature semiconductors,” she argued. “You saw the consequences of the events of past weeks, and how they had a huge impact on our industry.” Malaponti advocated for a comprehensive mapping exercise as part of Brussels’ second effort. “[The first chips act] put an emphasis on manufacturing, which is cool, of course, but there are also other parts of the supply chain,” she said, adding that it will be important to understand Europe’s strengths. “How we can cultivate those niches and how we leverage them is something that needs to be discussed as well,” said Malaponti. The industry is also a proponent of examining the full chain of production from beginning to end, rather than just focusing on the front-end manufacturing. “The chain is only as strong as the weakest link,” said James. “You’ve seen the chokepoints. There are many other chokepoints in the back-end of the electronics supply chain.”

The Chinese government has agreed to resume exports of key chips for the European auto sector, according to Dutch Prime Minister Dick Schoof. “We were informed by China that they will enable the resumption of supplies from Chinese factories from Nexperia,” Schoof told Bloomberg Friday on the sidelines of the COP30 climate summit in Brazil. The crisis was sparked in October when the Netherlands seized control of the Dutch-based chipmaker, a subsidiary of Chinese chip giant Wingtech, prompting Beijing to impose retaliatory export restrictions. Schoof told the newswire that the resolution was the result of cooperation between the Netherlands, Germany and the European Commission, as well as recent Dutch-Chinese diplomatic talks, alongside a trade detente between the U.S. and China. German auto firm Aumovio disclosed on an earnings call on Friday that it had been informed that it had received the necessary permissions to begin importing Nexperia’s chips.

An emerging U.S.-China detente gives European leaders breathing room to find a strategy on trade, raw materials and the war in Ukraine — but the thaw between the two great powers risks pushing European interests to the side.   President Donald Trump and his counterpart Xi Jinping agreed to a significant de-escalation in their trade spat during a head-to-head Thursday in South Korea, pausing export controls on rare earth magnets and other critical raw materials for 12 months.   While the move is good news for European companies that have been caught in the crossfire, other sticking points in the Europe-China relationship will be harder to resolve, even with the gift of time.  Brussels, under pressure from Trump and in pursuit of its own strategic interests, is trying — without notable success — to sway Beijing from supporting Russia in its war on Ukraine.   At the same time the EU is doing its best to keep the temperature down in its longstanding trade standoff with China, whose intensity has ratcheted up recently with the imposition of limits on exports of critical raw materials and microchips. Both measures have had an immediate negative impact on European industry, particularly automakers which were already struggling prior to the restrictions.  Fears of lasting, irreversible damage to Europe’s industries have led the EU to take a more conciliatory stance in its trade standoff, emphasizing engagement and dialogue rather than punitive measures.  Yet Chinese officials have balked at the slow and uncoordinated pace of discussions with the EU, leading Beijing to drop Europe down its list of priorities, according to Jeremy Chan, a senior analyst at Eurasia Group.  “The EU is a secondary at best, maybe a tertiary or a non-consideration for both Washington and Beijing in these negotiations,” Chan told POLITICO.  ‘LET THEM FIGHT’ The top political priority for the EU is ending the war in Ukraine — something that Trump while on the campaign trail promised to do within his first 24 hours in office. Almost a year into his term, the fighting continues, aided by China propping up Russia’s economy through investments and oil purchases.  At the urging of the White House, the EU included Chinese banks and refineries in its two latest rounds of sanctions targeting Russia, arguing the entities were helping Moscow evade sanctions. This prompted an angry response from top Chinese officials including Prime Minister Li Qiang, who branded the sanctions “unacceptable” during a meeting with European Council President Antonio Costa in Asia this week, per an EU official.  European Commission President Ursula von der Leyen and the bloc’s top diplomat, Kaja Kallas, have both called out Beijing’s support for Moscow in explicit terms, with the former saying in July that it has a “direct and dangerous impact on European security.”  The EU’s latest sanctions prompted an angry response from top Chinese officials including Prime Minister Li Qiang, who branded them “unacceptable” at a meeting with European Council President Antonio Costa, per an EU official. | Pool photo by Vincent Thian via AFP/Getty Images Ukraine had hoped Trump would pressure Beijing to stop buying Russian oil, but the American president told media on Air Force One that the issue was not on the table — although he did say the war in Ukraine “came up very strongly,” with both sides hoping to find an end to the fighting.   “He’s going to help us and we’re going to work together on Ukraine,” Trump said, referring to the Chinese president. INDUSTRIES HELD HOSTAGE While China’s export controls were not directed at the EU, the bloc’s companies faced long delays and sharp price hikes in contending with the subsequent shortage of raw materials and magnets. China accounts for 98 percent of the EU’s rare earth permanent magnets.  The geopolitical firestorm sent the European Commission into overdrive to secure its own supplies of the magnets and launch a plan to diversify Europe’s supply chain by the end of the year.   But the EU has been here before. Just two years ago it passed the Critical Raw Materials Act to solve this exact problem, and yet all the deals that have been signed have failed to deliver actual products. Its latest scheme is big on ideas and short on specifics.   The one-year pause on export controls agreed between Trump and Xi affords the EU some time to put that plan into action and leverage its other alliances — including efforts unfolding at the G7 this week with Canada, along with the U.K., Italy, France and Germany seeking to diversify away from China’s grip.  But for companies looking for clarity, the catch is that none of the agreements made between Trump and Xi are binding.  “As long as we don’t see any details hammered out and put on paper it leaves a lot of room for both sides backtracking and applying various other conditions, so I don’t think that this is really settled,” said Alexander Gabuev, director of the Carnegie Russia Eurasia Center.  SECURITY CONCERNS  In the U.K., pressure is expected to build for policymakers to use the temporary U.S. truce to minimize the risks from China.  British PM Keir Starmer has thus far failed to resolve longstanding tensions between “securocrats” in parliament and Whitehall, who want to see a tougher stance toward Beijing, and those who argue for a closer embrace in order to boost inward investment. Prominent members of the government have traveled to Beijing in pursuit of strengthened ties since Starmer took office, despite his overriding foreign policy aim of cleaving close to Trump.  China has become a particular sore point for Starmer in recent weeks due to the collapse of the prosecution of two men accused of spying for Beijing, while ministers have yet to decide the fate of a planned Chinese “super-embassy” in London.  Back in the EU, divisions among member countries over how to counter China’s power — and any subsequent retribution — make a unified stance toward Beijing on trade or dumping measures unlikely.   Brussels got a glimpse of its internal factions when it slapped duties on made-in-China electric vehicles following an anti-subsidy investigation. Automakers and their political benefactors fear Chinese brands will dump their overcapacity in the European market, bringing a severe price war to Europe’s shores.   Yet for all the handwringing over how to protect domestic automakers, the votes of EU capitals on the duties revealed how economically exposed each is to China, with Germany launching a last-minute appeal to stop the duties.  The Netherlands is the latest EU member on the outs with China after Dutch authorities seized control of chipmaker Nexperia, prompting Beijing to hit back with export controls on Nexperia’s Chinese-produced chips. The shortage could halt production lines across Europe in less than a week, showcasing just how economically dependent Europe has become on China.  LET’S BE FRIENDS From the jump, Trump framed his sojourn to Asia as a “G2” summit, stoking fears that any deal would sideline other countries or that “British and European trade priorities could be overlooked or traded away without consultation,” said David Taylor, director of policy and programs at Asia House.  Sensing its declining influence in the Trump-Xi bromance, the EU is looking to bolster its trade ties elsewhere.  Trade chief Maroš Šefčovič is traveling to Australia in late November to chair an inaugural dialogue between the EU and the 12 members of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership bloc, two diplomats told POLITICO. The dialogue is meant to deepen economic and political ties between the EU and countries keen to maintain established global trade rules.  Brussels, under pressure from Donald Trump and in pursuit of its own strategic interests, is trying to sway Beijing from supporting Russia in its war on Ukraine. | Jim Watson/Getty Images Brussels will have a chance to do just that when it hosts a delegation of high-level Chinese officials on Friday. They’re expected to meet with the Commission’s trade deputy-director general, Denis Redonnet, and other senior officials.  Experts caution that Europe will need to maintain pressure on Beijing to get any movement on its priorities.   “Europe cannot just simply be waiting to see what happens on talks between [the] United States and China,” said Ignacio Garcia Bercero, a former director at the Commission’s trade department. “It needs to develop its own channel of dialogue with China.” 

BRUSSELS — The geopolitical war around Dutch-based, yet Chinese-owned, chip supplier Nexperia is terrifying Europe’s carmakers that they’ll be hammered by a chip shortage that could wreak havoc with supply chains and shutter production lines. The car industry’s supply of crucial chips from Nexperia is dwindling just weeks after the Dutch government seized control of Nexperia and both the U.S. and China imposed export controls on the company.  “We will see production stops and slowdowns in short order globally because a lot of suppliers don’t have the depth of stock of the chips,” said a senior automotive official who spoke on condition of anonymity because of the issue’s sensitivity. “The auto sector is at the heart of the storm.”  Nexperia chips are used throughout the automotive value chain in everything from airbags to entertainment systems. The shortage threatens a replay of 2022, when pandemic-era microchip shortages similarly brought car plants to a halt. Yet automakers have done little to shore up their supply chains against geopolitical shifts, and an EU plan to reshore some chip manufacturing is falling far short of its targets.  The Dutch-based chipmaker warned its customers of an “unforeseen development that may affect the availability of certain products,” according to a force majeure declaration issued on Oct. 9, reported on by several media and seen by POLITICO.  The notice lit a fire under automakers and their suppliers to get their hands on any available chips, provoking a run on the materials. “It’s like the pandemic when people went on toilet paper buying sprees,” said a second auto industry insider. TOP OF THE LIST Following the 2022 shortage, the EU passed the Chips Act to alleviate the sector’s dangerous reliance on other regions for advanced or “mature” chips. Fast forward three years, and seemingly not much has changed.  This time, mayhem kicked off when the Dutch government decided at the end of September to invoke a 1952 national law to seize control of Nexperia, which was acquired by Chinese company Wingtech in 2019. The Dutch government feared that Nexperia’s CEO, who founded Wingtech, was transferring the chipmaker’s technology and production assets out of the country. Its decision came a day after the U.S. extended export controls on Wingtech to its subsidiary Nexperia. Four days after the Dutch seized control of Nexperia, the Chinese Commerce Ministry imposed export controls on Nexperia China, prohibiting the export of components manufactured in China.  Chips are ubiquitously used in modern manufacturing, driving the green and digital transition. While Nexperia’s chips are not the most advanced ones, they are critical to automakers: A traditional car contains up to 500 of the company’s chips — an electric vehicle as many as 1,000. China’s export clampdown on the chips, coupled with its control of rare-earth magnets — an equally important vehicle component — have sent the Nexperia crisis to the top of Brussels’ list of priorities. “The issue of chips is one of big importance, for many aspects of our policy, most notably the energy transition,” European Commission chief spokesperson Paula Pinho said on Monday. She added that Industry Commissioner Stéphane Séjourné raised the issue in a meeting with industry leaders on the same day, “to hear from the companies whether there are shortages.”  The companies’ input fed into a call between EU trade chief Maroš Šefčovič and his Chinese counterpart Wang Wentao on Tuesday. Next up is an anticipated visit by Chinese officials to the EU to discuss the export controls. Companies have already begun publicly discussing the potential impact of what’s happening at Nexperia.  Car lobby group ACEA said last week that it was “deeply concerned by potential significant disruption” to manufacturing if there was no quick resolution of the interruption of Nexperia’s supply of chips.  The group argued that the chips coming from Nexperia could be sourced elsewhere, but shifting would take longer than the current stock of Nexperia chips would last.  Volkswagen has warned its workers that potential production stoppages are imminent, German outlet Bild reported.  “Nexperia is not a direct supplier of the Volkswagen Group. However, some Nexperia parts are used in our vehicle components, which are supplied to us by our direct suppliers,” a VW spokesperson told POLITICO. “At this time, our production is unaffected. However, given the evolving circumstances, short-term effects on production cannot be ruled out.” SECOND CHIPS ACT The Nexperia case and possible shortages have put the EU’s dangerous microchip reliance back on the political map.  The European Commission announced this week that it plans to introduce a second Chips Act in the first quarter of next year, following a scheduled review due by September 2026.  Currently, the bloc is nowhere close to reaching the goal of the first Chips Act, which was to boost the bloc’s market share in the global microchips value chain to 20 per cent by 2030 — about double its current share.  Both lawmakers and EU countries want a second Chips Act.  “The European Chips Act 2.0 is in the making. But the Nexperia case shows the time is short,” Herman Quarles van Ufford, senior policy fellow at the European Council for Foreign Relations, said in a blog post on Wednesday.

BRUSSELS — The Dutch government has granted itself the power to intervene in company decisions at Dutch-based Chinese-owned chipmaker Nexperia. The highly unusual step, announced late Sunday, grants the country the power to “halt and reverse” company decisions — meaning Nexperia cannot transfer assets or hire executives without Dutch government approval, according to national media. The move is a significant escalation in relations between the Netherlands and China and could inflame wider trade tensions between Beijing and the European Union, with Europe caught in the middle of a tit-for-tat chips war between the U.S. and China. Nexperia is headquartered in Nijmegen, in the northeast of the Netherlands, and has been controlled by Wingtech since 2019. Recently there have been “signals” of “serious administrative shortcomings” at Nexperia, the Dutch government said Sunday. These shortcomings could “threaten the continuity and safeguarding of crucial technological knowledge and capacity on Dutch and European soil,” the government said, confirming it took the decision to intervene in company operations Sept. 30. While it didn’t outline the shortcomings in detail, the government cited concerns over Nexperia’s future as a Dutch and European-based company — hinting at possible fears of tech leakage, meaning property and know-how are transferred to China. Regions are increasingly seeking to bring production of chips — an important geopolitical asset — to their home shores. Nexperia is a vital chip supplier for Europe’s car industry. The order is meant to safeguard the availability of Nexperia’s products in an emergency situation, and doesn’t affect regular proceedings, according to the government. Wingtech slammed the Dutch intervention in a statement quoted by the Financial Times as “an act of excessive interference driven by geopolitical bias, not by fact-based risk assessment,” and said it had appealed to the Chinese government for assistance. A Nexperia spokesperson declined to comment further to POLITICO. “Nexperia complies with all existing laws and regulations, export controls and sanctions regimes,” the spokesperson said. “For the same purposes, we remain in regular contact with relevant authorities.” Wingtech said Sunday in a filing that company executive Zhang Xuezheng was already suspended as a director at Nexperia by a Dutch court in early October. Nexperia has had run-ins with several European governments in recent years. It was in 2022 forced by the U.K. to divest a chip manufacturing plant in Wales based on national security grounds. U.S.-based manufacturer Vishay Intertechnology eventually bought the factory. In 2023, the Dutch government scrutinized Nexperia’s acquisition of the Dutch chips startup Nowi under an investment-screening law, eventually waiving it through. Dutch liberal European Parliament lawmaker Bart Groothuis welcomed the move while noting it was an unusual move by the Dutch government. “The Chinese management of chip maker Nexperia is being discharged, and the direction is back at the company,” he said. Wingtech shares tanked by more than 10 percent on Monday morning.

Warning signs from an obscure part of the financial markets have got policymakers rattled, and one of their oldest and most profound fears may be about to get very real. As the world’s top central bankers and finance ministers descend on Washington for the annual meetings of the International Monetary Fund and World Bank, signs are increasing that the next bout of financial instability may be around the corner. The most worrying signs are arguably not from the foreign exchange market, where confidence in the dollar — the global system’s anchor — is gradually eroding, nor from the stock market, where the AI frenzy has driven equities to record highs in the U.S. and Europe. Rather, it’s what’s happening in the credit markets that’s sending a shiver down the spine of all those who remember 2008. The collapse of U.S. auto loan dealer Tricolor and parts supplier First Brands Group hints that something may be wrong in the world of private credit. Private credit refers to loans that are neither issued by banks nor publicly traded on an exchange like corporate bonds. It’s a broad description, and it can refer to anything from the aforementioned car loans issued by special credit suppliers to private funds lending money to help buy a family-owned company or financing for a new apartment block. It’s a young market, but has grown at breakneck speed. Goldman Sachs estimates it’s worth $2.1 trillion, and private equity companies, in particular, have made a fortune from it, helped by a vast amount of leverage. Because the money isn’t lent by banks, and because it’s structured as a private deal off the public markets, it’s a corner of the financial ecosystem that’s particularly hard to oversee — even when, as with Tricolor, the loans are then repackaged into tradable bonds. That means that if something is going disastrously wrong, it might only be detected once it’s too late. Officials are alarmed that something like that might be happening. For years, banking regulators have congratulated themselves on stamping out the kind of excessive risk-taking, questionable ethics and shoddy governance that caused the last financial crisis. But all along, they have fretted that, far from being dead, such behavior had just moved to other parts of the financial system outside their reach. In a speech last week, European Central Bank President Christine Lagarde warned that it was “imperative” to improve transparency in the non-bank financial sector, whose assets are now bigger than those of the regulated banking sector. “Policymakers must do so sooner rather than later,” she said. The Bank of England also took up the theme earlier this week, its Financial Policy Committee warning that “the risk of a sharp market correction has increased.” It said the defaults in the U.S. “underscore some of the risks the FPC has previously highlighted around high leverage, weak underwriting standards, opacity, and complex structures.” THE WHEELS COME OFF Texas-based Tricolor was an auto loan provider that lent to riskier clients, notably undocumented migrants. First Brands, meanwhile, is a car parts supplier that used opaque and complex financing schemes to pay its suppliers — until it wasn’t able to anymore. One of its creditors, Raistone, alleges that some $2.3 billion that it was owed “simply vanished.” Shares of investment bank Jefferies tumbled this week after it declared it had $715 million in exposure to First Brands. Swiss giant UBS, meanwhile, says it has $500 million at risk. The big question is whether the twin bankruptcies — concentrated in an inherently riskier segment of the market — are just two accidentally similar one-offs, or whether they are the first signs of a broader crisis brewing. Credit rating agency Fitch said defaults in the private credit market rose to 5.5 percent in the second quarter of the year, up from 4.5 percent in the first quarter. Meanwhile, in January, Fitch said auto loan payments that were 60 or more days late among the least creditworthy (subprime) borrowers were at the highest level on record, at 6.6 percent. A growing body of academic literature has found extensive links between non-bank financial institutions (NBFIs) — a category that includes hedge funds and private equity, as well as private credit — and the traditional banking sector. “Through these linkages, shocks can propagate rapidly across entities, sectors, or jurisdictions, especially when multiple institutions respond simultaneously to market stress,” said the authors of a paper at this year’s ECB research conference in Sintra, Portugal. They wrote that nearly one tenth of banks’ assets in the European Union were claims on NBFIs, and that 10-15 percent of banks’ deposits also came from non-banks. Loriana Pelizzon, deputy scientific director at the Leibniz Institute for Financial Research and one of the authors of the paper, said she wasn’t overly concerned about the two bankruptcies, given the relatively small size of the auto financing market. However, she said that interlinkages between European NBFIs and the U.S. financial system needed to be monitored, given the scale of the investments. “There’s a significant amount — trillions and trillions invested — in the U.S.,” she said, noting that investment chains are often long and complex, and that regulators lack insight into them. “The question is whether this is just a couple of rotten apples,” said Davide Oneglia, director at economic consultancy TS Lombard. He said that the risk in the private credit segment will grow further if U.S. interest rates don’t fall as quickly as expected, for example, due to high inflation. That would put a further squeeze on private credit providers. IN PLAIN SIGHT But it’s not just private credit that has policymakers on tenterhooks. The benchmark U.S. stock index S&P 500 is now trading at nearly 30 times the expected earnings of its components, far above its long-run average, and closer to the freak levels seen during the Dotcom boom and the pandemic. Over the last three years, the S&P has risen over 80 percent, largely powered by the performance of U.S. tech stocks on the back of a boom in AI investment. Companies have invested some $400 billion to build out the infrastructure — microchip factories and data centers — that powers AI. Should that money turn out to be misspent, for example, if AI doesn’t provide the productivity gains that investors are betting on, that bubble will burst with painful consequences. In parallel, unbridled government spending throughout the developed world, from the U.S., to Europe and Japan, have pushed market interest rates higher, amid growing doubts that governments can ever repay the debts they are building up. That has also helped push the price of gold — seen as a safe asset that won’t lose value — higher, with some investors piling into both gold and Bitcoin to avoid the debasement of their investments through inflation. It’s not clear which of these — if any — will light the wick of the next global financial meltdown. But what is clear is that policymakers will have no shortage of threats to obsess over next week.

BRUSSELS — Two of Europe’s tech powerhouses tied the knot on Tuesday in a landmark deal that bolsters a push by politicians to reduce reliance on the United States for critical technology. Dutch microchips champion ASML confirmed it was investing €1.3 billion in French AI frontrunner Mistral, one of the few European companies that is able to go head-to-head with U.S. leaders like OpenAI and Anthropic on artificial intelligence technology.  It’s a business deal soaked in politics. Officials from Brussels to Paris, Berlin and beyond have called for Europe to reduce its heavy reliance on U.S. technology — from the cloud to social media and, most recently, artificial intelligence — under the banner of “tech sovereignty.”  “European tech sovereignty is being built thanks to you,” was how France’s Junior Minister for Digital Affairs and AI Clara Chappaz cheered the deal on X. Europe has struggled to stand out in the global race to build generative AI ever since U.S.-based OpenAI burst onto the scene in 2022 with its popular ChatGPT chatbot. Legacy tech giants like Google quickly caught up, while China proved its mettle early this January when DeepSeek burst onto the scene. European politicians can showcase the ASML-Mistral deal as proof that European consumers and companies still can rely on homegrown tools. That need has never been more urgent amid strained EU-U.S. ties under Donald Trump’s repeated attacks against EU tech regulation. But the deal also illustrates that while Europe can excel in niche areas, like industrial AI applications, winning the global consumer AI chatbot race is out of reach. EUROPE KEEPS CONTROL Tuesday’s deal brings together two European companies that are most closely watched by those in power. ASML, a 40-year-old Dutch crown jewel, has grown into one of the bloc’s most politically sensitive assets in recent years. The U.S. government has repeatedly tried to block some of the company’s sales of its advanced microchips printing machines to China in an effort to slow down Chinese firms.  Mistral is only two years old but has been politically plugged in from the start, with former French Digital Minister Cédric O among its co-founders.      When the company faced the need to raise new funding this summer, several non-European players were floated as potential backers, including the Abu Dhabi-based MGX state fund. There were even rumors Mistral could be acquired by Apple. Apple’s acquisition of Mistral would have been “quite negative” for Europe’s tech sovereignty aspirations, said Leevi Saari, EU policy fellow at the U.S.-based AI Now Institute, which studies the social implications of AI. “The French state has no appetite [for] letting this happen,” he added.  Getting financing from an Abu Dhabi-based fund, conversely, would have reinforced the perception that Europe can provide the millions in venture capital funding needed to start a company, but not the billions needed to scale it.  With this week’s €1.7 billion funding round led by ASML, Europe’s tech sovereignty proponents can breath a sigh of relief. “European champions creating more European champions is the way to go forward and it needs further backing from the EU,” said Dutch liberal European Parliament lawmaker Bart Groothuis in a statement. The deal is also what officials, experts and the industry want to see more of: one where startups are backed by an established European corporation rather than a venture capitalist. “A European corporation finally investing massively in a European scale-up from its industry, even [if] it [is] not directly tied to its core business,” said Agata Hidalgo, public affairs lead at French startup group France Digitale, on Linkedin. A French government adviser, granted anonymity to speak freely on private deals, said they felt “hyped” by the news after months of uncertainty due to Mistral’s refusal to publicly deny talks with Apple. The deal is also expected to avoid any close scrutiny from Europe’s powerful antitrust regulators, which in the past have intervened in mergers and deals to keep the market competitive. Tuesday’s deal is not a full takeover and does not need merger clearance. Nicolas Petit, a competition law professor at the European University Institute, said there was “nothing to see here unless the EU wants to shoot itself in the foot with a bazooka.” “It’s a non-controlling investment, and neither ASML [nor] Mistral AI compete in any product or service market,” he added. REALITY CHECK While the incoming Dutch investment goes a long way toward keeping Mistral in European hands, it also determines the path forward for the French artificial intelligence challenger.  Mistral had already been struggling “to keep up with the race for market share” with other large language models, Saari claimed in a blogpost published last week, in which he cited numbers suggesting that Mistral’s market share is “around 2 percent.”  “Mistral was known to face challenges both technically and in finding a business model,” said Italian economist Cristina Caffarra, who has been leading the charge for European tech sovereignty through the Eurostack movement. “It’s great they found a European champion anchor investor” that will, in part, “protect them from the [venture capital] model.” Tuesday’s deal could mean that Mistral will get more support to work on industrial applications instead of a consumer-facing chatbot that venture capitalists like to propagate.  “With Mistral AI we have found a strategic partner who can not only deliver the scientific AI models that will help us develop even better tools and solutions for our customers, but also help us to improve our own operations over time,” ASML CEO Christophe Fouquet wrote in a post on Linkedin.  ASML’s main customers are the world’s biggest microchips manufacturers, including Taiwan’s TSMC and America’s Intel. The company also has a wide network of industrial suppliers, which could be leveraged as well. For Mistral, catering to European industrial applications could strengthen its business. But it could also be seen as a tacit admission that in the global AI race, Europe has to pick its battles.  Francesca Micheletti and Océane Herrerro contributed reporting.

President Donald Trump on Friday said the U.S. government had reached a deal to take a 10 percent equity stake in the chipmaker Intel, worth approximately $10 billion. “I said, I think it would be good having the United States as your partner,” Trump said Friday at the White House. “[CEO Lip-Bu Tan] agreed, and they’ve agreed to do it.” Commerce Secretary Howard Lutnick confirmed the deal in a post on X on Friday: “BIG NEWS: The United States of America now owns 10% of Intel, one of our great American technology companies.” Intel posted details of the plan soon afterward, saying the administration would make an $8.9 billion investment in Intel common stock, paid for with the CHIPS grant money. The company said the stake would be funded with $5.7 billion in grants previously awarded but not yet paid, and $3.2 billion from a separate Defense Department program. It said the Trump administration will take “passive ownership, with no Board representation or other governance or information rights.” “We are grateful for the confidence the President and the Administration have placed in Intel, and we look forward to working to advance U.S. technology and manufacturing leadership,” Tan said in a statement. The deal appears to rewrite the terms of the 2022 CHIPS and Science Act, under which Intel received $10.9 billion in grants to boost American chipmaking. The unusual deal drew scattered criticism from Republicans who saw it as violating free-market principles. “I don’t care if it’s a dollar or a billion dollar stake in an American company, that starts feeling like a semi-state owned enterprise, à la [the Chinese Communist Party],” said Sen. Thom Tillis (N.C.), in comments that surfaced Friday. “You’re going to have to explain to me how this reconciles with free-market capitalism.” Sen. Rand Paul (R-Ky.) also publicly criticized the plan this week. Intel, which has struggled to compete against its global chipmaking rivals, was the largest recipient of CHIPS Act funds. Its continued business problems, as well as Congressional inquiries into CEO Lip-Bu Tan’s ties to Chinese industry, gave Trump an opening to attack the CEO on social media, and pull him into in-person negotiations. The Trump administration has been taking a heavier hand in the microchip industry overall, including a deal to let Nvidia and AMD export high-tech chips to China in exchange for paying Washington 15 percent of their revenues. As with the Intel investment, it’s unclear how the government would administer the novel arrangement. On Friday, several Democratic legislators introduced a bill to limit Trump’s ability to change policy on high-tech national security without consulting Congress, but without Republican support, it’s unlikely to move further.