Beyond the European Chips Act: Mobilizing Public Banks to Solve Europe’s Semiconductor Supply Chain Paradox

The European semiconductor supply chain is characterized by a “missing middle.” While the continent hosts global leaders in equipment manufacturing (such as ASML) and advanced research (IMEC, CEA-Leti), its situation in the production of power and automotive semiconductors (STMicroelectronics, Infineon, NXP) has deteriorated, and it is almost entirely absent from the leading edge of logic chip production (with the exception of Intel in Ireland, which produces for the USA). At the same time, Europe is a vast downstream consumer of semiconductors, embedded not only in its automobile, aerospace, and industrial sectors but also in final consumer demand for smartphones, computers, and digital devices. This paradox – strength upstream and downstream, but weakness in the middle of the supply chain – renders the continent acutely vulnerable to economic disruptions and geopolitical shocks. The COVID-19 pandemic exposed these vulnerabilities, as shortages forced months-long shutdowns in European automobile production, while the concentration of advanced-node capacity in Taiwan and South Korea continues to heighten systemic risks. The EU Chips Act (2023) seeks to address this imbalance by doubling Europe’s global market share to 20 percent by 2030. Yet compared with the U.S. CHIPS and Science Act, the initiative remains underfunded and fragmented, with only €3.3 billion in direct EU funding and uneven national subsidies. Intel’s withdrawal from the Magdeburg project has further undermined Europe’s sub-7 nm ambitions. This article argues that Europe requires a more ambitious approach. While direct EU subsidies are off the table due to European institutional constraints, the EU could resort to strategic, highly leveraged, public-private partnerships, where leading players such as TSMC would engage in technology transfer against higher-than-usual profitability. In effect, manufacturers would invest 20% of the total capex needed while public and private banks would provide the remainder. Public promotional banks, such as the EIB, KfW, Bpifrance, CDP, and ICO would be key actors of this plan, because these institutions operate outside the Maastricht definition of public debt, and they could collectively mobilize up to €170 billion between 2026 and 2033.