In February 2022, the European Commission presented the proposal for the European Chips Act. A little more than a year later, the legislative powers, the European Council and Parliament, have reached a political agreement on the proposal, although it will still take a few months before the regulation is formalised and enters into force. The central objective of the new regulation is for the EU to reach a 20% share of the semiconductor market by 2030.

The approach of the European Chips Act is different from the chips legislation adopted by the United States in August last year. The US has committed more than $40 billion directly, which is already starting to be mobilised through the ‘Chips For America’ programme, with states playing a secondary role. Meanwhile, the European law is expected to mobilise an equivalent amount, but with only a contribution of just over €3 billion from the EU’s own funds while leaving the burden of the necessary public investment, complemented by private sector financing, to the member states. Europe’s magic bullet for regaining its role in the semiconductor market revolves around the relaxation of state aid approval regulations.

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The main novelty introduced by the European Chips Act is the genesis of a fast track for the approval of aid for certain types of projects. First-of-a-kind (FOK) installations that contribute to security of supply for the internal market may benefit from a prioritisation of approval for public intervention. These facilities include advanced semiconductor manufacturing facilities, chip manufacturing equipment production facilities and innovative design centres. The range of facilities has been broadened compared to the European Commission’s proposal, which only included facilities of the first type. It is also relevant that the legal provisions have been introduced during the process to make it more flexible to grant aid of up to 80% of the investment for projects of medium-sized companies, 90% in the case of those of a smaller size.

The question is whether the relaxation of the state aid framework will be sufficient to incentivise the planned investment. According to an analysis by Politico, a best-case scenario would mobilise around €20 billion of public investment. There are also doubts regarding the potential private capital that could be attracted to Europe after the immense investment commitments made in the United States and Asia by large companies in the sector. The reality is that major projects have yet to get off the ground in Europe.

The forecasts of SEMI (the global association of the microelectronics manufacturing and design industry) for the construction of up to 17 factories in Europe between 2021 and 2023 have not yet been consolidated. In recent months, there have been a great deal of back-and-forth discussions regarding Intel’s announced investment in Germany, from the company’s demand for more public funds to the government’s counterproposal to increase aid in exchange for more investment. Moreover, TSMC has yet to finalise its investment plans in Europe as well, although rumours have been growing in recent weeks about an investment in Germany. However, data on sales of semiconductor manufacturing equipment in 2022 in Europe give cause for optimism, with a 93% increase (to more than $8 billion) which could be a prelude to future announcements.



On the other hand, the relaxation of the state aid framework is feared by member states with less financial capacity and industrial potential. Germany, as we have seen, is acting as a magnet for large investments. As far as is known, the political agreement on the European Chips Act does not introduce mechanisms for the early correction of this eventual inequality.

There also exists the danger that the theoretical relaxation of the application of the state aid framework will amount to nothing. The shadow of the wreckage of flexibility mechanisms previously devised by the European institutions is a reality in the semiconductor sector. The mechanism of defining an IPCEI (Important Project of Common European Interest) has failed as a fast track to approve a major sectoral project, with the services of the European Commission analysing its compatibility with the single market since December 2021.

To regain market share in the semiconductor sector, Europe has chosen the option of establishing a durable decentralised mechanism, based on lightening its bureaucratic machine and trusting in the investment that each member state can make at any given moment. The approach moves away from the centralised public investment model of the United States, which focuses on a few projects in a short period of time across its geographic expanse. Both alternatives have their strengths and weaknesses and a decade ahead to validate their effectiveness.