Microsoft has done the leg work for this already. They currently have a completely contained Azure environment in Germany. I think it was deployed to ensure compliance with german/EU health data protocols.

I have first hand experience of this, migrating between their global PaaS and the contained German one. The bulkheads are quite air-tight (much to my personal detriment).

They also had a completely separate o365 offering called Microsoft Cloud Germany that failed due to lack of interest (and the fact that it was years behind the global platform, I say), which was finally shut down last year, with everyone who renewed their contract automatically being migrated off.

They're working on it, but still not everything is entirely regional.

Not if they have to provide this data under the cloud act.