Honestly, I think it's straightforward to fix. Requirements to attempt to source domestically (or at minimum try hard) plus loosening the rules on firing employees (yes it sucks, but hiring is super risky when it takes 0.5 - 3 years of salary to dispose of an employee, either a bad one or one that isn't the right person for a growing business) would go a long way towards jumpstarting domestic software production.

They don't seem to want to :shrug:

There is an awful lot of software produced in the EU. The problem is that as soon as someone is even moderately successful with something a US (or rather, an SV) based entity will make you an offer you can't refuse.