In my personal experience the 'requirement' of some companies that data must be hosted in Germany is their own internal policy rather than something that is prescribed by their reading of the law. However there have been some court rulings where servers hosted in Germany are applied additional restrictions over servers hosted in Ireland.

A lot of this may also have to do with own interests. In the 80s and 90s every EU country wanted US silicon fabs in their underdeveloped regions. Now every country wants hosting farms.

Oh dear god let it be at the EU level. The only way small EU countries full of semi-corrupt conservatives get decent consumer protection law is when it's an EU law.

In this specific case, I think Germany is the only exception, but to me it makes perfectly sense: sensitive personal data like medical records should not circulate outside the country.

Even at EU level, how could Germany as a nation guarantee privacy if data is physically maintained in Ireland, where most of the US companies have offices just because of cheaper taxation...? As a country I would't promise that, and as a citizen I wouldn't trust such a promise (side note, I'm Italian so I have no gain/part into this).

Having a computer on German soil does not mean that

1) the packets themselves will not travel outside Germany (hint: AMS-IX);

2) people interested in the data contained in that computer will not read it, store it, use it outside Germany.

From the technology point of view, country borders do not exist. (Unless you force a country-wide firewall).

If sensitive data must be properly encrypted. Once it is encrypted you can store it everywhere you want.

Unfortunately real-world (meaning, not theoretical) encryption is not perfect, thus the sole fact to encrypt is not sufficient to let you store any data wherever you want. At least not in Germany, and at least not from my pov.

To remain in topic with this specific law, data in transit can exit Germany soil, provided that the recipient gives guarantees on its usage (including not store it). This kind of laws should be seen to regulate sensitive (user) data as managed by (big, multinational) organizations, that are thus required to enforce security for both stored and in transit data.

I understand that this may seem silly, but without such laws the landscape would be way worse (consider, e.g., how many personal data are actually traded across the world for ads reasons).

Yes, but they usually have minimums. Like "Employees must get at least X weeks paid holiday", or "Customers must have a right to return something within at least X days". In countries where X was 0, or there was lots of exceptions, a minimum brings those laws forward.

The prospect of the UK leaving the EU terrifies me.

Then again I tend to be biased against centralisation of power so maybe don't listen to me when it comes to the EU.

Which ones would those be? From an American perspective, they all look like they're full of semi-corrupt liberals ..

What? Sweden and Finland and the Baltic states?

But good try with the stereotyping and the assuming.