The European Union is exploring the possibility of using state aid to boost semiconductor production, as a global shortage of the crucial microchips drags on. 

"The Commission will consider approving support to fill possible funding gaps in the semiconductor ecosystem, in particular for European, first-of-a-kind facilities," said Margrethe Vestager, the European Commissioner for Competition on Thursday. State aid is generally prohibited in the EU, unless there's a pressing economic need for it.

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Semiconductors are used in everything from washing machines to cars. However, since the start of the COVID-19 pandemic, companies have been struggling to get hold of enough chips. European car manufacturers such as Daimler and Audi have even been forced to cut their output this year. 

Some EU member states are concerned that state aid in the semiconductor sector could give larger nations such as Germany and France an unfair advantage and undermine Europe's free market. 

"There are strong safeguards to make sure that such aid is necessary, appropriate, proportionate and, of course, to make sure that undue competition distortion is limited," said Vestager on Thursday. 

As the worldwide shortage lingers, boosting semiconductor production in the single market has become a top priority for the EU. Asia currently dominates the sector, with many of the world's largest producers based in Taiwan, the Republic of Korea and China. 

President of the European Commission Ursula von der Leyen even dedicated part of her annual State of the Union speech this year to semiconductors. She announced plans for a European Chips Act, saying the "tiny chips ... make everything work: from smartphones and electric scooters to trains or entire smart factories." 

She added: "While global demand has exploded, Europe's share across the entire value chain, from design to manufacturing capacity has shrunk. We depend on state-of-the-art chips manufactured in Asia. So this is not just a matter of our competitiveness. This is also a matter of tech sovereignty." 

The proposed legislation focuses on research and attracting foreign investment into Europe's tech sector.