This automatically rules out everyone hosting on Google, Microsoft or Amazon or any Chinese owned cloud.

AFAIK companies like MS and Amazon are creating datacenters in the EU for this very reason, and government services are using them already. They are pushing hard on sales and it works because it politicians like to show off "tech" investments.

Still, i think there's a chance for a european cloud player to emerge. But maybe the regulation is too onerous to allow it to happen now.