The idea of siphoning computing power from afar - a concept called 'cloud computing' - has been in active development for much of the past decade.

The European Union is rapidly adopting the idea, hoping that it can streamline businesses, rid the 27-country union of overlapping infrastructure and ultimately save time and money.

But it is also causing intense headaches for EU regulators, who are troubled by issues of privacy and jurisdiction, including tough questions about who owns information and who bears responsibility for how European laws are applied.

Anyone who uses Gmail, Flickr or other services where the data is not saved on their computers is already taking advantage of cloud computing.

Businesses are increasingly switching their entire networks to such internet-based systems.

While it saves money, it also means that personal data can essentially be stored anywhere in the world and that the ability to reach it depends solely on the cloud provider working properly.

The economic argument is striking: The Centre for Economics and Business Research predicts that Europe's five largest economies could save €177bn each year for the next five years if all their businesses were to switch over at the expected rate.

In response to the new business possibilities and in an effort to head off the impending privacy concerns, the EU executive is putting together its first cloud-computing strategy.

The target for completion is next year, and there is a sense of urgency to get ground rules in place.

Legal headache

Compared to the United States, Europe has been a slow adapter to the new technology.

Last year, Western Europe accounted for less than a quarter of the €46bn spent globally on cloud-computing services, according to technology research consultancy Gartner. The US occupied nearly 60% of the market.

That leaves plenty of room for the technology to expand in Europe, but it's the privacy issue that is likely to prove the biggest hurdle to a rapid and successful expansion.

One significant problem is that there's no way for a user to verify where their data is sitting - whether on a server in Sao Paolo, Siena, Singapore or Seoul.

This raises a particular problem for EU member states, which under EU law can only send personal data outside EU borders if the receiving country meets 'adequate' privacy standards.

It's also unclear under EU regulations whose privacy laws would apply in any dispute where the end-user, the cloud-provider and the actual data servers are all in different countries.

For that reason, the EU's 27 member states are first trying to align their privacy laws and close jurisdictional gaps.

'This is a necessary condition for cloud computing to be effective in the near future,' said Daniele Catteddu, a communication security expert working on the EU's cloud computing strategy.

'The major obstacles are legal barriers, the enormous levels of bureaucracy, the difficulties of being compliant with 27 different sets of rules,' he said.

However the regulation shakes out, big computing companies like Microsoft say cloud computing will be the next big thing for Europe and the rest of the world.

'It really is the future. All of our products will run on the cloud,' Microsoft associate general counsel, Ron Zink, told Reuters this month.

He said 70% of Microsoft's research and development funds were already devoted to cloud computing, with the figure expected to rise to 90% soon.