Neelie Kroes has warned of “multi-billion euro consequences” for cloud service providers if customers can no longer trust their security measures in the wake of the PRISM hacking scandal.

“If businesses or governments think they might be spied on, they will have less reason to trust the cloud, and it will be cloud providers who ultimately miss out,” said Kroes, the vice president of the European Commission (EC) who speaks regularly on digital issues.

She said that customers who allow their cloud suppliers to hold sensitive information will find themselves in a difficult position: “Why would you pay someone else to hold your commercial or other secrets, if you suspect or know they are being shared against your wishes” she asked.

Customers would see sense and look elsewhere, according to Kroes, with US vendors bearing the brunt of the damage: “Front or back door – it doesn’t matter – any smart person doesn’t want the information shared at all,” she said. “Customers will act rationally, and providers will miss out on a great opportunity.

“In this case it is often American providers that will miss out, because they are often the leaders in cloud services.”

But she said that while privacy is a “fundamental right”, it should not be down to policy makers to produce legislation for cloud providers to put stronger security measures in place. Instead, she said in the interest of an open and competitive market, cloud vendors should put their own security measures in place as they see fit, saying “privacy is not only a fundamental right, it can also be a competitive advantage.”

“Companies focused on privacy need to start coming forward into the light… 2013 is the year,” she concluded.

This week, allegations emegered suggesting EU buildings were bugged and EU computer equipment was hacked, with the EC labelling the incidents “deeply disturbing”.