Simply keeping the data in the EU won't fix anything so long as that data is still being held by US controlled entities, as those entities will still be forced to hand over the data regardless of where it is (lets face it, Microsofts battle against that particular issue is destined to fail).
And then those entities will be in violation of EU law, and will end up paying massive fines or other penalties ... which would hopefully be severe. So severe as to cripple the companies.
See, no matter what the US believes, they can't trump the EU law. So if Microsoft's battle to not hand over this data fails, Microsoft in Europe will fail. It really is that simple.
And at the end of the day, the corporations are going go realize they can't jeopardize their revenue by pulling out of those markets.
The US doesn't get to pass laws which trump local laws any more than Iran does. And the US can't exempt those entities from local laws, which means this will come down to corporate self interest versus a government who feels it is entitled to collect this information.
So the bottom line is: too damned bad for the US, because once Microsoft in Europe starts getting fined billions of dollars and people start getting thrown in jail, they're very quickly going to realize they can't do it.
It really is about time the world tells the US that our privacy and legally protected rights don't take a back seat to US security interests. We don't give a shit what the US wants.