Government funded open source is certainly one possibility, and one that people like RMS favor to some degree, if I understand them correctly. Governments do fund plenty of other public goods (using the definition from economics: https://en.wikipedia.org/wiki/Public_good ). There are plenty of problems with this approach too, though.
What kills me is that the US Gov does pay for a fair amount of work (the military loved funding gcc for instance)
I'd also point out that we've (google) spent scads of money on oss software development , orgs and the rest at Google. The author really didn't research before writing the article.
I'm sure he means the Commission. And arguably, sovereignty is decreasing for member-states. For instance, possibly as much as two-thirds of the laws and regulations that affect people living in the EU come from the EU itself - not the member-states. For Eurozone members, monetary policy is controlled by the EU, and increasingly fiscal policy. What does sovereignty look like in this picture?
Although, I'm not sure if the Commission itself would have the revenue to support key open source projects. They could certainly enact regulation to encourage funding, however.
Well, we can count on the US government to fund OSS, like Tor.