Beyond sharing a pair of vowels, AI and the EU both present significant challenges when it comes to setting the right course. This article makes the case that reducing regulation for large general-purpose AI providers under the EU’s competitiveness agenda is not a silver bullet for catching Europe up to the US and China, and would only serve to entrench European dependencies on US tech. Instead, by combining its regulatory toolkit and ambitious investment strategy, the EU is uniquely positioned to set the global standard for trustworthy AI and pursue its tech sovereignty. It is an opportunity that Europe must take.
Recent advances in AI have drastically shortened the improvement cycle from years to months, thanks to new inference-time compute techniques that enable self-prompting, chain-of-thought reasoning in models like OpenAI’s o1 and DeepSeek’s R1. However, these rapid gains also increase risks like AI-enabled cyber offenses and biological attacks. Meanwhile, the EU and France recently committed €317 billion to AI development in Europe, joining a global race with comparably large announcements from both the US and China.
Now turning to EU AI policy, the newly established AI Office and 13 independent experts are nearing the end of a nine-month multistakeholder drafting process of the Code of Practice (CoP); the voluntary technical details of the AI Act’s mandatory provisions for general purpose AI providers. The vast majority of the rules will apply to only the largest model providers, ensuring proportionality: the protection of SMEs, start-ups, and other downstream industries. In the meantime, the EU has fully launched a competitiveness agenda, with the Commission’s recently published Competitiveness Compass and first omnibus simplification package outlining plans for widespread streamlining of reporting obligations amidst mounting pushback against this simplified narrative. Add to this the recent withdrawal of the AI Liability Directive, and it’s clear to see which way the political winds are blowing.
So why must this push for simplification be replaced by a push for trustworthy market creation in the case of general-purpose AI and the Code of Practice? I’ll make three main points: 1) Regulation is not the reason for Europe lacking Big Tech companies, 2) Sweeping deregulation creates legal uncertainty and liability risks for downstream deployers, and slows trusted adoption of new technologies and thereby growth, 3) Watering down the CoP for upstream model providers with systemic risk will almost exclusively benefit large US incumbents, entrenching dependency and preventing tech sovereignty.
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The EU’s tech ecosystem had ample time to emerge in the years preceding and following the turn of the century, free of so-called “red tape,” but this did not happen and will not again through deregulation […] One reason presented by Bradford is that the European digital single market still remains fragmented, with differing languages, cultures, consumer preferences, administrative obstacles, and tax regimes preventing large tech companies from seamlessly growing within the bloc and throughout the world. Even more fragmented are the capital markets of the EU, resulting in poor access to venture capital for tech start-ups and scale-ups. Additional points include harsh, national-level bankruptcy laws that are “creditor-oriented” in the EU, compared to more forgiving “debtor-friendly” equivalents in the US, resulting in lower risk appetite for European entrepreneurs. Finally, skilled migration is significantly more streamlined in the US, with federal-level initiatives like the H-1B visa leading to the majority of Big Tech CEOs hailing from overseas
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The downplaying of regulation as Europe’s AI hindrance has been repeated by leading industry voices such as US VC firm a16z, European VC firm Merantix Capital, and French provider MistralAI. To reiterate: the EU ‘lagging behind’ on trillion-dollar tech companies and the accompanying innovation was not a result of regulation before there was regulation, and is also not a result of regulation after.
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Whether for planes, cars, or drugs, early use of dangerous new technologies, without accompanying rules, saw frequent preventable accidents, reducing consumer trust and slowing market growth. Now, with robust checks and balances in place from well-resourced regulatory authorities, such markets have been able to thrive, providing value and innovation to citizens. Other sectors, like nuclear energy and, more recently, crypto, have suffered from an initial lack of regulation, causing industry corner-cutting, leading to infamous disasters (from Fukushima to the collapse of FTX) from which public trust has been difficult to win back. Regulators around the world are currently risking the same fate for AI.
This point is particularly relevant for so-called ‘downstream deployers’: companies that build applications on top of (usually) Big Tech, provided underlying models. Touted by European VC leader Robert Lacher as Europe’s “huge opportunity” in AI, downstream deployers, particularly SMEs, serve to gain from the Code of Practice, which ensures that necessary regulatory checks and balances occur upstream at the level of model provider.
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Finally, the EU’s enduring and now potentially crippling dependency on US technology companies has been importantly addressed by the new Commission, best exemplified by the title of Executive Vice President Henna Virkkunen’s file: Tech Sovereignty, Security and Democracy. With the last few months’ geopolitical developments, including all-time-low transatlantic relations and an unfolding trade war, some have gone as far as warning of the possibility of US technology being used for surveillance of Europe and of the US sharing intelligence with Russia. Clearly, the urgency of tech sovereignty has drastically increased. A strong Code of Practice would return agency to the EU, ensuring that US upstream incumbents meet basic security, safety, and ethical standards whilst also easing the EU’s AI adoption problem by ensuring technology is truly trustworthy.
So, concretely, what needs to be done? Bruegel economist Mario Mariniello summed it up concisely: “On tech regulation, the European Union should be bolder.”
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This article has outlined why deregulating highly capable AI models, produced by the world’s largest companies, is not a solution to Europe’s growth problem. Instead of stripping back obligations, ensuring protections of European citizens, the EU must combine its ambitious AI investment plan with boldly pursuing leadership in setting global standards, accelerating trustworthy adoption and ensuring tech sovereignty. This combination will put Europe on the right path to drive this technological revolution forward for the benefit of all.
Source: Can the EU’s Dual Strategy of Regulation and Investment Redefine AI Leadership? | TechPolicy.Press
Robin Edgar
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