Europe has a problem. It wants to lead the world in artificial intelligence, but it also wants to regulate the hell out of it. This is rather like trying to win a Formula One race whilst insisting that all cars travel at 30kph for safety reasons.

European AI start-ups raised a respectable eight billion US dollars in 2024. Cue the self-congratulatory press releases from Brussels. However, American AI ventures attracted 109.1 billion US dollars—nearly 12 times Europe’s total. Even China, despite its semiconductor constraints (China faces severe US export controls that restrict access to advanced AI chips and manufacturing equipment), still managed 9.3 billion US dollars. Britain alone secured 4.5 billion US dollars, more than half of the entire European Union’s efforts.

This isn’t merely about money. It reflects something deeper: whilst Silicon Valley embraces ‘move fast and break things’ and Beijing deploys state capitalism with algorithmic precision, Europe has chosen the path of the anxious regulator, crafting elaborate rules to ensure AI remains well-behaved.

Red tape, blue screens

The European AI Act, which took effect in August 2024, is a masterpiece of bureaucratic ambition. It sorts AI systems into four neat categories—from ‘unacceptable’ to ‘minimal risk’—each with its own compliance requirements. The legislation aims to foster ‘trustworthy AI’ that respects fundamental rights. Noble goals, to be sure.

But consider the practical consequences. Start-ups developing high-risk AI must undergo third-party audits, maintain extensive documentation, and implement quality management systems that would make a pharmaceutical company proud. Get it wrong and face fines of up to 35 million euros or seven per cent of global revenue. Not exactly the sort of environment that encourages garage tinkering.

European venture capitalists, never known for their optimism, are extra gloomy. Three-quarters expect the Act to reduce European AI competitiveness. Half of AI start-ups surveyed believe innovation will slow. Brussels has managed something remarkable: creating legislation that even the people it’s meant to help think is counterproductive.

Not that regulation is Europe’s only handicap. The continent operates as 27 separate markets with different languages, legal systems, and investor preferences. A brilliant start-up in Tallinn faces entirely different challenges from one in Toulouse. America offers a unified market of 330 million consumers; Europe, still not as deep a union as it likes to pretend, offers a fragmented puzzle of national compliance requirements.

The exodus

Europe’s real tragedy isn’t regulatory burden—it’s talent flight. The continent trains excellent AI researchers. France alone hosts over 750 AI start-ups employing 35,000 people. Nevertheless, it struggles to keep them from decamping to better-funded opportunities elsewhere. Mistral AI, France’s answer to OpenAI, recently opened an office in Palo Alto, with one founder considering relocating from Paris.

The data confirms this troubling trend. France is experiencing a net AI brain drain, whilst Switzerland and Germany attract the most AI immigration. Even successful European companies find themselves pulled towards American markets as they scale, drawn by venture capital flows and customer bases more receptive to cutting-edge technologies.

Picking up the pieces

European policymakers aren’t blind to these challenges. They’ve announced a 200 billion euros ‘Invest AI’ initiative. Thirteen AI Factories across the continent promise privileged access to supercomputing resources. The logic is sound: if European companies can’t compete on pure capital, perhaps they can compete on infrastructure.

There are encouraging signs. European AI investment jumped 55 per cent in the first quarter of 2025 compared to the previous year. Companies like Germany’s Black Forest Labs raised 28 million euros for generative AI models, whilst Austria’s Emmi AI secured 15 million euros for physics-based simulations. European innovation isn’t dead—it’s just wearing regulatory shackles.

Does Europe need its own OpenAI?

The deeper question is whether Europe actually needs homegrown AI champions. Perhaps its real strength lies not in creating global platforms but in establishing standards that eventually become global norms.

Consider GDPR. Initially dismissed as innovation-killing bureaucracy, it became the world’s default privacy standard. Silicon Valley giants now adopt European-style practices globally. Europe’s AI Act might follow a similar path, creating competitive advantages for companies that master compliance early.

But this strategy has limits. The economic spoils of artificial intelligence—productivity gains, new industries, geopolitical clout—flow mainly to those who build the technology, not just regulate it elegantly. A continent that can’t produce AI champions risks becoming a digital colony, dependent on foreign algorithms for everything from medical diagnoses to crop management.

Threading the needle

Europe’s path forward requires threading an impossibly narrow needle. It must maintain ethical standards whilst creating conditions for commercial success. This means streamlining rather than abandoning the AI Act, consolidating rather than fragmenting investment efforts, and learning to celebrate entrepreneurial risk-taking.

Early signs offer hope. European healthtech attracted 4.42 billion euros in the first quarter of 2025 alone. The continent’s scientific excellence, large market, and strong institutions provide foundations for ambitious entrepreneurs—if they choose to stay.

Europe’s AI strategy won’t replicate Silicon Valley’s breakneck pace or Beijing’s state-directed scale. But it might offer something different: technological development that puts human welfare alongside commercial success. Whether this approach can compete with pure capitalism or authoritarian efficiency remains an open question.

The continent that gave the world the industrial revolution now faces a choice. It can shape the algorithmic age or merely be shaped by it. Time is running short, and the algorithm doesn’t wait for committee approval.

Photo: Dreamstime.