An assumption propelling a recalibration of European tech regulation is that red tape is holding back the trading bloc from gaining ground in a global race for artificial intelligence (AI) dominated by the United States and China. Backers of the “Digital Omnibus” proposal unveiled in Brussels last month hope that reducing regulatory burdens and delaying obligations within the continent’s tech laws will help European developers accelerate their efforts.
While European firms may welcome a lessening of their regulatory constraints, the problem extends beyond mere red tape. There exists a significant structural gap between the modern requirements of AI development and the current capacities of Europe. The Omnibus, while potentially beneficial for legal alignment, is unlikely to bridge these gaps.
“The reality is that large-cap U.S. companies have been able to target their significant resources to the development and infrastructure of AI, and the EU lacks the native tech giants to capitalize on the AI opportunity in the same way,” stated Nicola Cain, CEO of Handley Gill Limited, a British legal and regulatory compliance consultancy.
Europe has only a handful of companies, such as Aleph Alpha and Mistral, developing large-scale generative AI models domestically. Even these firms encounter steep structural challenges. A European Commission analysis has warned that such companies “require massive investment to avoid losing the race to U.S. competitors,” adding that European capital markets “do not meet this need, forcing European firms to seek funding abroad.” This situation leads to a persistent leakage of ownership and control at a critical juncture when scale is paramount.
Hyperscale companies such as Microsoft, Google, and Amazon are investing in AI infrastructure at an unmatched scale. Google alone is dramatically expanding its AI computing capacity, with projected capital expenditures exceeding $90 billion by the end of 2025, according to reports from Reuters.
The vast majority of private AI investment continues to flow to U.S. firms. Approximately 81% of global private AI investments went to U.S.-based companies in 2024, as per analysis by Air Street Capital. Long-term data underscores this lead; between 2013 and 2023, U.S. AI companies attracted nearly $500 billion, compared to just $75.7 billion combined across the United Kingdom and the EU during that same period, according to data from the App Association, a Washington, D.C.-based lobbying group.
Investments into Chinese companies appear to fall between the levels seen in Europe and the United States, with venture capitalists investing $15 billion in China in 2013, compared to $68 billion in the United States and $8 billion in Europe, according to data published by the European Commission.
This capital asymmetry results in powerful second-order effects, influencing who can absorb the high costs associated with large-scale model training, sustain loss-leading platform expansions, and continuously iterate at the forefront of AI development. Over time, these dynamics create self-reinforcing structural advantages for capital-rich ecosystems that remain largely unaffected by regulation.
These issues are not merely regulatory; they are deeply rooted in industrial capacity. The Omnibus cannot conjure the compute, capital, or platform giants necessary for Europe’s AI contenders to compete effectively.
Europe’s Missing Giants
At the core of Europe’s AI predicament is a fundamental constraint: it lacks hyperscalers. Industrial scale is a prerequisite for regulatory leverage, not the reverse. The absence of well-capitalized, home-grown computing platforms exacerbates the problem. European startups often find themselves renting compute power from U.S. cloud providers, while European researchers rely on foreign model releases. Consequently, European enterprises primarily consume AI capabilities rather than defining the platforms, standards, and economic terms that govern the market. This dependency limits Europe’s ability to influence the trajectory of AI development itself.
Even if the Omnibus were to eliminate every legal obstacle overnight, the pressing question would remain: where will the industrial strength come from that can enable Europe to compete on the cutting edge of AI? Regulation can shape markets, but it cannot substitute for the absence of giants.
Despite these challenges, it is crucial to recognize that “the EU is currently suffering from a competitiveness crisis, and what the Omnibus can achieve is stopping the bleeding,” remarked Ronan Murphy, chief data strategy officer at Forcepoint, an American multinational corporation with regional offices in the U.K., Ireland, Finland, and Israel. “The Omnibus is a necessary recalibration, but it is not a silver bullet.”
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