Europe Faces Barriers No Legal Rewrite Can Fix
An assumption propelling a proposed 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 dominated by the United States and China.
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Backers of the “Digital Omnibus” proposal unveiled in Brussels last month hope that inserting a lighter touch here and a few delayed obligations into the continent’s many tech laws will allow European developers to accelerate their efforts.
European firms may welcome a lessening of their regulatory burden. But Europe’s problem isn’t merely regulatory drag. There’s the structural gulf between what modern AI development requires and what Europe currently has the capacity to deliver. The Omnibus, helpful as it may be for legal alignment, cannot close those 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,” said 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 face steep structural disadvantages. A European Commission analysis has warned that such companies “require massive investment to avoid losing the race to U.S. competitors,” while acknowledging that European capital markets “do not meet this need, forcing European firms to seek funding abroad.” The result is a persistent leakage of ownership, control and strategic direction at precisely the moment scale matters most.
Hyperscalers including Microsoft, Google and Amazon are investing in AI infrastructure at a scale unmatched anywhere else in the world. Google alone is dramatically expanding its AI computing capacity, with planned capital expenditures projected to exceed $90 billion by the end of 2025, reported Reuters.
The vast majority of private AI investment continues to flow to U.S. firms. Roughly 81% of global private AI investments went to U.S.-based companies in 2024, according to analysis by Air Street Capital. Longer-term data reinforces the magnitude of this lead. Between 2013 and 2023, U.S. AI companies attracted nearly $500 billion, compared with just $75.7 billion combined across the United Kingdom and the EU over the same period, according to data compiled by the App Association, a Washington, D.C.-based lobbying group.
Investments into Chinese companies appear to fall somewhere in between European and American levels. Venture capitalists in 2013 invested $15 billion in China compared to $68 billion in the United States and $8 billion in venture capital, according to data published by the European Commission.
This capital asymmetry produces powerful second-order effects. It determines who can absorb the high costs of large-scale model training, sustain loss-leading platform expansion and iterate continuously at the frontier of AI development. Over time, these dynamics create self-reinforcing structural advantages for capital-rich ecosystems. Advantages compound over time and remain largely beyond the corrective reach of regulation.
These gaps are not regulatory problems. They are industrial capacity problems, and the Omnibus cannot magically summon the compute, capital, or platform giants needed to bring the EU’s AI contenders up to speed.
Europe’s Missing Giants
At the heart of Europe’s AI dilemma, beyond regulatory drag and chronic funding shortfalls, is a more fundamental constraint: It does not have hyperscalers. Industrial scale precedes regulatory leverage, not the other way around.
The absence of deeply capitalized, home-grown computing platforms compounds the problem. European startups are compelled to rent compute from U.S. cloud providers. European researchers build on foreign model releases and European enterprises largely consume AI capabilities rather than define the platforms, standards and economic terms that shape the market. This dependence is not merely commercial. It limits Europe’s ability to influence the trajectory of AI development itself.
Even if the Omnibus were to eliminate every legal bottleneck overnight, the underlying question would remain unresolved: Where will the industrial muscle come from that can enable Europe to compete at the frontier of AI? Regulation can shape markets, but it cannot substitute for the absence of giants.
Even so, it’s important to remember that “the EU is currently suffering from a competitiveness crisis and what the Omnibus can achieve is stopping the bleeding,” said 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.”