Technology Regulation and Competition in the European Union – A Balancing Act

As the potential for large gains from competitive technology has increased through the introduction of Artificial Intelligence (AI) systems, the European Union has struggled to perform at the same level as global tech leaders such as the United States and China. In recent years, the European Union has passed various policies targeting technology companies operating within its member states. These seek to protect technology users from privacy losses, data exploitation, and manipulation on digital platforms. Notable policies are the General Data Protection Regulation, the Artificial Intelligence Act, and the Digital Markets Act. Though the EU has proven itself a global leader in tech regulation, such initiatives can impede progress in tech spaces by driving out companies to countries where they can operate with fewer rules. However simultaneously, policies on AI and data protection have greatly advanced online safety and data privacy in EU member states. Moving forward the European Union must find an equilibrium between technological advancement and inclusivity/security in these spaces, while also addressing its tech funding gap.

General Data Protection Regulation

The General Data Protection Regulation (GDPR) is a large privacy and security law, applicable to all technological companies operating within the European Union (GDPR.EU). Passed on May 25th, 2018, the GDPR is a next step in the EU’s long history of privacy protection through legislation. The 1950 European Convention on Human Rights states that citizens have the right to privacy, while the 1995 European Data Protection Directive outlined EU-wide data and privacy standards (ibid). Thus, the GDPR is a natural progression in privacy regulations. Controlled under the GDPR is: personal data, data processing, data subject, data controller, and data processors (GDPR.EU). Firms must adhere to strict standards in these spheres. The GDPR does not just apply to EU-based firms, but also to any companies that have customers based in the European Union. Fiscal penalties for noncompliance are high – up to 4% of global revenue (GDPR.EU). Furthermore, victims of GDPR violation by firms are able to seek compensation for personal damages (ibid). Within its first year of implementation, the GDPR saw successes and failures in meeting its goals. Some firms opted to close European Union operations to avoid compliance – 1,000 news publications banned EU readers (Sobers, 2022). However, many companies that chose compliance applied GDPR regulations to their operations outside of the EU, showcasing the global influence of the bill (CIPL, 2019). A 2019 survey conducted across European Union member states found that 41% of citizens “do not want to share their personal data with private companies” (European Union FRA). Thus, the GDPR has been successful as a step towards addressing EU citizen privacy concerns, in addition to raising general awareness on data privacy. 

Artificial Intelligence Act

In March of 2024, the Artificial Intelligence Act was approved as European Union-wide regulations for artificial intelligence (AI) (EU AI Act, 2024). The parliament’s goals for AI under the Act are for systems to be ““safe, transparent, non-traceable, non-discriminatory and environmentally friendly” (ibid). This regulatory framework provides classifications for AI based on risk level, and these are managed accordingly. 

Unacceptable risk AI includes social scoring (classifying people based on personal characteristics), biometric identification systems (e.g. facial recognition), and others (EU AI Act, 2024). Any artificial intelligence classified as unacceptable risk AI is banned from deployment in the European Union. 

AI can also fall under the definition of High Risk AI, meaning it has a negative effect on safety and/or human rights (ibid). High risk AI will not be banned, however it must follow strict EU regulations. 

The AI Act includes mechanisms for continued evaluation of artificial intelligence systems, ensuring that systems are continuously evaluated and reclassified according to updates in their risk levels. Also included in the act are transparency requirements for AI, mandating these to state when content is AI-generated (e.g. disclose deep fakes). The AI Act acknowledges the value in artificial intelligence, including provisions to support the development of AI in the European Union. Highlighted benefits of AI use include: improved healthcare, better public services for citizens, innovation in products and services, and more efficient manufacturing processes (EC, 2024). The AI Act will be rolled out in phases, beginning with the banning of unacceptable risk AI six months after the Act’s approval in March 2024 (EU AI Act, 2024). 

Though the Artificial Intelligence Act serves as a step forward in its regulation of harmful AI systems and protection of EU citizens from these harms, it is not without its limits. AI systems that do not fall in “unacceptable” and “high risk” classifications are mostly unregulated (Artificial Intelligence Act). Simultaneously, the Act lacks a clear path for facilitating AI development in the EU. However, as one of the first large-scale multinational legislations targeting artificial intelligence, the Act serves as a model for other countries to adopt. Already, Brazil has passed a similar framework, demonstrating the influence of the AI Act (ibid). Important to note is company backlash to the AI Act; many companies have announced desires to move their operations abroad, to the United States or the United Kingdom, due to this strict AI regulation (Andrijanič & Meissner, 2024).

Digital Markets Act

Passed in 2022, the Digital Markets Act (DMA) is an EU policy against “gatekeepers,” which promotes fair competition for digital companies in the European Union (EU DMA). “Gatekeepers” are “large digital platforms providing any of a pre-defined set of digital service” (ibid), such as messaging platforms and search engines. The DMA provides a list of regulations that companies must follow, to ensure that these are not stifling competition from smaller firms that provide similar services. In 2023, the European Union appointed Alphabet, Amazon, Apple, ByteDance, Meta, and Microsoft as gatekeepers, subjecting these to DMA regulations (EU DMA). Aside from enabling fair competition, the DMA also broadens consumer choices for digital services.

Germany – Regulation and Debates

Within the European Union, Germany is a leader in online security and regulation, however its policies are not without criticisms. The country has a national data protection law which protects the “right to informational privacy” (Federal Ministry of Interior and Community). Under this law, individuals in Germany can “determine how their personal data is used or disclosed” (ibid). Companies operating in Germany are required to adhere to these laws. Recently, the German General Ministry for Digital and Transport drafted a new bill which will require messaging services with users in Germany to have end-to-end encryption (E2EE). Though many services already deploy E2EE, not all do, therefore this would be a step forward in ensuring online privacy in messaging (Haringhaus et al., 2024). 

Passed in 2017, the Network Enforcement Act (Netzwerkdurchsetzungsgesetz) or NetzDG is perhaps Germany’s most controversial policy for digital platforms (Ogaki, 2024). NetzDG targets online misinformation, hate speech, and illegal activities, placing time limits for online platforms to remove content that falls under outlined definitions for these. Free speech and freedom of expression are protected and highly valued in Germany, spurring criticisms of NetzDG as infringing upon these freedoms. In 2018, for example, content from satirical publication Titanic was removed from online platforms for being “hate speech” (ibid). In 2021, NetzDG was amended to include transparency requirements for digital platforms, in addition to requiring companies to report online illegal activity for the government to prosecute offenders (Ogaki, 2024). Though important in its role in ensuring transparency and safety for digital platform users, the NetzDG provides broad terms for what may constitute misinformation or hate speech. Thus, it can easily be exploited for censorship purposes. Moving forward, it will be necessary for the government to determine how to balance safety and freedom of speech with its digital legislation. 

Technological Competitiveness of the European Union

The European Union seeks to be competitive in technology, however it has fallen behind countries such as the United States and China in these sectors (Demarais, 2024). Out of the top 50 global tech firms, only 4 of these are European (Future of EU Competitiveness, 2024). The top ten global companies in quantum computing are located in the United States (7), China (2), and Japan (1) (Desmarais, 2024). None are in the EU. 

Not only is the EU not dominant in technology, but its position in tech spheres has been dropping; EU “share of global tech revenues dropped from 22% to 18%” from 2013 to 2023, while U.S. shares rose” (Future of EU Competitiveness, 2024). A large barrier facing the future of European technology is the funding gap. From 2013 to 2023 private investments in AI in the EU were under $22.3 billion, compared to $103.7 billion in China and $352.2 billion in the U.S. (Andrijanič & Meissner, 2024). Currently, 80% of worldwide AI funding goes to either the United States or China, while only 7% is investment in the EU (Desmarais, 2024). The essential investment area where funding gap is most prevalent is in research and development (R&D). The European Union spends only about 2.3% of its GDP on R&D, where an estimated 5% would be needed to catch up to the United States (Desmarais, 2024). Aside from funding problems, heavy regulation for companies operating in the European Union is also driving R&D companies out. 30% of European-founded startups valued over $1 billion have relocated their headquarters out of the EU between 2008 and 2021, both to seek funding and avoid regulations (Future of EU Competitiveness, 2024).

France – Will bigger investments solve the problem?

As outlined above, one of the barriers holding the European Union back from technological success is the investment gap between its member states and its competitors. France hopes to overcome this hurdle through ambitious investment plans. Following the devastation of the COVID-19 pandemic, the French government came up with a recovery plan “France Relance”.  This is a €100 billion investment plan, with €40 billion coming from the EU for the purpose of funding businesses, reshaping business models, renewing infrastructure and excelling training to a new level (Ministry for Europe and Foreign Affairs, n.d.). The three overarching themes of this plan are; ecology, competitiveness and cohesion. France made it clear that it aims to become a leader in entrepreneurship and climb higher on the international leadership board, and they are working hard to stick to this plan. In his 2024 “The State of the French Tech Ecosystem” report, the highly regarded French investor Alexandre Dewez of 20VC found that the French tech ecosystem had shown persistence with its startups raising “€7.1 billion (+3% YoY) across 518 funding rounds”(O’Brien, 2025). Furthermore, there is ground for celebration in the form of three new “unicorns” being added to the ecosystem in 2024 – Pennylane, Pigment, and Poolside – which now puts France at having 45 companies that have reached billion-dollar valuations. Simultaneously, the year has also witnessed multiple high-profile bankruptcies, such as Luko, Masteos, and Ynsect. Dewez deems this to be a “healthy rationalization of the market” with a higher focus being placed on the longevity of business models as opposed to “growth at all costs” (O’Brien, 2025).

However, though France is making proactive efforts to raise its investment in technology, it does not compare to that of its competitor. While countries such as the United States have significantly economically benefited from the rise of digital technologies, France has not experienced the same; “between 2001 and 2022, wealth per capita grew by 29% in the United States, compared with just 14% in France.” (French AI Commission Report [French AICR], 2024). Furthermore, in 2023, out of the top 100 largest cap technology companies, only 23 were from the EU given that the digital service sector is significantly higher in the U.S. – 25 times higher than the EU and UK combined (French AICR, 2024). This is largely because the current EU market does not offer the type of complementary services necessary for AI businesses/start-ups to succeed. In order for a start-up to succeed, it needs a business model which plans for revenue that will pay for its costs. Most EU Artificial Intelligence start-ups collaborate with big American tech firms not only for the computing capacity, but also for access to their perfected business models, driving them away from the EU network. The network currently in place within the EU – the EuroHPC – is not able to deliver the perfected AI computing infrastructure for commercial use. Their purpose was purely scientific, not general-purpose AI or for generative AI models such as ChatGPT. Their capacity is nothing compared to that of Meta’s, and as a result is missing out on model training. Essentially, the EU does not have the financial capacity to not only match U.S. AI spending, but to continue partaking in such a high-speed evolving sector where generations of AI chips alone are not guaranteed to stay the same within the span of a year. Even if the EU were to spend all finances on acquiring “state-of-the-art AI models”, it would then struggle to actually run them and adhere to the daily user queries, as this will require additional investments that the EU simply will not have.

United States: Competition for the EU

The United States is largely dominating the technology competition, specifically within Artificial Intelligence development. In 2024, North America alone accounted for 36.84% of the market share, making it the largest AI market in the world (AIPRM, n.d.). Generative AI, such as ChatGPT, especially has had a surge and is shining a spotlight on the wider set of AI capabilities, and its impact on efficiency and productivity within U.S. industries is enough to make the U.S. push further ahead in the AI race.

In 2023, the Center for American Progress (CAP) submitted a comment letter to the White House Office of Science and Technology Policy (OSTP) requesting information on the national priorities for artificial intelligence. CAP concluded that an executive order should be made regarding AI to better prioritize the American people throughout further AI development. Primarily, it recommended making A.I. strategy a federal issue with a specific White House Council on Artificial Intelligence. This Council would establish AI legislation and regulation that ensures technology is trustworthy and used in a safe-manner. Its focus would be on proposing and updating laws in relation to advancing AI tools, requiring them to be pre-approved when using the highest-risk AI applications, prohibiting them from “unacceptable risk uses” and avert or resolve any “threats of catastrophic risk” (Centre for American Progress, 2023). This suggestion was brought to fruition by President Biden who on January 14, 2025, signed an Executive Order to “accelerate the speed at which we build the next generation of AI infrastructure here in America,” which will undoubtedly, and as intended, will push the U.S. ahead of the already slacking competition within AI development. The Executive Order will bring together the Department of Defence and the Department of Energy in order to lease federal sites for the private sector, who will focus on building frontier AI infrastructure with government support. Through the strategy, the United States hopes to accelerate the clean energy transition in a way that is both respectful towards local communities and affordable for American families.

Thus, when we reassess the efforts made by France to raise its investment in technology, it does not compare to that of its competitor. While countries such as the United States have significantly economically benefited from the rise of digital technologies, France has not experienced the same; “between 2001 and 2022, wealth per capita grew by 29% in the United States, compared with just 14% in France” (French AICR, n.d.). Furthermore, in 2023, out of the top 100 largest cap technology companies, only 23 were from the EU given that the digital service sector is significantly higher in the U.S. – 25 times higher than the EU and UK combined (French AICR, n.d.) This is largely because the current EU market does not offer the type of complementary services necessary for AI businesses/start-ups to succeed. In order for a start-up to succeed, it needs a business model which plans for revenue that will pay for its costs. Most EU Artificial Intelligence start-ups collaborate with big American tech firms not only for the computing capacity, but also for access to their perfected business models, driving them away from the EU network. The network currently in place within the EU – the EuroHPC – is not able to deliver the perfected AI computing infrastructure for commercial use. Their purpose was purely scientific, not general-purpose AI or for generative AI models such as ChatGPT. Their capacity is nothing compared to that of Meta’s, and as a result is missing out on model training. Essentially, the EU does not have the financial capacity to not only match U.S. AI spending, but to continue partaking in such a high-speed evolving sector where generations of AI chips alone are not guaranteed to stay the same within the span of a year. Even if the EU were to spend all finances on acquiring “state-of-the-art AI models”, it would then struggle to actually run them and adhere to the daily user queries, as this will require additional investments that the EU simply will not have.

Why Should the EU Aim for Competitiveness? 

The benefits of becoming competitive in technology would be vast for the European Union. Investments in these areas could increase productivity and household incomes which would ,in turn, lead to increased domestic demand for goods and services (Future of EU Competitiveness, 2024). The EU also has the potential to be home to tech giants and digital innovations; already, Denmark, Finland, Sweden, and the Netherlands are in the top ten global tech leaders (Andrijanič & Meissner, 2024). However, moving forward in the race will require careful planning as the EU aims to balance tech competitiveness with safeguarding legislation, inclusivity, and sustainability. The European Union stated, in their recent publication on EU competitiveness, that Europe will prioritise fair competition and inclusive economic growth in their initiatives to advance their position (“EU competitiveness…,” 2024). This focus on position advancement is echoed in France’s ‘French AI Commission Report 2024’. One of the main lines of actions proposed in the report is to “structurally redirect French savings towards innovation” and in the near future, form a €10bn ‘France & AI’ investment fund for the purpose of nurturing growing ecosystems and allow space for innovation. 

Though the United States is leagues ahead of the EU in the tech race, it does not prioritise social inclusion in growth as the EU does, as evidenced by its high rates of inequality (Future of EU Competitiveness, 2024). Thus, the EU must be strategic in its plans moving forward, so that it can ensure that growth in tech sectors will not have negative impacts on equality. There is a real opportunity for the EU to embrace its risk-averse nature and invest in initiative and below-front AI applications that will allow them to not only stay ahead as the leaders in tech equality and safety, but also encourage them to be more productive with their research rather than playing catch-up to the US. 

Conclusions

The European Union has undeniably set a high precedent when it comes to regulating technology and managing its safety with citizens in mind. By introducing policies such as the GDPR, the Artificial Intelligence Act, and the Digital Markets Act, the EU has opened up the discussion on ethical AI development and the global importance of privacy protection. However, despite its regulatory advances, the EU finds itself to be on the lower end of the leaderboard in the global tech race, with countries such as the United States and China dominating by miles. There is a very clear funding gap and a lack of valuable infrastructure to facilitate technological innovation and leadership. While EU regulations are considered to be positive, their strictness hinders any tech expansion that would match the competition from non-EU nations. Countries such as France are taking proactive steps to tackle these hurdles, including rigorous investment plans and regulatory reform, however the EU must be cautious to not prioritise competitiveness above its values and principles. Looking to the future, the EU must focus on creating a sustainable tech ecosystem that champions inclusivity and safety, encourages initiative, and ensures adequate support for startups, all while monitoring that its policies do not send talent to seek success abroad. While this seems extensive, the European Union’s commitment should be to sticking to providing responsible technology regulation for its citizens, that serves as the standard for the rest of the world.

Annette Sorensen is a Fellow at the Sixteenth Council.