EU knows the stakes and innovates on its own terms as U.S.-China AI competition unfolds

On Wednesday, European Commission President Ursula von der Leyen unveiled the “Competitiveness Compass,” a strategic initiative aimed at revitalizing Europe’s global standing in innovation.

The “28th regime” of the new framework foresees a single, EU-wide glance that unifies corporate law, tax policy, and labor regulations by streamlining compliance and bypassing local red tape. Eliminating the patchwork of national rules that currently complicate cross-border business operations. 

The Union has long been known for its regulatory frameworks, often praised for prioritizing consumer protection and ethical governance. However, this “regulatory-first” approach is now under scrutiny, particularly in the realm of emerging technologies like artificial intelligence. Critics argue that the bloc’s emphasis on regulation risks slowing innovation and driving companies to relocate to less restrictive markets.

Figures such as Elon Musk have mocked Europe’s heavy-handed approach, claiming it hampers technological advancement. While these criticisms may exaggerate the issue, they highlight a key debate: whether Europe’s regulations are forward-thinking safeguards or obstacles to progress.

For policymakers, these measures are a deliberate attempt to address the potential risks and ethical dilemmas posed by AI, ensuring responsible development. For businesses, however, they represent a hurdle that limits their flexibility and competitiveness.

Lessons from first revolution

Europe’s cautious stance stems from historical experience. During the Industrial Revolution, which began on the continent, rapid technological progress brought profound economic changes.

However, the lack of regulation during this period led to severe social consequences, including the exploitation of labor.

Factories employed children in hazardous conditions, and workers often endured long hours under unsafe circumstances, fueling widespread inequality and unrest.

Policymakers in the EU are determined to avoid repeating such mistakes as the world enters the AI revolution. The goal is to harness the benefits of AI while proactively addressing its risks, including potential job displacement, privacy concerns, and the misuse of autonomous systems.

The EU has positioned itself as a global leader in addressing the ethical challenges of AI. In 2021, the European Commission introduced the Artificial Intelligence Act, which outlines a framework to regulate AI systems based on their risk levels. High-risk applications, such as those used in law enforcement or healthcare, face stricter oversight, including transparency requirements and anti-discrimination measures. 

Additionally, Europe is exploring broader societal solutions to the challenges posed by AI and automation. Discussions about universal basic income (UBI) have gained traction as a potential measure to address job losses caused by technological advancements.

While the concept remains controversial, it reflects the EU’s commitment to preparing for the socioeconomic impacts of AI, ensuring that no one is left behind in the transition this time.

CEO backlash: EU Under Fire

These days, however, with an online American-based campaign accompanying, European business leaders are growing increasingly vocal about what they see as regulatory overreach.

At the World Economic Forum in Davos, CEOs from major firms like ABB, Ericsson, and ING warned that the EU’s complex regulatory environment is driving innovation abroad.

Morten Wierod, CEO of Swiss robotics giant ABB, highlighted the cumulative burden of overlapping rules: “Each regulation is set with good intentions. But when combined, it becomes too much.” 

Comparisons to the U.S. and China became inevitable. Under the Trump administration, aggressive deregulation—from easing electric vehicle targets to boosting fossil fuel production—was framed as a catalyst for economic growth.

While controversial, these moves resonated with European executives who fear their home markets are being left behind. Steven van Rijswijk, CEO of Dutch bank ING, stressed the need for streamlined rules to spur investments in tech infrastructure and strategic autonomy. “Europe needs stimulation, not stagnation,” he said. 

Borje Ekholm, CEO of Ericsson, took a sharper tone, dismissing the EU’s “regulatory-first approach” as counterproductive. “You can’t be a frontrunner in regulation alone,” he argued. “Innovation requires flexibility, not bureaucracy.” 

Barclays CEO C.S. Venkatakrishnan noted, “There’s a sense that regulations must evolve to match global shifts.” Mario Greco, CEO of Zurich Insurance, framed the dilemma: “Europe is always busy with itself. In a fast-moving world, this is a wake-up call.”

Pharmaceutical leader Novartis CEO Vas Narasimhan described this moment as a “fork in the road.” 

False binaries

The myth is that without “innovation-friendly” policies, Europe risks irrelevance in the 21st-century economy. However, Europe still drives, and if it will hold on for everyone’s benefit, it will go better, with a better society and not elites up not letting the rest a piece.

From Draghi’s report to Leyen’s Competitiveness Compass, the EU is aware and making conscious choices. Unlike the race to emulate Silicon Valley, Europe is charting its own path, prioritizing deep tech over hype, embedding ethics by design rather than as an afterthought, focusing on real revenue generation, and ensuring sustainable growth. 

Contrary to widespread perception, Europe already hosts leading innovators in AI across various sectors. Companies like Mistral and DeepL exemplify how European firms are leveraging AI for real-world applications, proving that the continent is not just a follower but a formidable player in global tech.

Speaking to Türkiye Today, Brando Benifei, head of the EU-U.S. delegation, dismissed industry-led AI regulation: “Those attacking the AI Act often have vested interests in avoiding oversight.” 

A key architect of the legislation, Benifei acknowledged the need for ongoing discussions about the extent of regulation but warned against a hands-off approach: “Without rules, AI becomes an instrument of power concentration, benefiting only those who can afford to manipulate it.”

The Industrial Revolution’s legacy is clear: unregulated progress breeds inequality. Yet stagnation in the AI age risks ceding economic power to rivals. Europe’s task is to reject false binaries—it need not choose between stifling rules and unchecked capitalism.

History offers no guarantees. The wealth generated by industrialization eventually benefited many, but only after decades of labor struggles. Europe’s resolve to preempt AI’s downsides—not through overregulation but smart governance—aims to ensure progress lifts all citizens, not just elites.

The tightrope is perilous but necessary. In a world racing toward an AI-driven future, Europe’s balancing act may prove its greatest advantage for and with its society.

Innovation thrives not in chaos but in structured environments where risks are mitigated. While CEOs rightly demand agility, the EU’s insistence on regulating the power of the private sector and using regulations to encourage and attract more innovation could position it as a global model for less vulnerable and firm-stepped growth.