Deregulating Artificial Intelligence: Implications for EU Tech Markets
The European Union is poised to adopt a lighter regulatory approach towards artificial intelligence (AI) following a deregulatory proposal from the European Commission issued in November 2025. This initiative, which has garnered broad approval from EU member states but is still awaiting finalization, aims to align EU regulations more closely with those of the United States. This shift has received support from major tech companies, who believe it may help bridge the performance gap between EU and US tech markets.
Impact on User Rights
However, the proposed plan raises concerns about the weakening of rights for tech users. By simplifying the process for AI companies to utilize sensitive data for training their algorithms, it increases the risk of discrimination. For instance, algorithms may exploit personal information, such as sexual orientation or religious beliefs, to the detriment of individuals.
Moreover, transparency requirements are set to be relaxed. Developers can now self-assess whether their AI systems are high-risk, eliminating the obligation to register in a public EU database. This expansion of legal circumstances under which fully automated decisions can be made poses additional risks, particularly in scenarios where machines replace human jobs.
Assessing the Link Between Regulation and Market Performance
Despite these changes, there is a lack of convincing evidence that the EU’s commitment to safeguarding fundamental rights has hindered the performance of its AI markets. Historical data illustrates that the EU’s share of global high-tech R&D spending has significantly declined over the years. For example, in 2003, the EU accounted for 22% of global high-tech R&D expenditure, which plummeted to 18% by 2013, while the US maintained a much larger share.
Moreover, the experience of China—often regarded as the sole credible rival to the US in AI—further challenges the notion that stringent regulations are detrimental to market success. Despite its complex and rigorous tech regulations, which include strict content moderation and limitations on data flows, China’s foundational AI models are now only slightly behind those of the US. This indicates that factors such as energy costs and access to finance may play a more significant role in determining tech market performance.
The Cost of Reducing Regulatory Protections
Given that regulation has only a marginal effect on technology performance, the question arises: is it worth the potential costs to reduce regulatory protections in the EU? While privacy regulations might encourage companies to innovate in privacy-friendly applications, they are unlikely to yield substantial productivity gains compared to the benefits derived from access to resources, infrastructure, and finance.
In fact, diminishing regulatory protections could erode confidence in the European digital economy and dampen demand for tech services. Even though demand for AI is expected to grow, EU policymakers should prioritize regulations that protect users from harm, rather than focusing excessively on the tenuous correlations between regulation and innovation.
Room for Improvement in the EU Regulatory Framework
The EU’s regulatory framework for AI indeed requires refinement. Current regulations may inadvertently distort competition, favoring larger firms while imposing undue burdens on smaller companies. Additionally, the evolving nature of technology often outpaces regulatory frameworks, leaving gaps for unanticipated risks associated with AI applications.
The EU AI Act classifies applications based on their anticipated risk, but this approach may not adequately address unexpected harmful uses of AI, such as ‘nudification’ algorithms. Furthermore, public authorities may struggle to enforce existing laws effectively, necessitating more advanced monitoring tools.
Ultimately, while the EU AI regulatory framework requires adjustments to better adapt to the fast-evolving tech landscape, it should not be weakened under the mistaken belief that lesser regulation will enhance the European economy.
