Europe’s AI ambitions face key hurdles but can ethics, innovation, and regulation propel it forward?

5 March 2025, 11:22

“We are back in the race,” French President Emmanuel Macron declared on February 10 at an AI summit in Paris, signaling Europe’s growing ambitions in the global AI race.

When former European Central Bank President Mario Draghi released his assessment of the continent’s competitive decline, few believed Europe stood a chance to catch up with the US tech giants in AI. DeepSeek’s recent model release questions assumptions about US dominance – and is making Europeans optimistic that they can capitalize on being second movers by focusing on efficiency and ethics.

However, Europe faces two major risks: over-dependence on Chinese technology and regulatory hurdles that could stifle its own AI industry.

Former European Council President Donald Tusk and current Polish prime minister recently posted on X: “The revolt against regulation is inevitable! Whether someone in the EU likes it or not. The time is now!” His statement reflects growing frustration within the bloc over burdensome regulation, that some fear could slow innovation.

How AI technology develops will be key. DeepSeek’s success illustrates how significant progress in AI can be achieved with efficient resource utilization rather than astronomical budgets. Unlike its Western counterparts, DeepSeek didn’t reinvent the wheel—it refined it. The Chinese company’s innovation didn’t require unlimited budgets and billions of euros.

The success of open-source models like DeepSeek’s R1 also challenges Western corporations that rely on closed, proprietary systems. “It should be no surprise that our big tech firms are at risk of being surpassed in A.I. innovation by foreign competitors,” wrote Lina Khan, former chair of the FTC under the Biden administration.

"Europe's lagging AI industry isn't primarily a talent or tech problem—it's a regulatory problem," said Neil Chilson, Head of AI Policy at the Abundance Institute and former Chief Technologist at the FTC. "But DeepSeek does suggest that innovation in this field can come from relatively small teams. If European regulators can get out of the way of European innovators, there is plenty of room for significant contributions."

European startups hope to leverage similar strategies to DeepSeek—optimizing existing technologies and building AI applications on top of existing AI models.

Europe has an opportunity to define its own approach to AI, prioritizing transparency and ethical governance. The Commission last month launched an AI Innovation package to support European startups in the development of trustworthy AI that respects EU values and rules.

The most advanced open-source models come from China and the U.S., raising concerns that European developers may become increasingly reliant on Chinese technology. However, trust in China remains low due to its history of espionage and questionable data storage practices.

Europe is proving that it can compete in the global AI race with the emergence of several leading AI companies. These startups are not only raising substantial funding but also developing cutting-edge technologies that challenge the dominance of U.S. and Chinese firms.

According to tech entrepreneur Ole Lehmann, Europe’s AI companies are prioritizing deep technological advancements over hype-driven innovation. They are embedding ethics into AI development from the start, rather than treating it as an afterthought. Unlike many Silicon Valley firms that rely on inflated valuations, these European startups are focused on real revenue models and financial sustainability.

One of the most prominent players in Europe’s AI sector is Mistral AI, a French startup. It is valued at around $6 billion and developed open-source large language models (LLMs) capable of rivaling OpenAI. Its latest model competes with GPT-4 on key benchmarks, positioning Mistral as a serious contender in deep tech and AI research.

Arthur Mensch, Mistral AI’s co-founder, even referred to DeepSeek as “China’s Mistral,” since Mistral led some of the innovation that DeepSeek was able to scale.

Pascal Geenens, Director of Threat Intelligence for Radware, acknowledged that while Europe's AI sector lags behind global leaders, it thrives through specialized research institutions and smaller companies excelling in niche areas—an advantage he believes Europe should leverage.

But Europe still has plenty of challenges that it needs to solve internally before it can catch up in the AI race. Take Europe’s AI Act, the world’s first comprehensive AI regulation, which is off to a rocky start, with industry stakeholders and civil society voicing concerns over rushed timelines and unclear guidelines. EU users also receive new AI versions several months later than their US counterparts due to the need for regulatory approval before deployment.

Unless the EU establishes a clearer regulatory framework, it risks undermining its credibility in AI governance and diminishing the unique advantages Europe can bring to AI development.

Slowing innovation isn’t the only danger from the regulations. They have also drawn criticism from the Trump administration, who has threatened retaliatory measures against Europe.

"Europe can't regulate or subsidize itself to AI innovation leadership. If the EU is serious about AI innovation, it should repeal the AI Act and start over," Chilson argued. "It should also review GDPR for provisions that increase the risk of building AI systems."

Yet, despite these regulatory hurdles, Europe has an opportunity to define its own path in the AI race. Instead of trying to match the U.S. and China in sheer scale, Europe should leverage its strengths—prioritizing ethical AI, fostering open-source innovation, and supporting specialized startups that drive efficiency and technological breakthroughs.

For Europe, this moment presents both a challenge and an opportunity. If the continent doubles down on its strengths—transparent governance, ethical AI, and open collaboration—it can establish itself as a leader in responsible AI development.

"Europe is likely better poised than the U.S. to effectively deploy AI tools in government uses," Chilson noted. "They should lean into that advantage," he said.

“The EU has more of the kind of state capacity that enables positive reform of government internal processes and government use of resources.”

Still, American companies will soon replicate these model training efficiencies from DeepSeek's advancements—if they haven’t already—regaining the lead.

Neil Lawrence, DeepMind professor of machine learning at Cambridge university, said, “I think it’s just the tip of the iceberg in terms of the type of innovation we can expect in these models.”

For now, the burdensome regulations being rolled out by Brussels will dampen the great AI ambitions that Macron is hoping to lead.

David Kirichenko is an Associate Research Fellow at the Henry Jackson Society. He can be found on X @DVKirichenko.

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