|
During his recent European Parliament hearing, Ireland’s EU commissioner -designate Michael McGrath ruled out changing the EU’s General Data Protection Regulation (GDPR). Instead he just conceded it was important to provide some clarity when it came to regulating data protection and AI.
This is slightly surprising to hear from the future European Commissioner for Democracy, Justice, and the Rule of Law. It shows how there is no sense of urgency at EU policy level about the EU’s lagging performance in the digital sector. It is as if Mario Draghi’s dire warnings never happened.
Earlier this year, the former Italian PM and European Central Bank president warned in a high-profile report on EU competitiveness that “the General Data Protection Regulation (GDPR) is estimated to have reduced the profits for small tech companies by more than 15 per cent.” If anyone were still in doubt, Draghi commented that “with this legislation, we are killing our companies.”
McGrath should know better. Ireland hosts lots of big tech, due to its favourable taxation regime. As a result, Ireland’s regulator, the Data Protection Commission (DPC), is responsible for much of GDPR's enforcement around Europe. This particular regulator has recently also been busy blocking AI rollouts from the world’s biggest companies – following criticism it would have been too lenient. In itself, this suggests how arbitrary many of these rules are. In any case, the stricter Irish regulatory supervision is one of the reasons why recently Europeans missed out on new innovative consumer applications of AI being offered by the likes of Meta and Apple but withheld from Europeans.
According to Bill Echikson, senior fellow at the Digital Innovation Initiative and editor of Bandwidth for the Centre for European Policy Analysis, there is “a larger issue of EU regulations forcing US companies to consider whether they will release products in Europe,” adding “the main reason is legal uncertainty, the fear they may break regulations.” |
 Obstructing innovation
Apart from GDPR, the EU’s AI Act, passed earlier this year, may create additional regulatory barriers that will only benefit EU companies' American and Chinese competitors and reduce opportunities for European AI champions to emerge.
Experts like the Brookings Institute’s Alex Engler are sceptical this piece of legislation will effectively become a global standard through a so-called “Brussels effect”. This imagines that regulated entities, especially corporations, will end up complying with EU laws even outside the EU, mostly due to the size of the EU’s single market. However, with the EU’s relatively small digital sector, he explains, “the less an AI system is built into an international network or a platform, the less likely it is to be directly affected by the [AI Act], resulting in a lessened Brussels effect.”
That was also French President Emmanuel Macron's main criticism, who lashed out at the AI Act before it was agreed. Macron said, “We can decide to regulate much faster and much stronger than our major competitors. But we will regulate things that we will no longer produce or invent. This is never a good idea.” He also made clear how Brexit may benefit the UK, if it does not copy the EU’s approach. France is “probably the first country in terms of artificial intelligence in continental Europe. We are neck and neck with the British. They will not have this regulation on foundational models. But above all, we are all very far behind the Chinese and the Americans,” said Macron. Despite this, after some tinkering, the AI Act was ultimately adopted.
This week, Matt Brittin, head of Google for Europe, the Middle East, and Africa, issued another dire analysis in his farewell interview, before leaving the company. He warned Europe's competitive position is in danger of being seriously weakened compared to China and the United States. He complained “I've been doing this work for ten years and in the past five years, a hundred pieces of legislation have been added. We employ hundreds of people to keep everything on track.” He referred to a whole range of new EU regulations of the digital sphere, including the Digital Services Act (DSA) and the Digital Markets Act (DMA).
Brittin explains, “We create instruments that allow other companies, such as YouTube creators, to start and grow their business. In Europe, however, it is becoming more difficult for these parties to grow, because there are strict regulations. In the meantime, companies in countries such as China and the United States can grow faster, because they can immediately reach a large market there without so many restrictions.” The DSA prohibits online platforms from personalising advertising based on, for example, religious beliefs or sexual orientation. According to Brittin, “if you, as a Dutch start-up company, can no longer be found by your target group, then competing with companies that start in a different market is impossible”. He concludes, “This is how we make it impossible for ourselves.”
This example makes clear how the extra layers of bureaucracy are not necessarily a problem for digital behemoths like Google, but instead for small, innovative outfits, that simply lack the capacity to cope with mountains of stifling EU bureaucracy.
US digital policy expert Andrea O'Sullivan thinks “the GDPR has had the unintended (but wholly predictable) consequence of consolidating market power behind the mega firms that privacy advocates hoped to take down. There is a reason that the GDPR earned its informal nickname of the "Google Data Protection Regulation"”.
A 2022 National Bureau of Economic Research report confirmed GDPR has significantly stifled app innovation and potentially deprived consumers of useful products, after causing massive headaches for media outlets, online providers, app manufacturers, and others attempting to provide any sort of online consumer service. As of April 2022, EU regulators have levied more than €1.6 billion in GDPR fines. |
Ever more bureaucracy
In February 2025, the AI Act enters into force. This will outlaw certain forms of artificial intelligence in the European Union. At least some here are daring to challenge the EU’s dogma. Former Spanish Renew MEP Luis Garicano thinks that “The EU AI Act seems designed to allow AI only for routine tasks while hindering its use in high-level problem-solving. This will endanger European AI startups and significantly damage EU productivity.”
Luc Van Gool, a global authority on "computer vision", a type of AI, considers the EU’s approach deeply misguided. He thinks, "Europe is regulating innovation to the point it is destroying it”, explaining “Policy makers simply do not understand what is happening. AI is all about data. And what do you see? Europe insists on being the world leader in all kinds of regulations that limit access to data. For autonomous driving, the data must be blurred according to GDPR. No house numbers can be seen, no license plates. But reality is not blurred. As a result, we cannot train the system on a realistic environment. They want to regulate, regulate, regulate. But this is destroying our economy. There is no room for innovation.”
Ultimately, this may also affect Europeans' health. “There is still a lot of progress to be made in healthcare with AI. But if hardly any data from Europeans ends up in those systems, they will mainly recognise symptoms of Chinese or American people. And what do you achieve then? The disadvantages simply do not outweigh the advantages.”
It would be one thing if the EU would overregulate Europe, but at the same time forces EU member states to open up their markets. Yet, the second part is not happening. As Draghi’s report has made clear, existing barriers in Europe's single market are equivalent to an ad-valorem tariff of 110 per cent for services between EU countries.
|
Ralph Schoellhammer
