Why Europe’s model of innovation could work

Regulation and Innovation: Europe’s AI Opportunity

In the current global debate around artificial intelligence, a recurrent narrative positions regulation as a brake on innovation. Yet, this binary opposition—regulation versus innovation—is not only outdated, but dangerously simplistic. Europe, with its recently adopted AI Act, is showing that it’s possible to chart a third path: one that fosters trust, safety, and ethical use of technology while simultaneously enabling the ideation, development, and global scaling of AI solutions.

Rather than viewing regulation as an obstacle, we should embrace it as an enabler—a framework that defines the rules of a fair game, protecting users, companies, and democratic institutions alike. What’s more, regulation offers something that is too often undervalued: market predictability. In an age of rapid technological advancement, clarity around what is acceptable and what is not provides fertile ground for responsible, long-term innovation.

Europe remains a powerful ecosystem for ideas. But for this potential to be fully realized, startups and small and medium-sized enterprises (SMEs) must be encouraged not only to build for local markets, but to see the continent as a single, integrated space—one market, many cultures, one regulatory framework. From Lisbon to Tallinn, from Athens to Dublin, brilliant ideas should not be constrained by national borders, nor should they limit their ambition to national horizons. European companies must aspire to global impact, leveraging the EU’s scale and stability as a springboard.

This vision echoes the bold proposals outlined by Enrico Letta in his recent report on the future of the Single Market. Letta calls for a “fifth freedom” dedicated to research, innovation, and education, arguing that Europe must become a generator of cutting-edge technologies and industrial ecosystems. In particular, he advocates for strengthening data access and sharing across key areas such as AI, quantum computing, and biotechnology—precisely the kind of strategic alignment that can empower companies operating under the AI Act to scale responsibly and competitively.

This is not a story of decline. It is a call to action. Europe has the tools, the talent, and now, with the AI Act, the opportunity to lead in building trustworthy AI for the world.

Leveraging the AI Act to Build Trust and Scale

Trust is not a luxury in the digital age—it is a competitive advantage. In fact, trust has become the currency of digital transformation. Whether in health, finance, or education, users and institutions are no longer asking simply whether AI works—they are asking whether it is reliable, secure, unbiased, and aligned with democratic values. This shift places Europe in a unique position. The AI Act is not designed to stifle innovation but to ensure that AI systems deployed in Europe are safe, transparent, and grounded in fundamental rights.

Startups and SMEs that internalize this framework from the outset can distinguish themselves in a crowded market by demonstrating compliance and trustworthiness. For them, trust is not just a legal box to tick—it is a differentiator. Investors are increasingly prioritizing responsible AI governance when allocating capital, and public procurement frameworks are already starting to reward ethical and explainable systems.

By designing products with the AI Act's requirements in mind—such as risk classification, data governance, human oversight, and transparency—companies can avoid costly redesigns and delays later on. Moreover, these features are not just regulatory obligations; they are becoming market expectations. Clients and consumers are increasingly demanding responsible AI, and regulation is simply catching up to those expectations. In this context, trust becomes a form of readiness for scale, and regulation becomes a roadmap for long-term competitiveness.

European AI Ecosystems: Stories of Growth and Success

Despite the noise, there is no shortage of success stories across Europe. From Paris’ Station F and Berlin’s AI Campus to the vibrant innovation hubs of Barcelona, Helsinki, and Amsterdam, European companies are securing funding, entering global markets, and forming public-private partnerships. Initiatives like the EIC - European Innovation Council , Digital Europe Programme, and national AI strategies are further fueling this momentum.

Europe is quietly but powerfully becoming a global hub for artificial intelligence. Across the continent, a diverse range of countries, cities, and industries are cultivating vibrant AI ecosystems—fueled by research excellence, collaborative innovation, ethical governance, and entrepreneurial spirit.

Companies like DeepL (Germany), Mistral AI (France), and Aleph Alpha (Germany) are showing that it is possible to scale AI enterprises within the European framework—and even to compete with global giants. DeepL is renowned for its high-quality neural machine translation tools, offering an alternative to big tech services like Google Translate with a focus on accuracy and privacy. Mistral is building open-weight, cutting-edge large language models, aiming to provide transparent and sovereign European AI capabilities. Synthesia has pioneered AI-generated video production, allowing users to create professional content with avatars and voiceovers without the need for cameras or actors. Aleph Alpha focuses on explainable and trustworthy AI models for language understanding, often tailored for sensitive sectors like government and defense. Many of these companies embrace compliance as part of their brand and use Europe’s regulatory leadership to position themselves as global players in trustworthy AI.

Italy is no exception to this trend. Initiatives like the LeonardoLabs | AI Development —a network of innovation labs created by the aerospace and defense group Leonardo—are researching and applying AI in strategic sectors, from predictive maintenance to autonomous systems. Meanwhile, institutions like the Istituto Italiano di Tecnologia (IIT) in Genoa are pioneering AI research in robotics and computer vision.

Learning from Airbus: A European Success Born from Regulation

A powerful example of Europe’s ability to transform ambition into global leadership is Airbus . Founded as a pan-European consortium, Airbus emerged in one of the most regulated industries in the world—aerospace. And yet, thanks to strategic coordination, public-private partnerships, and a unified European vision, Airbus became a global competitor to Boeing. Its success illustrates how regulation, when paired with cooperation and investment, can become a catalyst for innovation and scale.

The same ambition must be applied to AI. If Europe wants to build its own digital champions, it needs to encourage alliances, facilitate mergers and collaborations between SMEs and startups working on similar solutions, and think at continental scale.

The Digital Compass and the 2030 Horizon

The EU Digital Compass sets a clear milestone: by 2030, over 75% of European companies should be using AI, cloud, and big data. This is not just a target—it is an opportunity. It requires not only awareness and digital literacy but also a robust ecosystem of European software providers capable of offering competitive, compliant, and scalable solutions.

This long-term vision is reinforced by Mario Draghi’s analysis of Europe’s economic and technological standing. In his upcoming report, Draghi underscores the urgency for Europe to find new engines of growth and boost investment in innovation. With a recommended €750-800 billion in annual investment to catch up with the U.S. and China, Draghi places digital transformation—including AI—at the core of Europe’s future competitiveness. The message is clear: if Europe wants to remain sovereign and globally relevant, it must channel its regulatory strength into bold, coordinated industrial policy.

In parallel, the European Commission has announced a new investment of €1.3 billion in AI, cloud, and cybersecurity through the Digital Europe Programme. This initiative is designed to accelerate the deployment and uptake of AI technologies by businesses and public administrations alike, creating opportunities for European innovators to scale their solutions while aligning with the EU's ethical and safety standards. Such a significant financial commitment not only underlines Europe’s strategic prioritization of digital technologies, but also offers concrete support for the ambitions outlined in the Digital Compass, the AI Act, and the Letta and Draghi reports.

To meet the 2030 goals, we must shift from fragmentation to federation. Mapping who is doing what across the EU and creating incentives for collaboration among SMEs can amplify impact, avoid duplication, and build the scale needed to compete with global tech platforms.

A Shared European Effort Already Underway

The adoption of the AI Act provides not just a legal framework, but also a coordinated lens through which Europe's innovation ecosystem can be structured. Evidence of this shift is already visible. Member States are gradually aligning their national AI strategies with European priorities, and regulatory tools such as the AI-on-Demand platform and the development of regulatory sandboxes—in countries like Spain and the Netherlands—are helping startups navigate complex requirements in real conditions. These tools are not abstract ideas; they are already being used to test AI systems, establish best practices, and prepare a new generation of tech solutions to operate safely at scale.

In parallel, the Digital Europe Programme’s €1.3 billion investment is not merely symbolic. It represents an operational shift: embedding ethical, secure, and trusted AI into public services and commercial use cases across Member States. This is especially important for SMEs, which often lack the resources to invest in compliance without targeted support. The fact that these investments come with both funding and guidance shows that Europe is learning to embed innovation into its regulatory strategies—turning compliance from a burden into an asset.

Other signals of a continental-scale ambition are emerging. Initiatives such as AI4Cities, where European municipalities act as early adopters of AI for public good, demonstrate how local demand can become a launchpad for globally competitive services. If further scaled, this model could do for AI what Airbus did for aerospace: show that public-private coordination in Europe can produce trusted, world-class results.

Meanwhile, discussions are intensifying around ideas such as a “European AI Passport”—a unified certification for trustworthy AI systems—aimed at reducing legal uncertainty and increasing market access across Member States. If implemented, this could allow European AI products to circulate with the same freedom and trust as CE-marked goods, turning Europe's diversity from a fragmentation risk into a competitive edge.

Together, these developments confirm that regulation and innovation are not opposites. On the contrary, in the European context, they are increasingly complementary forces—building a market based not only on speed and scale, but on responsibility and resilience.

This ecosystem is further strengthened by the European Commission’s 'Union of Skills' initiative, which aims to equip Europe’s workforce with the capabilities needed to thrive in the digital era. From enhancing education systems and investing in lifelong learning, to supporting the recognition of skills across borders and attracting international talent, this agenda complements Europe's regulatory and industrial strategies. It ensures that the vision for ethical, competitive, and responsible AI is backed by the right human capital. In doing so, Europe is not only shaping the market conditions for innovation but is also actively cultivating the skills foundation upon which sustainable digital leadership can be built.

Building Global Champions in a Regulated Europe

Europe’s AI Act does not mark the end of innovation. It signals the beginning of a new chapter—one in which innovation and responsibility go hand in hand. The world is watching how Europe regulates AI, and companies that learn to thrive within this framework will be uniquely positioned to lead globally.

Far from being a burden, regulation can be the backbone of European leadership in AI. And the AI Act is not alone. The Data Governance Act, the Digital Markets Act, and the Digital Services Act all represent a new generation of European rulemaking designed not only to protect citizens but to ensure fair competition, increase access to high-quality data, and build digital services that reflect European values. These regulations are not constraints—they are cornerstones of a competitive and trustworthy digital single market.

If companies, investors, and policymakers work together—building on the lessons of Airbus, the strategic foresight of the Digital Compass, the visionary proposals of Letta and Draghi, and the EU’s concrete financial investments—the next generation of global AI champions can very well be born in Europe.