Europe's €150 billion compliance burden is not a cost – it's a competitive advantage waiting to be unlocked

AI should not be seen as a threat to regulation, but as the tool that makes compliance possible in a digital and global economy. Only then can Europe fully combine innovation with responsibility, writes Magnus Sahlgren, incoming CEO of Hybridity AI and former research director at AI Sweden.

Europe is at a crossroads. While the EU wants to lead the development of responsible, values-driven technology, regulatory compliance has become one of the biggest bottlenecks for innovation and growth. When complex regulatory frameworks are handled manually, the development capacity Europe needs to challenge the US and China is stifled.

At the same time, the solution to Europe's lack of competitiveness lies in the very technology we are trying to regulate. By letting AI automate compliance, costly obstacles can instead become a driver of digital acceleration.

It is a painful fact that the EU has fallen behind in global technological development. In the development of large language models, we see near-total dominance from American and Chinese players. Despite bright spots like France's Mistral, there are few signs that the balance of power will shift in the foreseeable future. Where innovators in other parts of the world can focus on developing and scaling technology, European companies are forced to spend a disproportionate amount of time and resources on regulatory compliance.

Why does it look like this? The answer is not a lack of competence, but a paralysing administrative burden. In the eagerness to use legislation as a tool to protect the market, the EU has created a thicket of rules that function as friction rather than protection. Compliance has become one of the most resource-intensive areas in large organisations.

Over the past few years, I have worked closely with the development of generative language models in Sweden and Europe. I have seen the potential, but also how quickly the pace slows when innovators are forced to navigate unclear interpretations of the AI Act, GDPR, and sector-specific requirements. Where an American developer can focus on optimising an algorithm, their European counterpart is forced to spend a significant portion of their time on legal checklists and manual risk assessments.

The big problem is not necessarily that the requirements are too strict — but that they are too complex to comply with.

The 150 billion euros that European companies spend each year on meeting various regulatory requirements should instead be invested in research and development. To break this trend, compliance must become simpler, more scalable, and in practice automated. The tools to do this already exist, in the form of the AI we are now trying to tame.

With AI, we can replace heavy, manual review processes with intelligent systems that monitor compliance in real time against both internal policies and extensive EU legislation. By letting algorithms handle documentation and risk controls, we can:

• Cut lead times:
  From months of legal investigation to immediate feedback at the development stage.
• Strengthen control:
  AI-driven monitoring is more precise and consistent than human spot checks.
• Free up capital:
  A fraction of the 150 billion euros currently going to bureaucracy would be enough to fund the next generation of European tech giants.

Europe therefore faces a strategic choice. Either we continue to let the complexity of our regulatory frameworks slow innovation and growth. Or we use AI to make the European model viable in practice — where accountability, transparency, and competitiveness are not in conflict with one another.

AI should not be seen as a threat to regulation, but as the tool that makes compliance possible in a digital and global economy. Only then can Europe fully combine innovation with responsibility. It is time to let technology solve the problems that bureaucracy has created — otherwise Europe risks falling ever further behind in the global race against the major powers.

Magnus Sahlgren,  CEO of Hybridity