Europe's Innovation Pivot: Can the EU Lead the Next Wave of AI?

At a recent event hosted by Stanford’s Institute for Human-Centered AI (HAI), European Commission Executive Vice-President Henna Virkkunen delivered a clear message: Europe is redesigning its approach to governance and innovation to become a global AI leader.

Speaking with HAI Senior Fellow and economist Susan Athey, Virkkunen shared a vision for the continent’s digital future through the AI Continent Action Plan—a strategy aimed at improving infrastructure, streamlining regulations, and broadening access to capital in support of the EU’s AI ecosystem. “We want [the EU] to be an attractive place for AI researchers and startup entrepreneurs from all over the world to come and train their AI systems.”

The shift is notable. Historically, the EU has been best known for regulatory leadership through measures, such as, the Digital Services Act, the Digital Markets Act, and now the AI Act. But Virkkunen emphasized that regulation alone is not the goal. “It’s often said that regulation kills innovation,” she noted. “But we believe it creates the legal certainty that innovators and investors need to take risks.” She also highlighted how EU rules address broader societal concerns, including online safety for minors. “When minors are using online services, the providers should make sure that they have very high level of privacy, safety and security,” Virkkunen said, referencing recently released EU guidelines currently under public consultation.

That framing resonated with Athey, who stressed the importance of reducing ambiguity for early-stage ventures. “Startups need predictability,” she said. “If investors can’t tell whether something will be classified as high risk, they won’t invest. That uncertainty is a killer.”

European Commission Executive Vice-President Henna Virkkunen, left, with HAI Senior Fellow Susan Athey.

To address these challenges, the plan focuses not only on the substance of regulation but on how it is implemented. A forthcoming Digital Simplification Package will look to streamline overlapping rules and reduce burdens for startups and small businesses, supported by a new AI Office providing hands-on compliance guidance. “We are going to implement [the AI Act] in a very innovation-friendly manner,” Virkkunen said.

Alongside legal reforms, the Action Plan commits to major technical infrastructure upgrades. Thirteen member states will host new high-performance computing centers—or “AI factories”—with plans for even larger “giga-factories” through public-private partnerships. These efforts aim to make compute and data resources more accessible, addressing what Virkkunen described as one of Europe’s biggest limitations: researchers and startups lacking the tools to train advanced models.

Another major challenge is access to capital. While Europe is home to more than 7,000 AI startups, many face difficulties in scaling due to fragmented investment channels. “We’re trying to create a savings and investment union,” Virkkunen said, pointing to the €10 trillion in household bank savings that rarely fuel tech ventures. Newly-released proposals include a Single Market Strategy and a Startup and Scale-up Strategy, designed to increase the availability of early- and growth-stage funding across borders.

Workforce development is also a central pillar. “Talented people are our greatest strength,” Virkkunen said, citing plans to invest in digital education and form international partnerships, including with India, to support technical training. Athey added that the EU’s broad-based scientific education may now offer an unexpected advantage: “Scientific reasoning and domain knowledge are becoming more valuable than raw software skills.”

The Action Plan is not being conceived of as a panacea. Virkkunen acknowledged that obstacles remain, including low AI adoption in parts of the EU and limited private sector investment. Still, the discussion at HAI reflected a growing recognition that regulatory frameworks must be accompanied by efforts to build institutional, financial, and technical capacity.

As governments around the world determine how best to manage AI development, the EU’s evolving approach offers a case study in what it means to pair guardrails with groundwork—regulation with readiness. Whether that approach will prove effective remains to be seen, but its ambition is clear.