Capital markets union needed to unleash artificial intelligence, says AI Act rapporteur

Without easier access to capital, European AI companies will forever rely on the vast computing resources of entrenched US tech giants, the outgoing MEP responsible for the EU’s AI Act has argued.

Dragoș Tudorache, one of the European Parliament’s rapporteurs for the legislation, said capital market reform is needed to give European firms resources currently only available through partnerships or outright sale to US companies.  

“I've heard so many stories of companies developing extremely competitive good products in Europe,” he told Science|Business. “But then not finding the giant next door [to partner with], having to sell out to a giant from across the ocean.”

Tudorache is the latest voice to see a capital markets union, designed to keep investment money in the continent and flow efficiently across borders to the bloc’s start-ups, as a solution to the EU’s lack of global tech leaders.

French president Emmanual Macron and German chancellor Olaf Scholz have launched a fresh push to complete the long-mooted union, but will face opposition from low tax member states. 

Tudorache thinks Europeans should “stop beating ourselves up” over AI and wants the EU to “stop telling us oh my god, we’re behind [in] the race”.  

But despite this topline optimism, he outlined the EU’s predicament in stark terms. EU AI companies are stuck in a world of US tech giants that “consolidated so much market power […] that it’s very difficult to shake them off.”

Market regulations, “should have woken up to this reality some time ago,” he said. “But they haven’t.”

This means that promising EU companies inevitably get snapped up by US behemoths, or have to strike a deal that compromises their independence.

“Whenever a unicorn grows to a certain point, the knock on the door is almost inevitable,” said Tudorache. “And then no one can basically stand that test, when someone comes in, puts billions on your table and says, ‘Well, you've done great, but now let's partner up’.”

Snapped up

A case in point is the Paris-based Mistral AI, once feted as one of the bloc’s independent AI trailblazers, which in February signed a deal with Microsoft to allow it to train new models on the US giant’s supercomputers. In return Microsoft customers get access to Mistral’s AI tools.

Developing the latest large language models independent of companies like Microsoft is “mission impossible, because it's not only about the genius of your mathematical formula, it is about access to compute power,” Tudorache argued.

Another example – albeit from the UK, rather than the EU – is the London-based Deepmind, which was bought up by Google in 2014. “They were all homegrown businesses that at some point in time, partner up with a bigger brother,” he said.

In response to this dependence on US money, some European AI experts have called for the European Commission to directly and publicly fund the creation of new AI models.

But for Tudorache, while public R&D funding for AI is important because it sends signals of confidence to the market, “you cannot grow a competitive industry with public funding”.

Instead, what’s needed is much smoother access to private funding to provide “easy money to fast and quick ideas.”

“Many, myself included, have been saying that we really need to finally deliver on the capital markets union. It's good if Germany and France get behind this and are, let’s say, aligned on the direction of travel, that's a good thing,” he said.

But the idea, mooted a decade ago, has floundered before due to a lack of consensus among member states. “I have to see to believe it,” he said. “Let’s see a majority being built up around it because I don’t think it’s going to be an easy sell.”

The AI Act

Tudorache isn’t standing again as an MEP, for both personal and professional reasons, but he declined to give any more details.

His chief legacy in the parliament is undoubtedly the AI Act - touted as the world’s first comprehensive legislation on the technology. But some European firms are wary of its bureaucratic burden. 

Marathon final trialogue negotiations on the act took their toll on MEPs, Tudorache acknowledged. “Yes, we spent long nights, yes we spent long days,” he said. Some have questioned whether lawmakers should have been hammering out such complicated regulation while so sleep deprived.

But the resulting compromise was “not short of a miracle” and shows that the EU can act decisively together, he argued – unlike some countries.

While he didn’t explicitly mention the US – which looks light-years away from passing any federal AI legislation – Tudorache said that certain “single nation jurisdictions […] have a harder time adopting legislation that we are with 27 different nations.”

From the start, Tudorache lobbied for the act to be relatively light touch so as not to weigh down EU entrepreneurs.

Some companies might disagree, but he thinks he was successful. “There's a huge, large swathe of AI that is going to be left alone, unregulated,” he said. Industrial AI, and the use of AI in space, will be entirely left alone, he said – in fact, all uses of the technology that “does not interact with my rights.”

Pushback against the act is because it is part of a “first wave of regulation for a sector that for 20 years has been the one the child that was allowed to roam free, without any rules in some sort of a Wild West”.

“Well, now the time has come for some rules,” he said. “There is no such thing as no cost, you will have to go through some extra burden.”