EU AI Act Enters Force as Europe's Funding Gap Widens

The EU AI Act's core rules for general-purpose AI models take effect on 2 August, according to The Next Web. The European Commission says it will finalise its guidance in July. The European Parliament will then adopt its position on the standards. That timetable has drawn pushback. The Next Web reported that Swedish Prime Minister Ulf Kristersson, Bosch CEO Stefan Hartung and the tech lobbying group CCIA Europe, whose members include Alphabet, Meta and Apple, have intensified calls to postpone the roll-out.

Eoghan O'Neill, a senior policy officer at the European Commission's AI Office, defended the approach at the TNW Conference in Amsterdam on 20 June. "This is a big, sophisticated technology, and we want to get it right," he said. "We need specific obligations to capture some of the most impactful or potentially harmful models under the AI Act."

Who wrote the rules

O'Neill said a broad code of practice group drafted the guidelines. Its members included major model providers, civic society organisations, NGOs, academics, AI safety experts, SMEs and European industrial giants. "It is a big tent with all of those voices from the stakeholder community," he said, according to The Next Web.

That account sits awkwardly with the delay campaign. The Commission's line is that the process was deliberately wide, not rushed, and that the obligations target the most capable models rather than the whole sector. Whether that argument survives contact with the Parliament's position in the autumn is another matter. The AI Office has set out a sequence: finalise in July, then let MEPs take a stance. Until both steps are done, companies selling general-purpose models into the bloc are working from a moving target.

The funding problem behind the rules

Fabrizio Del Maffeo, CEO of the Netherlands-based chip company Axelera AI, told the same conference that regulation is only part of the problem. "Europe is not the United States," he said. "We have many languages, many markets, and many regulations, both European and local. And these are stifling growth because they create borders, making it difficult for companies to expand."

Del Maffeo said his company had signed the petition for EU Inc, a proposal to create a standardised legal entity for startups that would make it easier to operate across member states. The idea would sit under the bloc's 28th regime, a pan-European legal framework designed to help startups expand throughout the union. In a speech at the Davos economic forum in January, Commission President Ursula von der Leyen said the rules would combine "corporate law, insolvency, labour law, [and] taxation" in "one single and simple framework".

The numbers Del Maffeo cites are stark. The Next Web reported that Europe accounts for just 8% of the world's scaleups, against 60% in North America, and that no EU-founded startup in the past 50 years has surpassed a €100bn valuation. European startups raised about $52bn (€44bn) in venture capital last year, far less than the $209bn (€177bn) their US counterparts attracted.

"If you look at machine builders, we are leading the world," Del Maffeo said. "In automotive, we are great, but we are losing traction. In robotics, we do great, but we are also losing traction." Europe can build. What it struggles to do is scale what it builds. Capital, not just policy, is the missing ingredient.

What the investment gap means

Peter van der Putten, director of the AI Lab and lead scientist at software firm Pegasystems, made a similar argument. He said the EU needs to become more attractive for domestic and international investment, and suggested adjusting regulations to make it easier for funding leaving the US to flow into Europe. "Investment could come from the EU, but also from the US," he said.

Elise de Reus, co-founder of Cradle, pointed to a different lever: talent. She said a growing number of European engineers are returning from Big Tech jobs in the US, drawn by purpose-driven work and better quality of life. "We're welcoming European engineers who used to work at Big Tech companies like Facebook in the US to come back and contribute to solving societal and global problems such as climate change," she said.

She also pushed back on copying the American model. "We're also maybe a little bit too modest," she said. "We should measure happiness, not GDP, which is not a sustainable metric. I don't think we should copy and paste the American system."

That argument will be tested as the AI Act's general-purpose rules come into force. If Brussels can show the obligations are workable and narrowly targeted, it may quiet the delay lobby. If compliance costs land hardest on smaller European model providers while US labs absorb them, the complaint that regulation is a competitive disadvantage will get louder. Either way, the funding gap is the harder problem. Rules can be rewritten in a parliamentary term. A venture capital market that is roughly a quarter the size of America's takes longer to fix.

"At the leadership level, the scarcity is more pronounced because experience cannot be created overnight." Neeti Sharma, CEO of TeamLease Digital, told Rest of World, in a separate report on AI hiring in Asia.

That hiring race is worth watching from Brussels. Rest of World reported on 11 September that OpenAI and Anthropic are poaching senior executives from Google, Microsoft and Amazon to build teams in India and Singapore, to sell products and strengthen engagement with policymakers. Meta's India and Southeast Asia vice president, Sandhya Devanathan, left after a decade to join OpenAI as vice president for Southeast Asia and Australia, at least the ninth hire by a US AI giant from an American big tech firm in Asia in the past year.

The skills those companies want are policy and market access, not just model research. Deepali Vyas, global head of data and AI executive search at ZRG Partners, told Rest of World that companies entering new markets need leaders focused on partnerships, policy and business development. "Once a company decides [a region] is a strategic growth market, you start looking for executives who can essentially operate as mini-CEOs," she said.

Europe has the same shortage of people who can run a country-level operation inside a regulated market. It also has a rulebook that is about to become enforceable. The Commission's bet is that clear obligations will build trust and, eventually, investment. The counterargument, heard in Amsterdam and in every European startup boardroom, is that capital and talent move faster than legislation, and that Europe has less room than the US to get the balance wrong.

For now, the immediate question is narrower: whether the July guidance and the Parliament's autumn position arrive on schedule, and whether they are specific enough to let model providers plan. The Commission says it wants to get it right. The industry says it wants to know what right means, before 2 August.