EU's 'Brussels effect' shaken in global tech competition

Europe is facing intense pressure from the US and a wave of global innovation, forcing the EU to reconsider the regulations that created the “Brussels Effect”. Is the EU’s normative power faltering?

The European Union (EU) has long prided itself on its “Brussels effect” – its ability to set global standards by leveraging its large market and strong technology regulations, according to experts Kevin Allison at the Center for European Policy Analysis (CEPA) and Venesa Rugova, senior analyst at Minerva Technology Futures.

But with the urgent need to foster innovation and the growing “Washington pull,” Europe appears to be adjusting course, moving closer to the more flexible US approach to technology governance. This shift raises a big question: Is the “Brussels effect” fading?

Adjust course

The emergence of the Digital Omnibus Bill, published by the European Commission (EC) last November, represents a significant course correction, a year after former Italian Prime Minister and former European Central Bank Governor Mario Draghi issued a stark warning about Europe’s competitiveness. The plan proposes several core changes to EU technology regulation:

AI Act: The Omnibus Bill would suspend some of the most stringent requirements of the AI ​​Act, giving companies more time to find ways to comply. Notably, the EC also proposes removing registration requirements for routine AI applications. This would allow companies to freely declare their AI systems as “low risk” without outside oversight.

GDPR (General Data Protection Regulation): The Omnibus also amends the EU's famous GDPR data protection law. It calls for streamlining rules on disclosure of internet "cookies," in an effort to reduce the annoyance of pop-ups on the web. More controversially, however, the bill would allow AI developers to cite "legitimate interests" as a legal basis for processing personal data.

Pressure from the US and internal tensions

The proposals were met with immediate criticism. US Commerce Secretary Howard Lutnick told European officials that the rollback did not go far enough, warning that any relief from US steel and aluminum tariffs would depend on additional digital reforms.

The pressure from the US is shifting from rhetoric to clear economic and trade threats. The US administration has long criticized other key EU laws such as the Digital Markets Act (DMA) and the Digital Services Act (DSA), viewing them as protectionist and discriminatory against US tech companies. Secretary Lutnick has turned those warnings into concrete demands, linking the EU’s reduction of steel and aluminum tariffs to the EU’s narrowing of the scope of the DSA and DMA.

The Digital Omnibus Bill still needs approval from the European Parliament and national governments , and not everyone is on board. Austrian privacy activist Max Schrems has called the proposals “the biggest attack on (Europeans’) digital rights in years.” Negotiations on the package are expected to be tense.

The reality of global technology competition

Over the past decade, European politicians have found it easier to expand the digital rulebook than to address the key challenges to fostering a globally competitive tech industry. Failure to address issues such as fiscal union, building a single market for digital services, or improving access to risk capital has left the European tech industry struggling to compete with US and Chinese tech giants.

This lag is evident in investment figures. The €20 billion investment plan in a series of new AI factories in Europe over five years, while ambitious by European standards, is less than a tenth of what the three largest US cloud providers plan to invest in new digital infrastructure by 2025 alone.

Europe is increasingly reacting to technological change rather than shaping it. Growing competition from the US and China is forcing it to make concessions it once resisted.

But Europe still has plenty of leverage. It has developed a new Anti-Engagement Instrument, which gives Brussels broad powers to impose countermeasures against countries that violate EU sovereignty. Europe also remains a crucial end market for US tech companies, which do not want to be drawn into a bitter transatlantic dispute.

The EU’s response to US pressure will reveal whether the “Brussels effect” is being bent by internal and external pressures, or whether it is giving way entirely to “the pull of Washington,” experts Allison and Rugova conclude. The continent is struggling to strike a balance between competitiveness and control, between national sovereignty and Brussels’ authority, and between protecting citizens and empowering industry. That balance is now shifting.

Source: Tin Tuc News