Is the AI Act a threat to European innovation?

In our recent blog post, we looked at the immediate effects the AI Act will have starting August 2, 2026, and which companies will be affected. But what does this regulation mean for the EU economy in the long term and in the broader context – especially in terms of competition with Asia and America? Is Europe risking losing pace?

The AI Act is the European Union's comprehensive framework for artificial intelligence. Its core idea is a risk-based approach: the higher the potential risk of an AI system to safety, fundamental rights or democratic values, the stricter the rules. Some practices are prohibited because they are considered incompatible with European values, while high-risk systems must meet requirements around risk management, data quality, transparency, human oversight and accountability. Lower-risk applications are subject to lighter obligations, and many everyday AI uses remain largely unaffected.

Critics argue the AI Act would slow Europe down at the very moment when global competition in AI is intensifying. Compliance processes, documentation duties and uncertainty about implementation may be especially challenging for start-ups and smaller companies. There is also a fear that innovators could avoid high-risk sectors altogether, leaving Europe with strict rules but fewer breakthrough products.

These concerns should not be dismissed. Regulation that is unclear, inconsistent or too bureaucratic can indeed discourage experimentation. If companies spend more energy interpreting obligations than improving products, Europe risks turning a protective framework into a competitive disadvantage.

AI winter is coming – or not?

History shows that AI has not progressed in a straight line. The term "AI winter" describes periods when expectations around artificial intelligence collapsed, funding dried up, and public confidence declined. In the past, this happened when promises outpaced what technology could realistically deliver. The result was not only technical disappointment, but also a loss of trust among investors, policymakers and society.

That history matters today. The current AI boom is powerful but also fragile. There is even coming up AI fatigue among many people, as surveys indicate: More than half of Americans, for example, are tired of hearing about AI. But there is an even greater risk than just fatigue: If AI systems are perceived as opaque, manipulative, biased, or unsafe, public resistance could grow quickly. In that sense, the greatest threat to innovation may not be regulation itself, but a loss of social acceptance.

How the act can actually support innovation

Seen from this perspective, the AI Act does not necessarily stop innovation. It redirects it. By setting boundaries around unacceptable uses and defining obligations for higher-risk applications, the regulation encourages companies to build AI systems that are robust, transparent and socially acceptable from the start. This can make innovation more durable because products designed with trust and compliance in mind are more likely to resonate with customers, regulators and public institutions.

Strict oversight and targeted bans can also help increase public acceptance. People are more likely to embrace AI in general when they know that certain practices, such as manipulative systems or harmful forms of surveillance, are not permitted and that these rules and bans are actively enforced. This is crucial because trust is not a nice-to-have for AI adoption; it is a prerequisite for scaling the technology across sectors such as healthcare, mobility, energy, finance and public administration.

The regulation in the context of digital trust and sovereignty

The AI Act should also be understood in the broader context of European digital sovereignty. In today's challenging geopolitical situation, Europe should not rely on AI systems built elsewhere. We have to shape the rules, infrastructure and trust models that define how AI is used here ourselves. A common regulatory framework can also strengthen the European single market by providing companies with a single set of expectations rather than fragmented national approaches.

This is not simply a defensive strategy. Clear European standards can even become a competitive advantage by creating trusted products and services that are attractive beyond the EU. Just as data protection became a global reference point through the GDPR, trustworthy AI could become a European quality signal in international markets.

One of the most important areas is transparency around AI-generated content. As synthetic text, images, audio and video become more realistic, people need reliable ways to understand whether content was produced or manipulated by AI. The AI Act's transparency obligations aim to reduce deception, misinformation and impersonation by requiring certain AI-generated content to be clearly marked or labeled.

For this to work in practice, marking AI-generated content must be reliable and tamper-resistant. This is where regulated trust service providers like Swisscom can play a crucial role. Because they already operate under EU trust and identity frameworks, they are well positioned to support verifiable labeling, provenance and authenticity mechanisms. In a world where digital content can be generated instantly and at scale, trust infrastructure becomes as important as the AI models themselves.

Outlook

The AI Act is not without challenges. Its success will depend on practical guidance, proportionate enforcement and the ability to support smaller innovators rather than overwhelm them. But the basic direction is right: Europe is trying to create conditions in which AI can be powerful without becoming uncontrolled, and innovative without losing public legitimacy. The opportunity for European tech companies is to prove that responsible regulation and technological leadership are not contradictions.

Get a comprehensive overview of the new regulation and the requirements starting in August here in our recent whitepaper "Meeting the EU AI Act's transparency requirements". Download here for free and stay updated.

Customer success stories

Customer success stories

Is the AI Act a threat to European innovation?

AI winter is coming – or not?

How the act can actually support innovation

The regulation in the context of digital trust and sovereignty

Outlook

Latest Blog Articles

Is the AI Act a threat to European...

Does the EU AI Act matter for your...

4 critical to-dos to prepare for...

Digital administration: from the...