Artificial intelligence is currently the single most potent source of change in Europe’s economic world. The industries and public authorities of the continent are getting ready for the first part of the EU’s AI Act that will take effect on February 2, 2025, which, in essence, is a comprehensive legal and regulatory system that will be in force for the first time in the world.
The goal of that framework is, on the one hand, to make sure the AI systems are safe and reliable and, at the same time, to encourage the new technology.
Christine Lagarde, the President of the European Central Bank, said the same thing when just recently she reached out to the public to stress that at a conference of the ECB, Europe was at a very crucial point in time, and thinking that AI could not be as powerful as it is might turn the table for Europe in the wrong direction very soon.
If the EU turns to AI, it can experience a productivity surge. Even moderate estimates suggest that total factor productivity growth in the euro area may increase by about 0.3 percentage points annually in the next ten years, while more optimistic estimates suggest that productivity in AI adoption is wide and could even be 1.5 percentage points faster than expected.
Without a doubt, the influx of AI is perfect timing as Europe is facing noteworthy progress in AI stages, starting with scenario-based AI solutions that cater to each and every industry.
As AI is becoming a part of the emergency healthcare system, the education industry, transportation, retail, and public administration, it is utilized to fill in the welfare gaps created by the sectors’ disconnectedness and to satisfy customer demand.
The EU Act describes a risk-based regulation approach with different sets of rules that depend on the level of risk posed by various AI applications.
In just two months, companies should be certain that their workers have basic knowledge of AI and they are not allowed to use AI for prohibited purposes, such as systems using subliminal or manipulative techniques and those taking advantage of personal vulnerabilities.
Non-fulfillment of these initial provisions could lead to severe penalties of up to €35 million or 7% of a company’s global annual turnover, and thus, it is essential to understand how seriously the European regulators consider AI governance.
However, the experts are of the opinion that there might be some drawbacks in the existing regulatory framework.
The critics claim that to get the AI Act really right; a real risk-based approach should be followed, with the absence of a thorough and balanced risk-benefit analysis based only on potential harms rather than also taking into account the societal benefits AI can bring.
A further matter of worry is regarding conflicting enforcement systems that may end up throttling innovation and hurting the competitiveness of the players in the field. It is suggested that a comprehensive assessment be carried out by the European Commission to sort out conflicting parts with other digital regulations and to get rid of overlapping regulatory burdens.
Although we are faced with these difficulties, 2025 might well be the year that will decide the future of AI in Europe. The fact that actors are playing their parts successfully pursuant to the AI Act and that codes of practice are established for purveyors of general-purpose AI models is an indication that the existing deficiencies of the regulatory framework can still be corrected.
Moreover, the labor market implications of AI application have been identified as another major aspect. Data from the ECB confirm that in the European Union, AI will have a substantial impact on the labor market, as 23%–29% of all workers are highly exposed. This is not yet a sign of widespread layoffs, but it points to significant changes in how we handle the workplace issue.
The primary question is, whether AI will lead the job displacement with automation or it will redesign the nature of the work through augmentation. According to recent research by the International Labour Organization, only approximately 5% of the jobs in advanced economies have high automation potential, whereas about 13% can be significantly augmented.
The situation in Europe is a little more difficult as the region is struggling with funding artificial intelligence (AI) development, which hinders its competitiveness with the rest of the world. To compare – There were some €33 billion invested in AI companies between 2018 and 2023 in the EU, while over €120 billion was pumped into the US counterparts.
There are also issues related to energy holding back AI from becoming more suitable for the European economy. The power consumption in data centers is calculated to grow three times in Europe by the end of the 2020s, which also correlates with the additional electricity needed.
Nevertheless, European decision-makers are taking concrete steps to remove AI adoption-related obstacles. Along with introducing a savings and investment union to encourage venture capital, this also means simplifying the very complicated digital regulations, issuing licenses more quickly, and investing in data centers and infrastructure.
During this period of change, the European continent should make sure that the right balance of innovation and protection is found. If Europe manages to guide its potential as well as the AI revolution in the various sectors, then indeed, there is still an indication of the coexistence of its intricate social model, world-recognized values as well as the competitive power in the global tech world.