EPISTELEM

Category: Data-en

  • AI Act: What Compromise Will Enable the Rise of European Artificial Intelligence?

    AI Act: What Compromise Will Enable the Rise of European Artificial Intelligence?

    the European Union reached a political agreement to regulate the development of artificial intelligence (AI). What does this unprecedented global framework entail, and what are its implications for EU member states and tech industry lobbies? What were the main sticking points in negotiations between EU institutions and certain countries? What do these disputes reveal about the solidity of the agreement? Why is AI a critical issue for Europe, and what would be the economic consequences for the continent? Where does France stand in this debate?

    What Does This Unprecedented Global Agreement Entail, and What Are Its Implications?
    The AI Act, in development since 2021, has faced numerous challenges, particularly due to the explosion of generative AI, which disrupted its original risk-based approach. Initially designed to classify applications—from harmless spam filters to unacceptable uses of facial recognition in daily life—the regulation had to be hastily revised to address generative AI’s unexpected rise. While the need for regulation is undeniable, the last-minute additions risk stifling European startups just as they begin to close the gap, burdening them with complex rules that ironically favor more advanced U.S. giants.
    The rapid progress of large language models, built on neural networks with billions of parameters trained on opaque datasets, raises concerns about privacy, copyright, and security risks tied to their unpredictable behavior. Given AI’s breakneck evolution, a flexible, adaptive regulatory approach is essential. Yet the current framework—hundreds of pages of self-referential legal considerations—risks quick obsolescence.
    Beyond mere exemptions, flexibility is crucial, especially given the growing role of open-source AI, which European startups are leveraging. Many repurpose existing models from tech giants, while some are now developing their own foundational models. An open regulatory approach is needed to address emerging risks while fostering innovative, homegrown European AI capable of competing with U.S. and Chinese dominance.

    Key Disputes in Negotiations: What Do They Reveal About the Agreement’s Strength?
    EU lawmakers initially sought to replicate the GDPR’s success—a global gold standard for data regulation—but AI presents a different challenge. Europe already lags behind U.S. tech giants, and the AI Act introduces uncertainty just as European startups like Mistral (France) and Aleph Alpha (Germany) begin gaining traction.
    In recent weeks, France, Germany, and Italy pushed back, creating a cacophony over two issues:

    State use of facial recognition (some member states refuse to fully abandon it).
    Preserving the potential of startups working on foundational models (the backbone of generative AI).
    These governments proposed self-regulation and codes of conduct for such models, clashing with EU institutions rushing to finalize the agreement amid pressure from NGOs advocating for strict adoption. The compromise includes broad exemptions for open-source developers, central to Europe’s AI foundation models.
    French Digital Minister Jean-Noël Barrot claimed the deal would preserve Europe’s ability to develop its own AI technologies and strategic autonomy. But why is AI such a critical issue for Europe, and what are the economic stakes? Where does France fit in?

    Why AI Is a Major Stake for Europe—and What’s at Risk for Its Economy?
    Europe is falling behind not only the U.S. but also China—a situation that was not inevitable. Neural networks owe much to European pioneers, whether they stayed on the continent or moved abroad. Geoffrey Hinton, the “godfather of AI,” left Silicon Valley for Toronto to distance himself from U.S. military influence, while Yann Le Cun (Meta’s Chief AI Scientist) and Sepp Hochreiter (who introduced long-term memory in neural networks in 1991) laid the groundwork for today’s transformer-based language models, the core of generative AI since 2017.
    Despite educational crises and declining math proficiency, Europe—particularly France—still hosts pockets of excellence that could drive a distinctive AI approach. The idea that Europe should settle for a regulatory role, dependent on U.S. and Chinese tech, is economically and strategically suicidal, given AI’s pivotal role in technological development. Historically, mastering cutting-edge technology has been key to catching up, growing, and projecting power. Yet for decades, the EU focused on competition policy over industrial strategy, treating citizens more as consumers than producers—a trend the AI Act risks perpetuating.
    While Thierry Breton’s leadership marks a shift toward industrial sovereignty, the task remains monumental. The AI Act must balance regulation with innovation, ensuring Europe doesn’t just consume AI but develops it. The alternative—a future where Europe remains a rule-maker but not a tech-maker—would be a strategic failure.

    This piece was originally published by the French Institute for International and Strategic Affairs – IRIS.

  • Crypto-Bubbles and the Decentralized Eldorado

    The crypto rollercoaster has consequences beyond the realm of mass speculation. It shapes key discussions on the future of money and the Internet, which revolve around notions of decentralization and economic power.

    Web3: The Quest of Decentralization, and the Market Hype

    The idea of Web3, with blockchain at its core, is meant as a promise of decentralization, a return to the spirit of web1 (whose early protocols still underpin the Internet). It aims to supersede Web2, marked by the rise of social media giants. They filled the void left by the absence of an identification protocol in the original Internet, in order to expand their control over personal data, for advertising purposes. Giving users back control of their data, through the blockchain, and ensuring interoperability across services is the key rationale behind web3. The idea that artists could use NFTs – usually defined as digital property certificates – to directly market their creations and cut the middleman is undeniably appealing. Similarly, programmable blockchains like Ethereum, with decentralized apps (dApps), could offer a prospect to overcome the exorbitant privilege wielded by app stores.

    However, the main promise of web3 clashes with the reality of blockchains, caught up in the centralization of large exchanges and key venture capital firms. Besides, the massive crypto bubbles – fueled by herd behavior, shaky digital constructs and (central) monetary policy – do not quite fit with the common vision of financial and digital decentralization… A bubble is generally defined as a mismatch between the trend of an asset price and some underlying value. In the crypto bubble, the very idea of an underlying asset – or reality – has been derided. Some NFTs have pushed that logic with undeniable humor, like those based on drawings of adorable monkeys and their ApeCoin…

    The global financial landscape – with inflation-driven monetary tightening – is throwing many asset classes into trouble, drying up the liquidity flows that have fueled the rally. Extreme volatility has been a hallmark of cryptos since their inception, but the last few years have seen a considerable drift, based on authentic Ponzi schemes, with concepts as far-fetched as that of virtual land. The most recent projects rarely show the kind of monetary thinking that underpinned the (very experimental) creation of bitcoin in 2008, using the cryptographic concept of Merkle tree, developed as early as the 1970s.

    Most of the confusion this time came from stablecoins, which aspired to be the poster child of cryptos by offering a fixed exchange rate with a currency, like the dollar. Some, however, operate without collateral… This is the case with TerraUSD, which relies on a highly vulnerable system of rebalancing, using a floating crypto named Luna. TerraUSD has seen its peg to the dollar collapse as result of massive outflows. Collateral-based, centralized stablecoins like Tether already show more resilience. Beyond reports of destabilizing movements by large investment funds betting on the downside, the rout has, in any case, occurred against a background of severe fragility.

    Blockchain Is Still an Experiment, However Fascinating

    The concept of monetary decentralization, using cryptography, remains exciting. It is a substantial contribution to the discussion on the nature of our monetary and banking system, and its reform. This system is said to be centralized in the sense that it relies on central banks, but also on the privilege of massive money creation by commercial banks (through loan issuance out of thin air) – centralized institutions indeed. On the other hand, the concept of decentralization is also relevant in the face of Big Tech’s concentration in the digital sector and its control over user data. This control is likely to increase exponentially with the level of immersion, as will be the case with the metaverse.

    Overall, the crypto world needs to further question the purpose, stability and legal status of its constructs. The crypto-currencies and assets that have only capitalized on the bubble of the past few years are unlikely to thrive. The (few) true pioneers of blockchain keep insisting on its experimental nature. For example, a crucial discussion centers on overcoming proof of work (a mining mechanism based on a cryptographic contest between blockchain nodes), which comes at an exorbitant energy cost. Considerable effort is being made in this direction in the case of Ethereum, to move towards the more reasonable concept of proof of stake – which accredits the nodes on the basis of their proven involvement, like a substantial holding of the cryptocurrency. It is hard to see how bitcoin could reform in this direction. If web3 is to bear fruit in favor of any kind of decentralization, the crypto ecosystem will first have to refocus.

    Regulation and Central Bank Digital Currencies Will Redefine the Landscape

    Emerging and updated regulations – like MiCA and TFR in the European Union – focus mainly on the issue of anonymity and trafficking. This type of rules may indeed disrupt the model of crypto platforms and can be expected to spread worldwide. At the same time, other important pieces of regulation target Big Tech, like the twin Digital Services and Digital Markets acts, which the EU is in the process of ratifying. Competition policy is waking up to the challenges of the digital age. However, governments will have to find a balance between tackling Big Tech monopolies and regulating decentralized players, which present major risks but also opportunities to restore a healthier level of competition.

    Public digital projects, especially on the monetary stage, are also crucial to seize the opportunity for reform. Central bank digital currencies are not crypto currencies as such but official currencies in their own right. They will be backed by their respective central bank (rather than a cryptographic creation mechanism) and enjoy full equivalence with other forms – digital or physical – of the currency. The development of CBDCs must be pursued in a more ambitious way to give more meaning and stability to money, with a more direct link between monetary authorities and economic players. This brings us back to discussions that have endured underground since the Great Depression (on the fractional reserve system). Admittedly, the emergence of crypto-currencies helped to revive the interest in these ideas, after the great recession. The crypto rout could undermine the interest in digital currencies as a whole. On the contrary, we should engage in a broad political reflection on the use of digital innovation to stabilize our monetary system.