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In the first half of 2026, UK AI companies raised €12.6 billion, which is than the rest of the European Union combined. If the UK were to re-enter the EU, as Prime Minister Andy Burnham suggested last week, it would join a regulatory regime that makes a large part of those investments obsolete.

AI was one of the rare Brexit success stories, precisely because the UK chose regulatory divergence. After Brexit, the EU embarked on a frenzy of tech regulation: on AI, crypto, digital services and digital markets. The UK pursued a softer regulatory approach in all of these sectors, especially AI. On re-entry, the country would have to accept the EU’s AI regulation lock, stock and barrel, in what is known as the acquis communautaire. This is not a negotiation between UK regulation and that of Brussels. There may be transitional periods, but any new entrant has to adopt the entirety of the EU regulatory framework.

Continental Europe’s AI ventures have been mostly disappointing. Companies such as Germany’s Aleph Alpha and France’s Mistral started out with the ambition to produce frontier models and challenge global market leaders. Both are still around, albeit with reduced ambitions. They are now focused on implementation, with Mistral the successful of the two, having raised some $3 billion in a funding round earlier this month. Still, this pales in comparison to the US, whose AI industry has invested over $500 billion so far this year.

The European commentariat has been insisting for some time now that the global AI investment boom will hit a wall, in doing so underestimating the technology’s economic significance and overestimating its dangers. These journalists share a lack of interest in a capital markets union as a precondition for making large AI investments possible. If AI succeeds, Europe will not partake fully.

In a parallel universe, there might be a situation where the EU, under strategic leadership, would regard a Brexit reversal as an opportunity to accomplish two tasks at once. These would involve building an EU-wide capital market on top of the UK’s financial sector, and piggy-backing on Britain’s successful regulatory regime for AI, quietly dropping its own AI Act in the process.

This is unlikely to happen, with a probable outcome being that AI emerges as an unexpected obstacle during re-entry negotiations, as tech companies warn the UK Government that their investments are at risk in a restrictive regulatory environment. Britain, in turn, would be shocked to find out that the EU is not ready to accept its regulatory regime as the successful one.

If the issue of Britain rejoining the EU came up today, Rejoiners would no doubt argue that the benefits of the single market outweigh the costs of losing an edge in AI. A snapshot of current economic activity might go some way towards vindicating this assessment. But in three or four years’ time, the situation will be quite different. In any case, it is never a good idea to base economic judgements on snapshots. The dynamic interactions are far important.

This story ties in with speculation around a coming financial crisis. The rise in US bond yields this week reflects worries about future inflation and interest rates. What weighs against this negative sentiment is the hope of a positive productivity shock due to AI. An EU that does not invest in AI will not benefit from higher productivity, but will suffer the consequences of a global sovereign debt crisis. One need only remember how the global financial crisis, which had its origins in the US mortgage market, ended up almost killing the EU’s monetary union. Static Rejoiner thinking could have very serious consequences indeed.

Original article: unherd.com