At present, I see the thing preventing European LLMs as mostly being that there is less access to capital for computing resources and the cost of computing resources.
The US is very dominant in computing, it's a matter of history and the EU is a very recent thing. We don't have an Intel, or NVIDIA, etc., yet, and we may not have one for many years, but are established in the parts of the industry where we happen to be so.
None of this has to do with regulation. But we do absolutely need some kind of hardware program to make European vector/tensor processors, something like the European processor initative, but willing to sell to whoever will buy and not just to existing supercomputer customers. Maybe they're even planning something of that sort.
But the problem isn't regulations.