All the EU can do here is get rid of the business and infrastructure presence of this company in the EU. Getting rid of jobs and tax revenue. They can also do a China and prosecute their own citizens for trying to access things they want on the internet.
There doesn't need to be Any "AI-related regulation." There's nothing specific or magical or new about "AI" that's not covered by current law. What it does look like to me, is the government couldn't press some authoritarian laws, so they slapped "AI" on it to mislead and misdirect their voters.
Nothing backfired, it wasn't a shot or a bluff. It was a statement that if they pass draconian laws, their citizens will have to buy the product online with their visa card without paying VAT.
Funnily enough, the EU guy who is leading this and doubling down, is Romanian. I've had some friends from that country and been there a few times. It's not a place I would think of when I think honest regulatory body, ethics, or bleeding edge technology. It definitely is a place I think of when I imagine a peacock puffing its feathers, a tiny monkey hitting it's chest, and a drunk idiot with low IQ doubling down till the grave.