You can't just legislate this into existence, you also need the money and talent to do it, not to mention the hardware.
Even if you overcome all of this and become successful, you'll get chased by politicians for having too much money (which is not allowed in the EU).
And even if you don't, today, it will be tomorrow.
Easier to just take a long haul flight to your favorite US coast and do it there.
It's happened once, could happen any time.
Not good for business!
The rest who are not chased are usually deeply intertwined with politicians, and are running corruption schemes along them.
I'm not one to hate rich people (I'm a capitalist myself), but if any billionaires are to be looked at with skepticism, it's EU billionaires with significant political ties.
The only problem is - when US services are available, there's no incentive to bring anything to the market.
I guess you forgot that EU's unicorn champion, Spotify, started by distributing pirated music they stole off the torrents before getting the rights to that music.
Which invalidates everything you just said.
Same thing will happen with the LLMs. Publishing companies will cut a deal with the LLM companies to get a cut off the books and IP they used for the training data.
So this is a very poor cope/excuse of why the EU doesn't have cutting edge models, because it's illegal to steal IP in Europe vs US.