By this logic the Chinese should have just given up and let the American AI companies have the market because they were so far behind. I'm sure Europe has the capability to distill other people's frontier models to catch up if they wish to do so.
Distilling is unsafe from export control perspective - Chinese models are poisoned by US frontier distillation and a case can be made that the US won’t like distilling what they may consider transitively theirs, which they will the moment you’re anywhere near competitive.
The parent commenter was talking about Mistral as a single company and you switched from that to all of the EU.
There definitely have been Chinese companies with models that fell behind, which is the more direct comparison.
As for the EU in general, there are not a lot of known options. There are some working on things.
The US, the EU, and China all have frontier labs that have yet to release anything.