"nation state identity is equally as arbitrary and artificial as a continent identity."
I would disagree.
Nation states are formalizations of ethnic groups and they did arise naturally. They are not arbitrary.
'Sweden' is where the 'Swedes' live, essentially. And they have for a very long time.
There is not much arbitrary about the nation states of Europe, they mostly have clear historical orientation.
The Habsbourg Empire - now that is an 'artificial state'. Spain, Netherlands, Austria, Hungary etc.. It faded ultimately because it was arbitrary.
WW1 - which has it's roots in turmoil within the Austro-Hungarian Empire (read: the succession of Habsbourg dynasty) - was caused at least in part by this 'arbitrary' mapping.
'Europe' is surely where 'Europeans live' - but - the 'EU' is not Europe. Many citizens (in some cases majorities) voted against the Treaty of Lisbon which gave the EU it's most powerful legal status, and most citizens didn't really have a vote.
The EU is a body politic, a rather undemocratic one, it's not quite the same as 'Europe'.
The legislation in question should be a pan-European concern, and I believe it belongs at the level of the EU, even if the EU is oddly constructed and has way too much power.
I don't think it's really a national issue in any sense, there doesn't seem to be any clear boundaries on this.
There are ideological advocates on all sides, and very specific economic forces from a few different nations acting as impetus.