> I don't see how EU regulators would allow payment privacy in any meaningful way.

The wording on the Taler website is a bit wishy-washy, but I THINK the TL;DR is:

1. They tried to do be a payments processor with assistance from a German bank.

2. That didn't work out for what Taler claims are "unrelated reasons" but I suspect we all can agree it was due to KYC/AML hurdles.

3. The Taler plan now appears to not be a payments processor but rather merely an issuer.

And in that respect, there is plenty of precedent for that passing in the EU, i.e. there are are already many online places you can go swap your Euro for Bitcoin legally.

So, yes, there will still be KYC/AML. You will still need to provide your ID to swap your Euro for your Taler. But after that, Taler has nothing to do with transaction processing, you go spend your Taler balance elsewhere and somebody else's server processes the transaction. Taler will know and be obligated to retain records of who bought how much, when and how but not when and where (of if) they spent it.

At least that's my interpretation of the word-soup on their website.

Regulation should not be a problem, there are several past precedents https://en.wikipedia.org/wiki/Chipknip