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Europe has a competitiveness problem — and part of it is down to red tape. Tackling this should be a top priority for the new European Commission and for policymakers in EU capitals in 2025. Mario Draghi identified excessive regulation as one of the factors holding Europe back in a landmark report in September. Innovative companies that want to scale up in Europe are “hindered at every stage by inconsistent and restrictive regulations”, he noted. Draghi declared that EU tech laws were “killing our companies”.
This is a pressing challenge for Europe in its own right. But it could be made much more acute with Donald Trump’s return to the White House. The US president-elect has promised a war on rules and regulations affecting business and on the federal agencies that enforce them. Elon Musk will lead the effort to “dismantle” government bureaucracy in what Trump has described as “the Manhattan Project of our time”, evoking the 1940s programme to develop an atomic bomb. Hyperbole aside, radical deregulation in the US risks sucking business investment away from Europe much as subsidies did under Joe Biden’s Inflation Reduction Act.
It is not in Europe’s interest to engage in a race to the bottom with the Trump administration. But EU policymakers have sometimes given the impression they are racing to the top — to be the world champions of rulemaking — regardless of the impact on European business, investment and productivity.
During commission president Ursula von der Leyen’s first term, the EU took pride in taming Big Tech with its twin digital services and digital markets acts. But as Draghi’s report pointed out, there are now 100 tech-related laws across the EU’s 27 member states enforced by 270 regulators. The EU’s AI Act, while reflecting legitimate governance concerns, risks creating a bureaucratic monster with a patchwork of different national standards.
One of the biggest problems is the sheer complexity of the rules and regulations that have accumulated over decades, and their inconsistencies, contradictions and duplications. A sector-by-sector analysis by Brussels could help to iron these out. More stringent competitiveness tests and common impact assessments for new laws should also be introduced. The cumulative impact of multiple rules should be evaluated.
Another problem is excessive reporting requirements, particularly related to labour and other standards and to carbon content in supply chains. The commission’s vow to reduce the form-filling by a quarter is welcome but should be just the start, especially for small businesses. The burden of regulation favours bigger companies when Europe needs to favour new entrants.
Some systemic problems will take longer to fix. Completing the single market, including a capital markets union with a single rule book and supervisor, could reduce regulatory fragmentation. A bigger EU budget, EU tax-raising powers or a move to redirect existing spending would allow the bloc to use fiscal incentives and less regulation to achieve decarbonisation and other objectives.
Not just the EU, but national and local authorities need to act. Gold-plating or adding additional requirements to EU law is a long-standing problem. Slow and cumbersome permitting is a widespread one. Germany’s red tape scourge is made worse by a stubbornly analogue bureaucracy.
Deregulation is only part of the solution to flagging EU competitiveness. High energy costs and skilled labour shortages are bigger constraints. A survey for the European Investment Bank last year found companies in the US were more likely overall than those in the EU to see business regulation as an obstacle to investment. Still, the weight of regulation must be reduced if Europe is to innovate and thrive.
