A compass comes in handy for finding your bearings when you are lost. The Competitiveness Compass – the "north star" of the European Union's new Commission – signals a fresh attempt at simplification, or at some other way of reducing the vast volume of assorted rules and regulatory documents. It should be added, though, that many people are afraid of simplification or reduction.
The European single market is comparatively described as, and regarded as, the jewel of the European Union, yet fragmented legislation and the complexity of complying with it make life considerably harder for businesses, particularly small and medium-sized enterprises, which make up 99% of European companies and often lack the resources to keep up with changes in regulatory documents.
Both the Mario Draghi and the Enrico Letta (Enrico Letta) reports contain recommendations for boosting EU competitiveness – and it is precisely this term that the von der Leyen 2.0 Commission is preparing to invoke as it dismantles the achievements of von der Leyen 1.0.
The current European Commission has pledged to carry out "unprecedented simplification measures" during its term of office, beginning with a thorough overhaul of sustainability reporting that will form part of a broader proposal (expected next month). That alone will not be enough, given the growing appetite among some EU member states, industry representatives and centre-right and conservative lawmakers for slowing down, for repealing particular rules or pieces of legislation, and for changes of policy. Critics maintain that talk of streamlining processes in fact conceals efforts to water down highly important regulations.
"The deregulation agenda is a corporate dream come true," says Olivier Hoedeman (Olivier Hoedeman) of the lobbying watchdog Corporate Europe Observatory. "By adopting the dubious corporate lobby framing of 'over-regulation', the European Union risks losing its moral and regulatory compass."
The driving force behind the change of political direction appears to be a revolt within von der Leyen's own centre-right European People's Party, Donald Trump's return to the White House, China's evident economic might, the rise of populism in the EU and the industrial crisis in Germany (Europe's largest economy). But blaming regulation as the main obstacle to competitiveness oversimplifies the issue (the situation), trading on the old stereotype of Europe as a "super-regulator". It also diverts attention from far more difficult questions, such as investment and funding, which are the "elephant in the room" in (almost) every discussion of global competitiveness.
Over the past 20 years Europe has launched a number of initiatives to reduce excessive administrative burden, yet the problem keeps coming back, exposing deeply entrenched inefficiencies in the system. So: exactly how much is "too much" bureaucracy, and why is it such a stubbornly persistent problem?
Another expert group?
This is not the first time Europe has tried to cut bureaucracy, and it is hardly likely to be the last. Concern about the growth of red tape led to a dedicated expert group being set up in 2007 and to the adoption in 2012 of an action programme for reducing administrative burden, providing for changes to more than 66 pieces of legislation.
Thanks to these measures, the European Union's executive claimed it had met its target of cutting bureaucracy for business by 25%, saving 30.8 billion euros. It was announced that sectoral plans had cut administrative burden by more than 28.7 billion euros, particularly in agriculture, business, law and taxation, which are regarded as the most problematic areas.
Building on this success story, the EU's Regulatory Fitness and Performance programme (REFIT) was launched at the end of 2012 – alongside yet another expert group, whose mandate expired in 2019. Once again the aim was to review all EU legislation and to substantially reduce the regulatory burden. As a result, almost a year later the Commission proposed 133 measures to simplify legislation and cut bureaucracy.
During the European Commission's 2014–2019 term, no target was set for reducing the overall regulatory burden. After the pandemic, the REFIT group was replaced by another high-level expert group – the "Fit for Future" platform (F4F).
"Streamlining processes and reducing administrative burden, particularly for small and medium-sized enterprises, is very much needed after the Covid-19 pandemic," the then EU vice-president of the Commission, Maroš Šefčovič, said in May 2020 as F4F began its work.
The experts delivered 41 opinions containing roughly 260 suggestions for simplifying and modernising EU legislation, including reviewing existing reporting obligations in impact assessments, ensuring the interoperability of information shared with national authorities, and supporting the use of digitalisation, for example in cohesion policy. Some participants wanted the F4F platform to have a more direct influence on the drafting of legal texts, according to the minutes of a meeting held in October 2024.
The von der Leyen 1.0 paradox
Alongside the fallback solution of setting up expert groups, von der Leyen pledged at the very start of her first term to propose a Small and Medium-Sized Enterprise Strategy aimed at cutting red tape and improving these companies' access to the market. As part of her political objectives and working methods, she introduced the "one-in, one-out" approach, based on the principle of "offsetting any new burdens arising from the Commission's legislative proposals with an equivalent reduction in existing burdens in the same policy area" – or, in other words, "making legislation easy to comply with and avoiding unnecessary overlapping regulatory burden."
According to F4F figures, the "one-in, one-out" approach was estimated to have cut administrative burden linked to Commission proposals by 7.3 billion euros in 2022.
But... at the same time the Green Deal, "Fit for 55" and other proposals were adopted, introducing a raft of legislative and non-legislative measures that imposed new obligations not only on businesses but also on public authorities and others. By the end of 2022, businesses in Europe were facing high energy prices, inflation and supply chain problems, as well as continuing geopolitical instability following Russia's invasion of Ukraine. The US Inflation Reduction Act (IRA) was a further challenge. All of this pushed questions of global competitiveness back to the top of the political agenda.
As early as the beginning of 2023, business organisations were calling for a "breather" in the drafting of regulation, and later that same year the idea was also backed by some member states, including Belgium and France.
According to a statement published in March 2023 by BusinessEurope, the lobby group representing employers in the European Union, cutting regulation (the need for it) was the second biggest problem facing businesses (the first was high energy prices). The rising number of bankruptcies was also a source of concern.
These concerns were addressed in a long-term competitiveness plan, in which von der Leyen committed for the first time to cutting the burden created by so-called reporting requirements by 25%. It formed part of her response to the political resistance in key areas of EU environmental policy coming from her own EPP and from business organisations. The calls for deregulation have only grown louder over time.
The Antwerp Declaration of February 2024 called for a "European Industrial Deal" as a "comprehensive action plan to make competitiveness a strategic priority".
Simplification or deregulation?
Europe clearly faces more complicated procedures, more complex legal systems and slower administrative processes than some other regions, and that picture reflects the contradictions that have beset the single market and the European Union as a whole. The problem lies elsewhere: "competitiveness" seems to have become a phrase that justifies almost anything, and above all the scrapping of business rules.
The legislative package due at the end of February is set to address, and possibly revise, the Corporate Sustainability Due Diligence Directive (CSDDD), the Corporate Sustainability Reporting Directive (CSRD) and the EU Taxonomy Regulation – all in one go.
Business Europe recently stated that "reporting is only a small part of the regulatory burden that drives up the cost of doing business in Europe".
"Europe should urgently reduce overall regulatory compliance costs, remove the burden created by barriers to cross-border business in the single market, and get rid of excessive red tape," Business Europe said, backing a wide-ranging review of the European Union legislation listed in its new position paper. But... achieving genuine simplification and making capital markets work effectively across borders would require tax laws to be harmonised across the EU, which is unlikely to happen any time soon.
The European People's Party is calling for a two-year delay to the introduction of the carbon border levy, formally known as the Carbon Border Adjustment Mechanism (CBAM), while the French government is calling for the simplification of more than a dozen pieces of legislation, including state aid rules and measures linked to the Common Agricultural Policy (CAP).
"The message is clear: Europe must be an economic superpower, not a regulatory superstate," Poland's finance minister Andrzej Domański (Andrzej Domański) said recently, hinting that further "omnibuses" are likely to follow.
Investors such as Allianz GI, meanwhile, and companies including France's Nestlé and the United Kingdom's Unilever, have warned that the "omnibus" proposal undermines policy certainty and legal predictability.