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EU launches ‘simplification’ agenda in effort to keep up with US and China

2025-01-29 15:10

The EU executive has announced “an unprecedented simplification effort” to cut red tape and boost innovation in an attempt to reverse Europe’s economic decline compared with China and the US.

In her first major policy announcement since starting a second term as European Commission president last month, Ursula von der Leyen outlined policy proposals intended to boost Europe’s flagging economy.

The plans, in a document titled the Competitiveness Compass, respond to a hard-hitting report from the former Italian prime minister Mario Draghi, who warned that the EU risked “a slow and agonising decline” without urgent action.

Von der Leyen said the EU had sometimes imposed “complex” and “partially contradictory” requirements on companies, an apparent reference to laws passed during her own first term.

However, she insisted that the EU would stay the course in its goal to reach net zero greenhouse gas emissions by the middle of the century. The document flagged a 90% emissions reduction target for 2040.

Von der Leyen said the simplification agenda matched the objectives of the EU’s green deal “because we have to speed up. The more complex [the legislation], the slower [to meet the climate targets].”

European business, she said, had sent a very clear signal that it faced “too much complexity” and “administrative procedures are too cumbersome”. She promised an “unprecedented simplification effort” that she said would reduce administrative costs for companies by 25%, and by 35% for small and medium-sized enterprises – assuming the commission’s proposals are adopted and followed.

The commission will next month unveil “far-reaching simplification” covering the corporate sustainability reporting directive, which entered into force in 2023, and the corporate sustainability due diligence directive, which has yet to be transposed into national law in the EU’s 27 member states.

The directives oblige companies to report on their impact on society, the environment and human rights, but businesses have complained about the high costs and time-consuming demands of gathering the data.

The document sets out von der Leyen’s economic agenda for the next five years, with measures targeted at boosting green tech, artificial intelligence and quantum computing.

Von der Leyen said the EU’s business model for the past 20-25 years had relied on “cheap labour from China, presumably cheap energy from Russia” and “partially outsourcing security”, but “these days are gone”.

Echoing the Draghi report, she said Europe had a static industrial model, “with too few startups emerging with new disruptive technologies”. The former president of the European Central Bank highlighted in his report that no EU company with a market capitalisation over €100bn had been set up from scratch in the past 50 years, while all six US companies with a valuation above €1tn had been created in this period.

In a note to clients on Europe’s “do or die moment” Eurasia’s managing director for Europe, Mujtaba Rahman, said von der Leyen’s intervention was Brussels’ “most ambitious push since the eurozone crisis for deeper EU economic integration to counter the structural and global challenges the bloc is facing”.

He added: “Whether this agenda takes off and gives Europe a shot at competing with the US and China as a major global economic power in the long run will depend on von der Leyen’s ability to deliver results and enlist broad-based support from the EU’s 27 member states. This will be a massive challenge and success is far from certain.”

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