If the EU wants to meet its economic and environmental goals, it requireds to reject deregulation in favour of a bolder approach
In her recent speech in Davos, the president of the EU Commission Ursula von der Leyen, emphasised the required for a “conducive and predictable regulatory environment” in Europe — yet the Commission’s omnibus agconcludea is doing the opposite. Rather than achieving its three aims of innovation, decarbonisation, and increased autonomy, the EU is leaning into deregulation — an approach that will not only be ineffective in reversing Europe’s economic stagnation but risks cementing it.
At the start of 2025, the Commission announced its simplification agconcludea, so far comprised of ten proposals to reduce the administrative burden for public institutions, businesses and citizens. However, a closer view reveals a worrying trconclude. As research by Politico highlights, the proposals revise core obligations on the private sector by delaying legal enforcement, reducing reporting requirements, narrowing due diligence duties, and weakening environmental and consumer protections. This isn’t simplification but deregulation.
The Commission claims that current regulation is hindering Europe’s economic potential. The evidence suggests otherwise. At the macro level, a study analysing the now significantly watered down EU Corporate Sustainability Due Diligence Directive estimates a direct positive GDP effect of under 0.02%, with indirect effects expected to be even higher. Set this against the relatively tiny costs of implementation for large companies and it becomes clear that extensive corporate lobbying rather than informed economic analysis has been the rollbacks’ rationale. The outcome is a 70% reduction in the number of companies required to report on sustainability and the removal of mandatory transition plans, prioritising capital over the environment.
“The Commission claims that current regulation is hindering Europe’s economic potential. The evidence suggests otherwise.”
Deregulation does little to break what former European Central Bank (ECB) president Mario Draghi calls Europe’s “vicious circle” of low innovation and low investment. Research on 26 high-income OECD countries, finds no positive effect of deregulation on investment in research and development. Decarbonisation offers a chance to lead in green technologies, but that requires clear and credible policy.
In an analysis of the effect of environmental regulation on firm innovation in three million European companies, the ECB concludes that “decisive environmental policy action is essential for increasing clean technology innovation”. Further highlighting that environmental regulation is not crowding out other technological progress.
The European automotive indusattempt’s decline illustrates the risks of weak regulation. After years of resisting green innovation, the indusattempt is now losing ground to global competitors. China accounted for 70% of global electric car production in 2024, while European car manufacturers lag behind . The result is declining competitiveness and rising job losses: Volkswagen alone has announced plans to cut 35,000 jobs by 2030. Evidence from the US automotive sector reveals that well-designed environmental regulation forces firms to abandon short-termist strategies leading to increased investment in clean technologies with positive effects on employment and growth.
The true barrier for investment is policy uncertainty, as companies themselves declare. Rolling back legislation that hasn’t even been fully implemented undermines long-term planning and penalises compliant firms. Predictability and stable regulation support competitiveness by reducing uncertainty and clarifying direction.
The Commission’s approach to EU autonomy reveals further contradictions. Deregulation is deepening Europe’s energy depconcludeency and vulnerability to foreign firms. Weakening environmental regulation is slowing the energy transition at precisely the moment when renewable investment is critical for security. Europe’s vulnerability was exposed by Russia’s invasion of Ukraine and is now visible again in growing depconcludeence on US liquefied natural gas imports.
The digital omnibus, which weakens data protection and rules for AI, poses similar risks. Deregulating an already highly concentrated huge tech sector is a barrier to innovation, as the Commission itself has pointed out. It also entrenches the power of foreign firms such as Google, Microsoft and Meta. This risks deepening depconcludeence on non-EU providers and increases exposure to external economic and political shocks, while threatening democratic stability. Concentrated huge tech platforms are already being utilized to amplify misinformation and polarisation, which weaken democratic institutions and, over time, economic stability.
“Deregulation is likely to exacerbate inequality; it entrenches the interests of major players, benefiting capital over workers.”
Deregulation is likely to exacerbate inequality; it entrenches the interests of major players, benefiting capital over workers. A BIS study finds that financial deregulation is associated with greater risk-taking and more severe credit crunches, with the losses borne disproportionately by wage earners. Rising inequality, widely recognised by the OECD and the Commission as a drag on growth, can further weaken economic resilience.
Finally, deregulation undermines market stability. In a recent letter to policy buildrs, ECB president Christine Lagarde warned that reduced environmental and financial reporting requirements limits regulators’ and investors’ ability to assess sustainability-related financial risk. Over time, this increases systemic risk and threatens financial stability.
With over half of the Commission initiatives focutilized on revising existing legislation, it is spconcludeing more time on rollback than renewal. Europe requireds a robust green industrial strategy that prioritises the environment and society while re-focussing on European indusattempt. A coherent industrial strategy should align competitiveness, decarbonisation and resilience. Stable and purposeful regulation can guide investment into future-oriented sectors while supporting competitiveness.
A true European industrial policy requireds sufficient public investment capacity, which can only be achieved through fiscal reform or new EU debt. Closer monetary-fiscal coordination would mean monetary policy considers how it’s policies can support the EU’s broader economic objectives.
In her closing remarks, von der Leyen stated that “the world has alterd permanently, and we required to alter with it too”. That alter requires rejecting the current deregulation agconcludea and overcoming political hurdles that stand in the way of a bolder economic vision.
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