The false choice: Why Europe needs to deregulate

In an article published on this news portal, GWU Secretary-general Josef Bugeja made the argument that Europe must choose between “investment” and “deregulation”. This is not only misguided but also a dangerous binary thought process that ignores the grim reality of Europe’s economic stagnation.

Bugeja implies that deregulation is a “race to the bottom”, but Draghi’s competitiveness report argues it is actually a race for survival. When 61% of EU companies cite regulation as a primary obstacle to investment, and 55% of SMEs are being crushed by administrative burdens, “quality jobs” tend to become a fantasy.

You cannot have high-quality employment in industries that are fleeing to the US or China because the cost of mere compliance—estimated at up to €1 million for a single listed company under the CSRD—outstrips their R&D budgets.

Investment and deregulation are not competitors; they are two sides of the same coin. Draghi isn’t calling for a “bonfire of rights” but for regulatory simplification. It is useless pretending that European companies can compete on a global stage while wearing lead boots. To claim that cutting red tape is an attack on the “social model” is to ignore that Europe’s social model is funded by economic growth. The reality is that in Europe, economic growth has been flatlining for two decades compared to other global competitors.

If the EU were to follow Bugeja’s logic and focus only on investment, while maintaining the current regulatory tsunami, Europe wouldn’t be building a competitive Europe, it would be simply subsidising its decline.

Draghi notes that between 2019 and 2024, the EU passed 13,000 regulations, while the US passed only 5,500. This isn’t “protecting standards”; it’s a “regulatory barrier to entry” for new tech. Draghi also highlights that SMEs in Europe face a reporting burden so high it actively prevents them from scaling, which is why he calls for a 50% reduction in reporting obligations for SMEs. Draghi also famously stated that if Europe does not increase productivity through both investment and reform, it will have to “scale back its ambitions” regarding the welfare state and climate goals.

Moreover, in the Draghi Report, deregulation is not a call to strip away the European social model or worker protections. In fact, Draghi explicitly states that European competitiveness must not be built on “wage repression” or lowering social standards. Instead, the focus is on regulatory simplification—removing the bureaucratic “lead boots” that prevent companies from growing fast enough to actually fund those high standards.

Thus, the deregulation envisioned by the Draghi Report and being considered within the EU structures is not an assault on workers’ rights or social protections, but a surgical strike against the “regulatory thicket” that is strangling European innovation. This isn’t about making jobs more precarious; it’s about making the European market simple enough for a startup to grow into a global giant without being buried in paperwork. By streamlining these rules, the EU aims to foster the economic growth necessary to sustain its high social standards, acknowledging that a social model cannot survive in a stagnant economy where capital and talent are fleeing to more agile global rivals. This means that based on the Competitiveness Compass and Draghi’s recommendations, the EU is moving to slash administrative burdens by 25% for large firms and 35% for SMEs by 2029. 

The so-called EU deregulation being discussed concerns the consolidation and simplification of overlapping reporting rules, particularly in the Corporate Sustainability Reporting Directive (CSRD) and the Sustainable Finance Disclosure Regulation (SFDR). Deregulation also aims to create a more founder-friendly environment by reducing the complexity of the AI Act and digital market rules, ensuring that sovereign European tech companies aren’t regulated out of existence before they can even launch.

It also includes streamlining the permitting processes for renewable energy projects and industrial decarbonisation and the creation of an EU-wide legal framework for startups, whereby this would allow a company to follow one set of simple EU rules rather than navigating 27 different national legal systems when trying to scale across borders. Ultimately this effort also deals with cutting the red tape and the creation of a proper capital markets union. As things stand today, the situation prevents private savings from flowing into businesses, with European startups often having to move to the US to find the scale-up capital they need because EU financial regulations are too fragmented.

To suggest that investment alone can save Europe while we continue to drown Europe’s innovators in 13,000 new rules is, in my opinion, pure economic delusion.

Accelerating with the handbrake up

Investment alone is a blunt instrument that cannot overcome the structural friction of a bloated bureaucracy. As the Draghi report emphasises, pouring capital into a system where it takes years to get a permit is like trying to accelerate a car with the handbrake firmly engaged. Without parallel deregulation efforts to simplify the Capital Markets Union and the Digital Single Market, Europe will continue to suffer from a productivity gap where our best ideas and investments are exported to more agile markets. True labour productivity increases only when investment is met with a regulatory environment that allows for rapid scaling, not one that treats every new innovation as a compliance risk.

Ultimately, the passion of any union leader on “collective agreements” and “rights” ignores the most basic law of economics—you cannot redistribute wealth that isn’t being created. Rights are merely words on paper if the companies expected to uphold them are insolvent, barely surviving or fleeing to more hospitable markets outside of Europe. The ultimate guarantee of an employee’s prosperity isn’t a government mandate or a union collective agreement. It is a profitable, competitive business.

As Draghi’s report starkly illustrates, Europe’s productivity gap with the US has widened from 15% in 2000 to 30% today. Money does not fall from the sky, nor is it conjured by bureaucratic decree but generated by economic growth. By prioritising the “protection” of a stagnant status quo over the deregulation needed to spark innovation, we aren’t defending workers or their interests. We are only ensuring the long-term impoverishment of the same workers in a continent that has become a museum of missed opportunities.