EU Affairs Simplification, resilience and security

Meanwhile, the UK government is following suit on combatting bureaucracy. Starmer plans to significantly cut back headcount in Whitehall, axe roughly 130 independent regulators and shred the paperwork standing in the way of true productivity.

The European Union is heading down a similar path. As it strives to keep pace with US, the European Commission is embarking on a mission to close the productivity gap, removing the barriers that currently serve as an impediment to business growth.

Much of Europe’s policy strategy is currently being driven by The Draghi Report. Produced by former Prime Minister of Italy and former President of the European Central Bank, The Draghi Report identifies where action is necessary to secure the future of European competitiveness. The report focuses on three key challenges: closing the innovation gap, harmonising decarbonisation with competitiveness, and enhancing economic security by reducing dependencies.

In order to achieve progress in these areas, the EU’s Competitive Compass seeks to turn the recommendations set out in Draghi’s report into a roadmap. The aims of the Compass pave the way to simplifying the administrative burden on EU business, modernising the governance framework of the Single Market, creating new sources of finance and investment, addressing skills gaps and better coordinating policies at EU and national levels.

One area of concern for EU policy makers relates to scale-ups. Around 60% of all global scale ups are based in North America, compared to only 8% in the EU. Meanwhile, the EU’s global share of venture capital raised is only 5%, compared to 53% in the US and 40% in China. In this context, one of the first actions being taken by the EU is the adoption of a Startup and Scaleup Strategy, a top priority in closing the innovation gap. The strategy is currently being consulted on, and is expected to be published in summer, and so details are in early stages of development.

What is clear is that the President of the European Commission, Ursula von der Leyen, is steering the EU towards “an innovation-friendly environment that makes it simpler and faster for European innovative startups to grow and scale up in the Single Market. [The strategy] is expected to address the difficulties that European startups and scaleups face in accessing capital, markets, services, infrastructure as well as talent needed to enable them to thrive in Europe and compete globally.”

But whilst simplification of regulatory measures, such as a planned ‘Omnibus Regulation’ to consolidate corporate sustainability requirements, are broadly welcomed by member states, there are those who have concerns that taking this too far will water down rules and risk key safeguards.

One such example is the moves to relax rules that regulate the development of AI. The European Commission is considering making more parts of the EU AI Act, including those parts that ensure AI models do not produce violent and false content, voluntary rather than compulsory. This has come following complaints from US tech giants that EU’s regulation of AI is stifling, and also after JD Vance’s stabs at the EU’s “excessive regulation of AI”.

Meanwhile, EU financial experts have some doubts. Dominique Laboureix, head of the Single Resolution Board, which handles failing Eurozone banks, cautioned not to forget the 2008 banking crisis. He has said that he is ready to discuss simplification but not to lower the bar in terms of protecting financial stability.

Similarly, the Vice-Chair of the European Central Bank supervisory board, Frank Elderson, has warned that Europe must not be complacent. Rather than cutting rules, it is best to harmonise them. He urges that the debate on competitiveness must not be used as a pretext for watering down regulation.

But just as the EU is scrambling to rival the US in terms of deregulation, it is also making all attempts to alleviate tension that has emerged due to the imposition of tariffs by the Trump administration. The EU finds itself in a tricky position in the middle of US-Russia negotiations on ending the war in Ukraine.

The geopolitical environment is weighing heavily on Europe, and Trump’s agenda is creating urgency on the continent to act. The dubbed ‘five minutes to midnight’ summit on defence spending across Europe at the start of March is a clear demonstration of the concern felt. Trump has hit out at those European leaders who, being members of NATO, are required to spend 2% of GDP on defence, but currently fall short of that target.

In order to boost defence spending, the European Commission has proposed some options, including changes to the bloc’s debt and deficit rules to exempt an increase in defence spending, and an instrument that would provide €150bn in loans to capitals to spend on military capabilities.

Germany is on board, having gone as far as activating changes to help to fund €500 billion worth of defence upgrades. But in what is a perfect example of how hard it is to coordinate 27 states with their own domestic policy priorities, many EU states are expressing opposition to von der Leyen’s proposals for fear of indebting themselves.

I was able to visit Brussels at the start of March to connect with our European policy counterparts on the other side of the Channel. This was a trip that coincided with that summit. What was clear from my discussions with business groups was the mood of distinct uncertainty against such a turbulent geopolitical context.

But in what we can perhaps describe as a tiny glimmer of a silver lining, that context has been just the thing to bring the UK and EU closer together. There is clearly appetite to remove frictions at the UK-EU border, which serve as significant barriers to trade on both sides of the channel. The administrative burden continues to impact businesses’ ability to send and receive goods between the two jurisdictions. Meanwhile, there is concern around how the UK will respond and adapt to the EU’s incoming programme of regulatory changes, such as, among others, EU REACH, EU Emissions Trading Systems, General Product Safety Regulations, EU Deforestation Regulations or the EU Carbon Border Adjustment Mechanism.

All roads are leading to the much-anticipated UK-EU summit on 19th May, to be hosted in London. This will serve as a crucial point in our relations, and a true test as to whether the two jurisdictions can truly pull together in the midst of such challenging times.

In brief…  

• The fifth meeting of the EU-UK Parliamentary Partnership Assembly saw members discussing trade relations and opportunities for young people. Topics included cooperation around AI, energy and climate and financial services.
• ecoDa will be hosting a webinar with Forvis Mazars on the first Omnibus package. Register here.
• The UK government updated its guidance for sending parcels to and from Northern Ireland which states that new arrangements as set out in the Windsor Framework will now take effect from 1 May 2025.
• The European Commission proposed to adopt an extension of the two 2021 adequacy decisions with the UK for of six months.  With this extension, the free flow of data with the UK would be maintained until 27 December 2025