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European businesses have reached a regulatory saturation point, and EU lawmakers should be looking to cut the regulatory burden on them, writes Alena Mastantuono.
Alena Mastantuono is a member of the Employers’ Group in the European Economic and Social Committee (EESC) and Vice-President of the EESC Transport, Energy, Infrastructure and the Information Society section.
The economic outlook for the coming years is not rosy, though the latest preliminary Eurostat data has raised hopes that the eurozone may be able to avoid a yearlong recession, as GDP increased by 0.3% in the second quarter.
Entrepreneurs across Europe know all too well that the long-term geopolitical tensions and instability, high levels of inflation caused by energy prices, disruptions of supply chains, as well as further tightening of global financial conditions could create the perfect storm.
According to the European Commission’s spring forecast, GDP in the EU should reach 1.0% growth this year and 1.7% next year. Inflation in the EU is expected to be 6.7% this year and ease to 3.1% in 2024. In the second half of last year, the number of declared bankruptcies among EU businesses rose sharply, reaching the highest level since data collection began in 2015.
The disruption caused by the war in Ukraine and the energy crisis clouded the outlook for the EU economy and monetary authorities around the world embarked on a vigorous tightening of monetary conditions. Borrowing costs are rising while credit flows are falling.
Companies, particularly SMEs, are frustrated. Despite their important role in the economy, i.e. creating two-thirds of jobs in the private sector and contributing to more than half of the total added value created by businesses, politicians do not take them seriously. It is surprising that the European Commission did not decide to change its six priorities or reassess the portfolios of the members of the college in response to the turbulent developments, as some might have expected.
Since the start of the Commission’s current mandate, the European business community has been exposed to an inflation of new policy initiatives and legislative proposals. The continuation of the policy objectives of President von der Leyen’s Commission – framed by the European Green Deal – continued unchanged despite the global pandemic, war and energy crisis. European businesses have reached a regulatory saturation point where it is difficult to keep up with new EU legislation while competing with international rivals.
However, the worst is yet to come, because now there will be a period when the new rules
will be put into practice.
The task for the next Commission and Parliament should be to streamline existing legislation to deliver policies without unnecessary burden or complexity and to give businesses the breathing space they need to grow and recover the economy. I recommend a detox period for the upcoming EU institutions.
Businesses are often seen as opponents of regulation, but they are not. Businesses need a well-regulated market, providing a proper level of consistency and predictability.
The regulatory balance is currently poorly set. We need to take an inventory of the legislative acts that have been adopted under the current mandate of the EU institutions and analyse their impact on the European economy and employment, as well as their contribution to climate change adaptation.
No legislative act within the Green Deal agenda was subjected to a thorough impact analysis before its final adoption, even though the final texts of the adopted acts differ substantially from the texts originally proposed by the European Commission.
So, what must the next European Commission do?
First, it needs to ensure the predictability of the business environment. Investments last 5-10 years depending on the industry. Planning, investment and innovation suffer if the legislative environment is constantly changing. This undermines job creation, prosperity and the all-important digital and green adaptation process. Delegated and implementing acts only worsen this predictability, as they only come after the adoption of the legislative act itself.
Second, the new Commission must reduce the administrative burden on entrepreneurs. The target to reduce reporting obligations by 25%, as recently put forward by the Commission, is certainly a good one. To fulfil its commitment, the Commission should set short-term targets and not limit the target to 25%. It should also focus not only on existing reporting obligations, but also on those that are being discussed and negotiated. Conducting high-quality impact assessments throughout the legislative cycle, including ex-post evaluation across EU institutions, is a must.
Third, the new EU executive must create better regulation in a consistent and transparent manner.
The entrepreneur perceives the EU institutions as one legislative machine. When each Directorate-General of the Commission goes its own way and thinks only of its competences, then businesses are confronted with a huge cumulative burden. It is necessary to approach regulation in a comprehensive manner. The introduction of the obligation for the Commission to attach to each legislative proposal an overview of obligations for entrepreneurs would certainly contribute to a better estimation of the costs that the given regulation will bring. Similarly, quality impact assessments will help ensure that objectives are consistent. Cooperation with the business sector is key in this respect.
Last but not least, we need digitised support and have everything in one place. Businesses need tools that facilitate their orientation and practical functioning in the European market, such as a single VAT identifier. European digital tools and procedures, as well as secure interconnection and exchange of information between member states (European one-stop-shops), would significantly help the provision of services and trade. The reason is that entrepreneurs in the internal market continue to face a wide range of legislation, which can often be contradictory.
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