By Marcelina Horrillo Husillos, Journalist and Correspondent at The European Financial Review
As European Union’s founding architect Jean Monnet predicted: ‘Europe will be forged in crises and will be the sum of the solutions adopted for those crises.’ Once again, these words ring true.
The bureaucratic burden on businesses in the EU, substantially greater than in major international competitors, discourages entrepreneurs initiatives. On this note, EU policymakers have recognized that attempting to grow the European economy under the current bureaucratic burden is like trying to run a marathon wearing iron shoes.
In addition the crisis of identity manifested in political divisions, surging radical-right parties, lack of clear positioning towards international imminent human rights matters and sinking national budgets is gripping many European countries. As a result, the EU leadership is seriously threatened in this ongoing changing times.
The EU is also losing ground in terms of competitiveness. Mario Draghi’s last September’s report estimates that Europe requires an additional €750-800 billion in investments annually. This gap is particularly noticeable in the technology sector—artificial intelligence, social networks, and smartphones predominantly come to Europeans from the US, China, or other countries.
EU Endless Bureaucracy
Over the past five years, the EU has introduced approximately 13,000 new regulations, compared to only about 5,000 by the United States. The Handelsblatt reported on a study that analyzed 11,000 European startups from 17 countries. It shows that 6 percent of the startups that received their first funding between 2000 and 2014 moved their headquarters abroad. Most of them went to the USA.
Although six percent does not seem like an excessive amount, these startups are extremely successful: they contribute 17 percent to the total company value created by startups in Europe, based on the valuations of IPOs or company sales. According to the study, startups with foreign investors in particular are likely to relocate their headquarters – usually to the country of the investor.
The European Commission has repeatedly unveiled ambitious plans to combat bureaucracy and reinvigorate the European economy, as President Ursula von der Leyen last emphasized the need for Europe to “reboot its innovation engine,” during the announcement of the “European Competitiveness Compass,” on January 29, 2025, in Brussels. The plan is outlining measures to boost the EU’s economy over the next five years.
One of the most significant initiatives announced is the objective to reduce reporting requirements by 35% for small and medium-sized enterprises (SMEs) and by 25% for larger corporations. This effort aims to simplify cumbersome regulations related to environmental sustainability and corporate accountability. The Commission aims to provide much-needed relief to thousands of companies stifled by regulatory demands, as Von der Leyen stated, “We must correct our weaknesses to regain competitiveness,” which speaks volumes about the urgency of the situation. However, despite these initiatives to cut bureaucracy, effective efforts to tackle the issue have kept failing.
This is not the first attempt to ease bureaucracy—similar promises were made in the 2015 “Better Regulation Agenda” and the 2017 Industrial Strategy. Yet, the introduction of new bureaucracy has consistently outpaced efforts to eliminate old regulations.
More than half of Europe’s fastest growing technology start-ups are struggling to cope with EU bureaucracy, a new survey has found. Yet the burden of endless bureaucracy in Europe leads to an ongoing trend of European startups crossing the Atlantic to scale. Research by London-based VC Hoxton Ventures found that nearly all European startups with over $500mn in revenue — including Spotify, Wise, and Adyen — succeeded by winning the US market.
Rise of the Far-right
A second concern is the rising influence of radical-right parties, which are much more influential on the national level than the European one. Far-right parties already form part of seven government coalitions in the EU and even where they are not in government, their Euroskeptical “nation-first” mindset has been gaining ground also in the political center.
The triumph of the right-wing Freedom Party of Austria (FPÖ) at the Austrian parliamentary election; the success of the ANO party in the Czech regional elections; and the strong showing of Alternative for Germany (AfD) in eastern Germany; the party Rebirth (Vazrazhdane) registered a 13.5% in the election of June in Bulgaria; Finland’s actual government has been described as the most right wing in the last 80 years; the rise of the National Rally in France has been relevant in the last years: nowadays the far-right party can count on 125 deputies in the National assembly; after the elections of April, the far right party Homeland Movement (Domovinski Pokret) in Croatia was included in the government coalition by the conservatives; Hungary: Orban, head of the far right party Fidesz; in addition to this, in the 2022 elections, Mi Hazánk Mozgalom, far right party, was able to enter the Parliament, obtaining more than the minimum to obtain seats (5%); Romania has registered a real increase of movements and parties in favour of far right positions, such as: the Alliance for the Union of Romanians (AU), SOS Romania and the Youth Party.
The increase presence of far-right members in powerful committee leadership positions could not only influence the EU political agenda, but also lead to a normalization of the far right within the European Parliament and progressively undermine democratic values. Their growing prominence in the EU could have a negative effect on women’s rights, press freedoms and the competent management of migration issues, which are some of the key matters aligned to values which at first presumably inspire the construction of the EU bloc.
Unclear role in International Conflicts
For the past two and a half years, the European Union has remained conspicuously silent and largely irrelevant regarding Gaza and broader Middle East tensions. Some European states such as France, Spain, Italy, Belgium and the UK have reduced arms sales to Israel. But despite these policies, there is no EU arms ban on Israel. In fact, Germany provides one-third of Israel’s arms, and has even increased these exports in the second half of 2024
The EU is Israel’s largest trading and investment partner and the foremost partner in terms of people-to-people exchanges. European nations also provide around one-third of Israel’s arms imports. Additionally, the EU maintains an association agreement with Israel, the most extensive and advantageous among agreements signed with non-EU countries. Thus, the EU’s silence reflects a deliberate unwillingness to act. Austria, Hungary, Germany and the Czech Republic are Israel’s closest allies in the EU, and it is very unlikely that they would vote in favour of sanctions.
Borrel, represented one of the few voices in top European political positions calling for decisive action to stop Israel’s war on Gaza. He often clashed with the EU member states that are more supportive of Israel. President of the European Commission Ursula von der Leyen, usually aligned herself with this group of countries.
In what respects to the conflict happening in Congo, the European Parliament, in a strong resolution slammed the inaction of European Union executives on the eastern Democratic Republic of Congo, where the Rwanda-backed M23 armed group is committing grave violations of the laws of war. Calling out the EU’s “lack of coherence” and “inconsistent messages” to Rwanda, lawmakers pressed the European Commission and member states to put real pressure on those fueling atrocities in Congo, starting with Rwanda, the M23’s main backer.
Loss of Competitiveness
It is no exaggeration to say that Europe has been in economic decline for at least a decade. The bloc has been losing the economic competition with the US, China and others. Internally, the prioritization of vested national interests by EU member states has inhibited further integration.
There is also a funding gap that requires the EU to mobilize an additional €750-€800 billion a year, as much as 5 per cent of the EU’s GDP, to keep pace with its main competitors. For instance, the EU is dramatically lagging behind America and others in the ongoing scientific and technological revolution.
Mario Draghi exhaustive report on EU’s competition and trade policies proposed a more coordinated approach to decarbonization and industrial policy, and for the integration of capital markets and reduction of the regulatory burden of European business. Ramping up investments will, according to Draghi, also require a considerable amount of additional public funding. The proposal considers enhancing Europe’s productivity as the key requirement for its future competitiveness and, to this end, sets out an array of far-reaching reform proposals.
The International Monetary Fund noted that the EU’s share of world GDP, in purchasing power parity terms, has fallen significantly from 23% to 14% in about three decades. This economic weakening is reflected in per capita income, an indicator of a society’s wealth and economic stability. In these terms, the gap between the EU and the US has widened by 68 percentage points since 2008. This means that Europe has a lower capacity to innovate and invest in technology and human capital, widening economic and social disparities.
In particular, the EU faces a significant gap in the development and adoption of new technologies such as artificial intelligence (AI), 5G or quantum computing, in an era of ever shorter innovation cycles. The lack of scale and momentum in technological innovation is reflected, for example, in private investment in generative AI in 2023: $1.7 billion in Europe compared to $23 billion in the US, according to the McKinsey Global Institute.
There is no doubt that in the era of the digital and global economy, competitiveness must revolve around digital leadership and recognise the fundamental role of the telecoms sector, with its infrastructure, digital services, and reach, in driving productivity, economic growth, job creation and prosperity. However, the sector is losing competitiveness in the EU, affecting its rate of innovation and investment. According to ETNO, while the US invests €240 per capita in network deployment, Europe invests only €109, less than half.
Conclusion
The construction of the EU was inspired by visionary leaders with a genuine identity and strong motivation to create a project of inclusion, peace and stability. Yet this idealist project seems to crash against the rollercoaster of today’s Geopolitics, the unstoppable tech revolution and the zigzagging economy landscape.
Compared to 1950, when French Foreign Minister Robert Schuman presented his plan for a deeper cooperation, proposing integrating the coal and steel industries of Western Europe, today’s business world is ferociously competitive.
The almost vertiginous advances of Tech, push and demand for quick and effective decisions to cover companies and entrepreneurs, needing nothing but agile and supportive infrastructures.
EU regulatory density, and its legal framework filling many thousands of pages is blocking, and often sadly discouraging the entrepreneurship talent, which end moving away from the EU block to regions where doing business becomes easier.
The overthinking and the politically correctness that characterises the Old Continent don’t help in today’s changeable world of Geopolitics, where things moving fast and in drastic ways, this which would require for the leading actors to make no popular decisions.
Europe’s ambiguous positioning regarding pressing international humanitarian matters, is conflicting the very same principles of the bloc’s creation – an inclusive space motivated by human rights values, away from the dark horrors of war, standing for moral values.
The European Union is seriously struggling to catch up in these challenging times, hence moving away from purely institutional thinking and adapting to today’s reality, is crucial to, not only preserve the EU’s leadership, but most important to preserve its very survival.
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