Brussels will start on cutting red tape with the so-called omnibus legislation this autumn has it sets out to make Europe competitive again, Politico reported on September 17.

Last year the Draghi report put the cat amongst the pigeon when the former Italian prime minister pointed out in excruciating detail that Europe had lost its competitive edge and fallen behind countries like the US and China. To get back into the race he recommended that the EU invest an extraordinary €800bn per year – spending that has got lost in the cacophony surrounding the need to invest the same €800bn, but over five years, to modernise Europe’s defences in the face of a growing Russian threat.

The Draghi spending is not going to happen as Europe is struggling to pay for the much smaller defence spending need to hit the new 5% of GDP target set at the Nato summit in the Hague this summer, but in the meantime Brussels is going to do what it can to improve things by taking the shears toits legendary red tape.

Rather than invest into innovation and the defence sector, the focus will be on improving efficiency and making it easier to do business by cutting burdensome regulations. One of European Commission President Ursula von der Leyen’s pet drives has been to ask departments across the Commission to compile a kill list of bills that have been stuck in the legislative process for more than two years, like anti-child pornography rules or a Polish sponsored Victims' Rights Directive.

One basket full of much hated rules are the Climate Crisis directives that impose a raft of regulations and inspections on the agricultural sector that also eats up a third of the EU’s budget and have got bogged down in intra-member haggling.

The watering down of the green rules is a major compromise by von der Leyen who put fighting climate change at the core of her first five year term in office, but now she will have to compromise, especially with the left and right wings in the European parliament if she is going to get EU Inc back on track.

“We need to make it easier to do business in Europe, to innovate in Europe, and to embrace the newest technologies,” von der Leyen said last November at the beginning of her second term and repeated the sentiments in her EU State of the Union address (video, transcript) on September 10.

However, some lawmakers worry that “simplification” is code for “deregulation”, while the businesses are delighted. The automotive lobby has been pushing hard to get the proposed ban on combustion engines set to come into force in 2035 lifted – or at least watered down to a “carbon neutral” compromise that would allow them to use things like alternative fuels to allow the continued production of the classic engines.

Europe’s car-making industry is already making large scale layoffs and closing factories in the face of relentless Chinese pressure. Germany lost 125,000 industrial jobs since August from firms like Volkswagen, Mercedes, ThyssenKrupp, Bosch, and Continental as sanctions bite. Germany’s business lobby is begging for regulatory mercy from Brussels.

Amongst the concrete measures under consideration are:

-drastically cutting rules forcing companies to disclose their own and their suppliers’ impact on the environment;

-cut rules for big companies to have a climate transition plan and make it harder to hold them legally liable for damage caused;

-sweeping cuts to laws on waste and pollution;

-slashing rules that hinder the ReArm defence program and fast-tracking permissions for infrastructure projects relating to defence;

-simplifying rules for military transport infrastructure projects and upgrades to improve EU military logistical support;

-cutting farm inspections to a single annual spot check for environmental compliance;

-weakening protections for rivers and permanent grasslands;

-relaxing rules on cancer-causing substances in certain cosmetics and requiring less-detailed health warnings on packaging;

-cutting reporting obligations on AI, data and cyber to improve innovation; and

-loosening securitization rules to allow banks to leverage up their balance sheets, and also reducing capital requirements for insurers. 

However, while it is hoped all these changes will make business easier, the parallel set of investments and financial support programmes suggested by Draghi remain almost entirely missing.

By ignoring the effort to boost innovation, the reduced red tap will make little difference. To illustrate the point, a group of venture capitalists from Western firms toured Chinese factories this month and returned saying China's dominance in clean tech has left key sectors in the Europe uninvestable as China is too far ahead. One manager said he was cutting all green tech companies from his portfolio and would on consider European projects if they were doing it in partnership with a Chinese company, Bloomberg reported. The story is the same in EV, where Chinese sales in Europe over took US-firm Telsa in April for the first time, despite EU imposed import tariffs.

The fund managers said China has raced ahead in sectors like batteries and “everything around energy,” but seeing how big the gap was firsthand left them wondering how European and North American competitors can even survive.

What’s more, China’s share of global clean energy patents stands at around 75%, while the country dominates the supply chain for the critical minerals that underpin many green technologies. And China’s notorious 996 model (work from 9 a.m. to 9 p.m., six days a week), is officially banned, but still appears to shape labour market norms, according to the VCs Bloomberg spoke to.