Europe’s reputation for heavy regulation is taking a beating. There is a growing consensus in the large economies – France and Germany – that regulation is too severe, and Germany for instance has made an important contribution to the Savings and Investment Union (SIU) process by agreeing to have its financial markets regulator cede some control to the European markets regulator, and France and Germany are working more closely together to pare back EU AI regulation to create European AI champions, with a number of collaborative deals set to be announced in coming weeks.
At the EU parliament level, there have been a number of meaningful votes on ‘Omnibus’ bills – i.e. agreements to simplify and in some cases pare back overbearing regulation. Two stand out. The EU parliament (which now has a rightwards tilt) last week agreed the the Corporate Sustainability Reporting Directive (the CSRD) and the Corporate Sustainability Due Diligence Directive (the CSDDD).
The aim is that these directives will reduce ‘sustainability’ and ‘due diligence’ requirements for European companies. Concretely, CSRD reporting, is being postponed by two years, while CSDDD implementation will be delayed by a year. The package also narrows the scope of the compliance – exempting smaller and mid-sized companies, and cutting the overall amount of ESG reporting.
Overall costs savings – relative to GDP – will be small, but for many businesses these changes are meaningful in terms of cost, time saved and regulatory friction, and thus may allow businesses scope to ‘breathe’, at a time when momentum in some European economies is ticking upwards.
The recognition by policymakers that Europe overregulates is welcome, as is action to pare back the burden of doing business. There is plenty of scope for this to continue and in particular, one area for focus is finance and capital markets.
The popular narrative is that the US innovates, China copies and Europe regulates. This may no longer be true, especially given the advances China is making in numerous technologies, and Europe may surprise in that a bonfire of regulations may mark 2026. European growth momentum is already better than that of the US, and a positive surprise could be in the offing.
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