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Business leaders, policymakers and investors argue that Europe’s heavy regulatory environment is stifling growth, dampening innovation and reducing European competitiveness on the world stage.

Adding fuel to the deregulatory flames are many efforts already well underway in many parts of the world. Indeed, the US has outperformed dramatically over recent decades both in terms of innovation and growth; and, barring any geopolitical mishaps (which is admittedly a big caveat in the current climate), it appears to be on a path to continue perform well under the new administration.

The question is therefore not whether Europe should deregulate, but how. After all, less regulation does not always result in a better regulatory environment. Further clouding matters is the muddied meaning of the word itself. Regulation has become synonymous with rules. But its meaning should be more expansive; some rules are essential, while others are cumbersome and no longer needed. And often, thoughtfully crafted incentives and guidelines can be far more effective.

As the old saying goes, the US innovates, China imitates and Europe… regulates. The European Union (EU) is said to be lagging its peers in the fourth industrial revolution.¹

Excessive regulation is often blamed, acting as a significant barrier to innovation and competitiveness.

The numbers speak for themselves; between 2019 and 2024, the EU adopted over 13,000 legislative acts¹, compared to just 3,500 in the US at the federal level. One area brought up as particularly burdensome is sustainability reporting, where most EU-based companies are required to follow several overlapping rules², each with its own demands. SMEs in the EU are said to spend over 10% of costs and resources on regulatory compliance.³ Many suppliers have had to add three full-time employees to navigate data gathering requirements from the onslaught of compliance regulation.⁴ As a result, over two thirds of EU companies therefore view regulation as a barrier to long term investment (32% view it as a major barrier, 34% as a minor barrier).⁵ In comparison, the former number is only 21% in the US.⁶

Deregulation efforts going on elsewhere have arguably heightened the sense of unease and need for action.

Since the start of his second administration, US President Donald Trump has committed to cutting “senseless red tape.”⁷ One aspect of this was outlined in executive order (EO) 14192 “Unleashing Prosperity Through Deregulation”. It aims to eliminate at least ten regulations for every new one introduced.⁸ Moreover, Trump established the Department of Government Efficiency (DOGE), which aims to promote governmental efficiency and productivity. One clause of the EO explicitly asks to “displac[e] all prior EOs and regulations […] that might serve as a barrier to providing USDS access to agency records.”⁹

The US is cutting environmental red tape and streamlining permitting processes for oil extraction, with President Trump encouraging oil majors to “drill, baby, drill.” Additionally, Mike Johnson, speaker of the House just announced plans to tackle former President Biden’s Inflation Reduction Act (IRA) with something between “a scalpel and a sledgehammer.”

China, meanwhile, takes mere months to approve and build their solar and wind projects. It recently reached its 2030 solar and wind targets six years early.¹⁰ Despite not explicitly cutting regulation, China has focused on efficiency gains and simplifying administrative procedures.¹¹

Contrast that with the EU, whose combination of regional, national (27 countries with different laws) and European Commission-level regulation has left many companies in a quagmire. For instance, excessive permitting has halted renewable energy projects.¹² Despite legislation requiring project permits to be granted within two years, a study by Ember shows that of 18 countries analyzed for onshore wind projects, the average permitting time exceeded the two-year mark in all cases, sometimes even up to five times.¹³ Something needs to change, that much is clear.

China’s rapid progress on renewables production and Trump’s ruthless anti-climate agenda combined should provide Europe with, not only lessons in efficiency, but also an opportunity gap to lead a unified and competitive green agenda. And despite the apparent tectonic deregulatory shifts, there is something to be said for consistent regulation, especially in key sectors like energy, artificial intelligence (AI) and financials. History, and indeed current markets, have shown clear the consequences of too little regulation.

The 2008 financial crisis is widely seen as a systemic failure resulting from a lack of financial oversight.

Deregulation allowed risky practices to flourish,

ultimately contributing to a housing bubble that burst with devastating consequences. The subsequent Eurozone debt crisis was also partially caused by inadequate financial oversight, allowing for unsustainable fiscal policies.

And now? Trump’s policies are creating evermore uncertainty and instability. While US deregulation efforts are expected to spur more innovation and growth, the Trump administration is weakening the rule of law, disrupting institutions (including the Fed and judiciary), all while adopting lower transparency.

Criticism of the US’s now infamous DOGE’s lack of transparency and spreading of misinformation is at an all-time high.¹⁴ Some of DOGE’s actions have had significant consequences undermining the whole institution. The most recent of which involved Elon Musk, former ‘head’ of DOGE, stepping down. After a slew of legal challenges (including attempts to abolish the US agency for international development (USAID) and the US institute for Peace (USIP)) the department, which had promised USD 2 trillion in savings, has left behind only minimal cuts (only USD 61.5 billion of which were itemized)¹⁵, uncertainty and a weakened rule of law.

Furthermore, massive conflicts of interest exist with some of the US administration’s main agenda policies, for instance in crypto currency. Trump’s disruptive policies are altering this mix for the first time in many decades and there is no guarantee that deregulation alone can be positive for growth and innovation in the future.

The European Union’s (EU) recently published “AI Act” is a useful example of dangers of light-touch regulation and the need for balance. Given the risks associated with taking a relaxed approach to artificial intelligence (AI), the act offers more than just compliance, promoting active engagement with the creation of new technologies. AI is so critical for our future that it must be done with care and we also believe any regulation should be structured to enable the key growth areas for Europe: energy and capital markets.

This delicate balancing act creates a unique opportunity for Europe to provide what others cannot: stability and rule of law. What may typically have been perceived a source of weakness, could become a strength in a more volatile and unstable world.

Deregulation in and of itself is not the key to unlocking Europe’s competitiveness on the world stage. Instead, a combination of simplification, integration and investment is essential – with the hope of becoming a haven of stability for markets and investors in a world riddled with chaos and instability. We therefore favor the ‘as much as necessary, as little as possible’ approach with a focus on outcomes over process.

Two recent landmark reports on the future of Europe have been shaping the direction of policy and offer useful guidance for improving competitiveness while maintaining important governance and protections.

In his report, Much More Than a Market, former Italian Prime Minister Enrico Letta emphasizes the need to simplify the EU’s internal rules and bureaucratic machinery. Former European Central Bank President Mario Draghi's report,¹⁶ meanwhile, focused on Europe’s long-term economic model and set out a strategy based on three imperatives: closing the innovation gap with the US, making decarbonization more competitive, and securing Europe’s economic security autonomously.

Crucially though, both argue that any investment must be underpinned by deeper integration of Europe’s capital markets and industrial policies. The current siloed approach, with 27 different fiscal regimes and disparate regulation, is fundamentally incompatible with the scale and speed required to compete today.

Thankfully, Europe has already taken significant steps to lower the regulatory burden. The European Commission published their “Better Regulation” agenda, promoting simplification and efficiency when preparing new initiatives or evaluating legislation.¹⁷ Moreover, the “Omnibus Simplification Package”¹⁸ proposal aims to reduce the complexity of EU requirements and the administrative burden for all EU-based businesses – by 25% for all businesses and 35% for SMEs.

Europe has always needed a push; and this definitely appears to be one of those moments.

Simplification does not have to equal deregulation; it can mean smarter regulation

Without such a reform, European businesses will continue to face inefficiencies that their American and Chinese counterparts, operating in more unified regulatory environments, do not.

The investment implications of such grand and seismic policy changes cannot be underestimated. Indeed, we have already seen the direct market effects of Germany’s fiscal injection to help bolster European defense capabilities after Trump decided to rip up much of the international rules-based order a matter of days after taking office.

Take finance. Banks and insurers could, in theory, benefit from lighter reporting burdens and greater flexibility. A true capital markets union would also offer a once-in-a-generation alignment of European capital and policy – matching capital with region-wide investment opportunities and hopefully leading to a more diverse funding landscape that balances bank funding, corporate credit and direct lending. We would also expect to see a rise in pan-European M&A activity across sectors to consolidate the strengths of the union and increase competitiveness.

More streamlined environmental and safety regulations could help industrials and auto manufacturers. From an innovation point of view, a lighter touch or smarter approach to data, AI and digital markets could boost innovation and thereby, attract more capital.

It is also widely acknowledged that

high regulatory burdens tend to fall disproportionately on smaller companies.

Any simplification would therefore make their lives easier and should increase competitiveness and ecosystem health of small to medium enterprises (which make up 99% of EU businesses).¹⁹

Increases in both public and private investment in the region would likely see upgrades to key infrastructure. An acceleration of the Green Transition agenda would create opportunities in renewables and the impact of decarbonization efforts, commensurate with emissions intensity, must be properly mapped and monitored across industries and supply chains. Upgrades to telecom networks, power grids and data centers would create both public and private investment opportunities.

Ultimately, a unified, simplified, competitive Europe could attract more foreign investment (which is down to a striking 4% in 2023 from 36% in 2019²⁰, due in-part to regulatory burdens) and unlock a host of opportunities. As investors though, it is our responsibility to stay abreast of any policy and regulatory change in order to assess any material risks that arise from such change.

¹ Mario Draghi, The Future of European Competitiveness, September 2024.
² Including but not limited to: the Sustainable Finance Disclosure Regulation (SFDR), EU taxonomy, Corporate Sustainability Reporting Directive (CSRD), Corporate Sustainability Due Diligence Directive (CSDDD), CDP, Sustainability Accounting Standards Board (SASB) and the Task Force on Climate-related Financial Disclosures (TCFD) framework.
³ European Investment Bank, EIB Investment Survey 2024, October 2024
⁴ TrusTrace, The Data Advantage, May 2025
⁵ European Investment Bank, Investment barriers in the EU 2023, 2024
⁶ European Commission, The 2025 Annual Single Market and Competitiveness Report, January 2025
⁷ The White House, President Trump’s Deregulation Effort Has Already Saved Families Thousands of Dollars, March 2025.
⁸ Federal Register, Executive Order 14192, January 2025.
⁹ The White House, Establishing and Implementing the President’s ‘Department of Government Efficiency’, January 2025
¹⁰ Bloomberg, China Hits Xi Jinping’s Renewable Power Targets Six Years Early, August 2024.
¹¹ OECD, Reaping Efficiency Gains Through Product Market Reforms in China, May 2022
¹² Ember, Ready, Set, Go: Europe’s race for wind and solar, July 2022.
¹³ Bloomberg, China Hits Xi Jinping’s Renewable Power Targets Six Years Early, August 2024.
¹⁴ BBC, What is Doge and why is Musk stepping back?, April 2025.
¹⁵ BBC, How much has Elon Musk's Doge cut from US government spending?, April 2025
¹⁶ European Commission, The Draghi report on EU competitiveness, 2024
¹⁷ European Commission, Better Regulation,
¹⁸ European Commission, Commission Simplifies Rules on Sustainability and EU Investments, delivering over EUR 6 billion in Administrative Relief
¹⁹ European Commission, Entrepreneurship and SMEs
²⁰ UNCTAD, Foreign direct investment: inward and outward flow and stock, annual, November 2024