Last Updated on Thursday, 28 November, 2024 at 9:20 am by Andre Camilleri
Regulation is necessary but it has become so excessively complex that some companies have built entire businesses around helping other businesses manage this bureaucratic overload in the European Union, Stefano Mallia, president of the European Economic and Social Committee said.
In an interview with the Malta Business Weekly, Mallia said the EU should drastically reduce the regulatory overload. A recent European Investment Bank survey found that 61% of businesses see EU regulation as an obstacle to investment, so creating a business-friendly EU is a top priority to increase investment and innovation.
Regulatory simplification could exponentially boost investment and innovation, he said.
Mallia last week led a delegation of 80 business representatives from across the EU for a visit to Malta, during which they visited Malta Freeport and also met Prime Minister Robert Abela.
Mallia’s five-year term as president of the EESC comes to an end next year.
In a recent article, you stressed the need for political courage and vision to unlock EU competitiveness. Could you elaborate on the specific policies or reforms that you believe are most urgent for achieving this?
As Mario Draghi and Enrico Letta’s reports clearly show, we need urgent actions and reforms to restore competitiveness, otherwise Europe may face difficult trade-offs on welfare, environmental standards, and core freedoms, and we cannot afford that.
First of all, the EU must deepen the single market, which remains fragmented and overly complex. To give you some figures, the economic benefits of deepening the single market further could reach €2.8 trillion per year. A digital single market could contribute 2% to GDP growth.
Secondly, the EU should drastically reduce the regulatory overload. A recent European Investment Bank survey found that 61% of businesses see EU regulation as an obstacle to investment, so creating a business-friendly EU is a top priority to increase investment and innovation.
Thirdly, we need lower energy costs: taking joint action to further reduce EU energy prices—currently 2 to 3 times higher compared to the USA and China— is imperative.
These are only some of the most urgent priorities. Only with a holistic approach and the political courage to implement the needed changes will the EU manage to restore competitiveness as a global actor.
EU businesses often cite regulatory burden as a major challenge. How can the EU strike a balance between necessary regulation and fostering a more competitive business environment?
Regulation is necessary but it has become so excessively complex that some companies have built entire businesses around helping other businesses manage this bureaucratic overload. The most frustrating part is that authorities often request the same information twice, just under different criteria.
Regulatory simplification could exponentially boost investment and innovation. The so-called “simplification revolution” is cautiously welcomed by European businesses, but frustration is building over the lack of tangible progress. In March 2023, President von der Leyen committed to reducing reporting requirements by 25%, now increased to 35% for SMEs, but businesses have yet to see the promised changes and in the meantime they are bearing the cost of delays.
Turning commitments and political declarations into action has become urgent. Some countries have gone ahead, like the Czech Republic where the Chamber of Commerce proposed that lawmakers include obligation tables alongside legal texts to help businesses navigate complex regulations. They created an innovative app that provides entrepreneurs with a daily overview of their obligations and how to fulfil them.
This approach could serve as a model for the EU, as it helps both companies and regulators avoid duplications and contradictions in rules. With today’s available digital tools and AI technology, there is an opportunity to adopt a new regulatory approach that simplifies administrative processes.
Small and medium-sized enterprises are critical to the EU economy. What more can be done to empower SMEs in a competitive global market? Given Malta’s position as one of the EU’s smaller economies, how can the country contribute to and benefit from the broader EU competitiveness agenda? What insights or concerns have Maltese employers shared during your meetings, and how do these align with broader EU challenges?
SMEs are indeed the backbone of the EU economy. Removing the obstacles that hamper their efficiency is imperative to empower them in a competitive global market. Again, reducing the regulatory burden is a top priority as also expressed by Maltese employers during our meetings. Streamlining regulation would allow SMEs to focus on growth and innovation, rather than compliance.
In addition, it is essential to properly carry out public consultations and to include SMEs feedback in the impact assessments. This means rolling out the Competitiveness Check and SME test in impact assessments for all new legislative proposals, covering all stages of decision-making and making sure that the competitiveness check includes value chain effects. We must also avoid falling into the trap of looking at the impact of individual pieces of legislation without looking at the cumulative effect. Whilst the impact of one piece of legislation may seem to be minimal it is the overall burden that we must be measuring. At the moment this is not being done.
Regarding the role of Malta, let’s not forget that the country is one of the 20 Member States actively supporting the effort to advance an ambitious agenda for competitiveness, as outlined in the non-paper published in September. Malta will also contribute to the upcoming Horizontal Single Market Strategy that the EU Commission will present by June 2025 as part of the Strategic Agenda 2024-29. Furthermore, the Maltese government has recently launched the Malta Vision 2050 exercise with the aim of setting specific targets to be reached by 2035 that will transform the country’s economy focusing on key areas such as digital innovation, infrastructure, sustainability, and jobs. Whilst this is a step in the right direction I must admit that there is still some scepticism within the Malta business community as to where this exercise will lead and what the tangible impact will be. Having said that, Government is showing a willingness to be inclusive on this exercise so I’m more than willing to give this initiative a chance.
Even though we have done quite well on growth in recent years, our competitiveness is suffering. Skills shortages and mismatches in the labour market limit potential growth and hinder the green and digital transitions. Our performance in research and innovation is modest, with investments in this area being 85.8% of the EU average. There is insufficient cooperation between academia and businesses to promote R&I. We underperform in the green/environmental dimension due to inadequate investment in sustainable energy and transport. We are heavily reliant on imported energy, making it vulnerable to global price development. We are highly dependent on fossil fuels, with renewables generating only 13.4% of our energy, one of the lowest shares in the EU …
With ongoing global uncertainties, including conflicts and supply chain disruptions, how is the EU ensuring economic resilience while remaining competitive?
First of all, economic resilience means access to resources. In the aftermath of the Ukraine war, Europe suffered more than any other global player from the energy crisis, which exposed our vulnerabilities.
Still today, EU companies face electricity prices that are 2-3 times higher than in the US, and natural gas prices that are 4-5 times higher. This is not only due to the scarcity of raw materials but, in the case of clean energy prices, also due to market rules, high taxes, and the profits captured by financial operators.
The EU should work on strategic autonomy and on reducing dependencies. For instance, the announced Clean Industrial Deal could help diversify and secure strategic supply chains, reposition value chains and strengthen Europe’s technological and industrial base.
Economic resilience means also operating in a simplified bureaucracy regime. Between 2019 and 2024, the EU enacted approximately 13,000 legislative acts, while the US federal government passed 3,500 pieces during the same period. This means that in the EU we had to deal with an additional 10,000 pieces of legislation in comparison with the US. I believe this is enormous. We must of course acknowledge that the EU and US economic models do have their differences however this is not enough to justify such a huge discrepancy.
This regulatory overload has translated into substantial compliance costs, drawing resources away from innovation. For instance, compliance with regulations like GDPR can cost SMEs up to €500,000 and large organisations up to €10 million. Imagine if these resources were invested in research and development instead. They would drive innovation, create new jobs, and strengthen Europe’s competitiveness.
And it is innovation the other crucial element for economic resilience. The number of EU leading innovators is decreasing compared to the US, and the share of EU firms among the top R&D companies has dropped significantly. The transatlantic gap is particularly wide in software development.
Research, innovation and education in key areas such as AI, quantum computing, biotech and space technology will be the tools for a turnaround.
How do you see the Green Deal and EU climate commitments impacting businesses, particularly in terms of costs and opportunities?
European companies are committed to playing a central role in the green transition, but this must be practical without harming the economy. Europe’s climate policy must align with industrial strategy to sustain economic competitiveness, job creation, and fiscal health while moving toward net-zero emissions.
To facilitate the green transition, EU businesses need adjustments to remove redundancies, conflicting policies, and excessive administrative burdens. They need breathing space for entrepreneurial solutions, guidance, support tools and time to understand and implement regulations. They also need protective measures against the unfair competition of global competitors that do not have climate requirements as strict as those of the EU.
The Green Deal’s success hinges on realistic design, thorough mapping, systematic monitoring, and transparent reporting. Currently, the lack of a comprehensive tracking system limits understanding of compliance obligations, sectoral targets, and the interrelation of various measures.
In addition, many EU companies relocate outside the EU due to excessive regulation and costs, but shifting industry outside the EU could increase emissions and deepen Europe’s dependencies, thus hampering the green transition. Effective Green Deal policies must support in-region industry to avoid these risks.
I believe that the impact the Emissions Trading Scheme (ETS) is having on Malta is a crystal clear example of how well intentioned green policies can go incredibly wrong. In the recent mission of the Employers’ Group to Malta we visited the Malta Freeport. During this visit it was explained to us that as a result of the ETS, container ships coming to Malta now face additional costs running into millions of euros. This is pushing mainliners to use port facilities in North Africa where the ETS is not applicable instead of EU ports in Malta, Italy, Spain and other ports. Apart from losing considerable business, containers are then arriving in the EU via feeder vessels being sent from North Africa thus resulting in additional emissions. So a measure meant to achieve green results is effectively resulting in lost business, a loss of competitiveness and increased pollution!! This is the kind of policy making we must avoid at all costs.
Certainly, the green transition can bring opportunities, for instance in terms of investments in renewable energy and innovation. The EU should focus on technological neutrality to encourage all viable renewable and low-carbon solutions.
Achieving the goals of the Green Deal is a collective effort and the business community is ready to do their part. However we need to reassess where we are, whether we can achieve what has been set out and if not, then we need to recalibrate our approach.
In the aftermath of the recent US elections, what opportunities or challenges do you foresee for EU-US trade relations, and how should EU employers prepare?
The EU and the US are each other’s largest trading partners. Our bilateral trade is at historical highs, with over €1.6 trillion in 2023 and with bilateral investment stocks topping €5 trillion. The US is a major source of Foreign Direct Investment (FDI) in the EU, estimated at around $3.6 trillion, while EU investment in the US is approximately $3 trillion. This mutual investment creates opportunities because it strengthens economic interdependence and creates millions of jobs.
This is why we need a strategic upgrade of the Transatlantic relationship, a more open dialogue and a forward-looking agenda for cooperation.
However, with the re-election of Donald Trump we must be prepared. The imposition of tariffs on EU goods, as Trump has suggested, implementing tariffs of 10% to 20% on imports is a dead-end street. There is no room for isolationism or protectionism in today’s interconnected world, as such approaches undermine our mutual and global cooperation and economic prosperity. Yet, Donald Trump has been consistent so far in doing what he states, so EU businesses should get ready. US efforts to counter China’s economic and technological supremacy may also have a negative impact on Europe.
In this context the EU must speed up its policy reforms. We must be ready to act alone also on strategic issues, such as Ukraine and climate change, and increase our security and defense budgets.
Looking ahead, what key milestones or changes should we expect from the EU’s competitiveness strategy over the next few years?
As Employers’ Group of the European Economic and Social Committee, we have been advocating for an EU competitiveness agenda for years. Now we finally see this becoming a priority for the EU.
The publication of the Draghi and Letta reports was a final wake-up call, but without decisive action to restore competitiveness the EU risks falling behind, as global competitors like the US and China accelerate their policy responses to remain competitive.
While we welcome this new awareness, political commitments must still be translated into concrete actions. The Budapest Declaration on the new Competitiveness Deal offers only broad ambitions, without the urgency and concrete actions that our businesses and economy require. Likewise, the announced reduction of reporting requirements by 25% has yet to become a reality.
So, what we expect in the coming months and years is that the EU delivers on its promises, that political statements are turned into concrete actions to complete the Single Market, remove barriers, adopt a coherent approach to regulatory reduction, invest and innovate, create a capital market union and a banking union, and ultimately create a business-friendly EU.
This is what the EU’s competitiveness strategy should bring about. This is what EU businesses and companies expect. Otherwise, as Draghi said, it will be a long agony.
