Balancing EU Digital Regulation: How the New Commission Can Boost Tech Competitiveness
Main takeaways
- Over the past five years, the European Commission has introduced dozens of new digital laws, creating a complex web of rules burdening SMEs and driving firms abroad
- During the next five-year term, the EU institutions must prioritise the effective implementation of these existing laws, rather than keep proposing new ones
- The European Commission’s ‘Better Regulation’ framework has failed to deliver so far, a major overhaul is needed to reduce regulatory burdens and promote innovation
During the previous mandate, EU lawmakers introduced a wave of digital rules aimed at regulating the bloc’s tech sector. While most were (at least initially) well-intentioned, this regulatory surge now risks stifling digital innovation and undermining EU competitiveness.
Of course, new Commissioners and Members of the European Parliament (MEPs) have all emphasised the need to reduce bureaucracy in recent months, the latter also during their hearings. But actions speak louder than words. The previous Commission started with strong ‘Better Regulation’ commitments, including a ‘one in, one out’ rule for new laws. Yet, in practice, little positive change was evident. If anything, the opposite was true for digital.
As the 2024-2029 European Commission begins its first week in office, lawmakers must fundamentally reconsider the European Union’s approach to digital regulation.
J. Scott Marcus and Maria Alessandra Rossi’s study, Strengthening EU Digital Competitiveness: Stoking the Engine, does a splendid job in providing a comprehensive picture of the effect over-regulation has had on the EU tech sector’s competitiveness, and it offers actionable recommendations to address these key challenges.
1. Skyrocketing number of new laws, dwindling competitiveness
According to our calculations, and based on research by Zenner, Scott Marcus and Sekut, the number of EU digital regulations and directives has skyrocketed – growing from around 45 at the end of 2019 to a staggering 98 in 2024. That comes down to 30% annual inflation – a pace that would be unsustainable in economic terms, yet somehow seems to pass as acceptable in regulatory circles.
This rapid expansion has created a web of overlapping and sometimes conflicting laws, complicating enforcement and compliance. And this saturation hinders progress across Europe’s digital economy, rather than accelerating it. SMEs often lack the resources to manage the rising administrative and compliance costs, while larger firms – though better equipped – are also struggling under the weight of these complex regulatory demands. Some of them even decided against rolling out new products and features in the EU due to this complexity.
The recent Draghi Report highlights the risks of disproportionate regulation in the tech sector. For instance, parts of the AI Act are already stifling EU companies’ ability to innovate due to increased burdens and uncertainty, according to the former Prime Minister. This not only affects start-ups, but also researchers and established firms seeking to develop cutting-edge AI solutions.
Draghi also underscores over-regulation as a major obstacle to securing funding and scale. Despite Europe’s vast talent pool, many tech entrepreneurs have to turn to US venture capital in order to grow. Between 2008 and 2021, approximately 30% of Europe’s ‘unicorn’ start-ups moved their headquarters abroad.
2. Accelerate implementation, decelerate pace of new legislation
As Marcus and Rossi argue, EU co-legislators should think twice before introducing new digital laws in the next few years. Europe’s tech rules have become a patchwork in recent years, with new laws being rushed through at breakneck speed. Businesses and Member States need breathing space to catch up and adapt to existing regulations, the authors stress. No one has a definitive understanding on the impact of all these new laws.
Despite the sensible recommendation to reflect, which has been echoed by many others, the recently published mission letters for the new Commissioners signal a very different direction. Indeed, they suggest that yet another wave of tech legislation is likely during the Commission’s 2024-2029 mandate, without taking a moment to consider where we are.
The argument for accelerating implementation and slowing down new legislation made by Marcus and Rossi aligns well with the approach outlined in CCIA Europe’s Blueprint for Digital Innovation. It suggests that new EU legislation should only be introduced where there are clear, well-substantiated gaps that cannot be addressed through better enforcement of existing rules or non-legislative fixes.
The tech sector has a clear call to action for the new Commission and MEPs: prioritise regulatory stability over constant legislative changes and uncertainty. This approach will enable more coherent and sustainable implementation of EU tech and digital policies, ensuring long-term success for both businesses and the internal market.
3. Shift gears to true Better Regulation instead of last-minute changes
It’s clear that more legislation is not the solution. What the EU needs is more effective regulation. This requires an overhaul of the Better Regulation framework to ensure that every legislative change is thoroughly evaluated for real-world costs, impacts, and benefits.
Although introduced with promise by the previous Commission, Better Regulation commitments have largely fallen short or been bypassed in a push for more legislation. As Marcus and Rossi suggest, the ‘one in, one out’ approach needs a rethink – taking into account the actual administrative costs after implementation, not just the initial estimates at the proposal stage. It’s time to turn this hollow commitment into a real tool for reducing red tape and driving innovation.
Marcus and Rossi also emphasise that the new Commission should provide a clear comparison between the law as initially proposed and the final text adopted, before anything is signed off. This approach is echoed in CCIA Europe’s Guide to Effective EU Tech Regulation, which stresses that any new concept – whether introduced by MEPs, the Council, or at the last minute during trilogues – must undergo a rigorous impact assessment.
This change is especially critical since EU tech legislation increasingly undergoes significant changes during the final stages of the legislative process. As such, every substantive amendment to Commission proposals should be thoroughly assessed for its necessity, the evidence base behind it, and potential impact. This should ensure all legislation adds value without creating excessive burdens. Structural changes are also needed to avoid siloed lawmaking, which too often still leads to revisiting debates in one proposal that were supposedly settled in a recently enacted one.
Conclusion
With the 26 new Commissioners now getting up to speed on their files, the EU has a crucial opportunity to rethink its approach to digital policy making. Europe cannot regulate competitiveness and innovation into being, especially not with more rules.
Rather than constantly adding new regulations, policymakers must focus on refining and enhancing existing frameworks. Drastically slowing the pace of new legislation will give businesses the time they need to adapt, innovate, and compete globally – and governments a chance to catch up with recent rules. Now is the time for a strategic reset.