For investment and growth, Europe must stop regulating itself to death

#CriticalThinking

Picture of Jyri Häkämies
Jyri Häkämies

Former Finnish Minister of Economic Affairs. CEO of Confederation of Finnish Industries.

The year 2000 and the dawning of the 21st century was a time of tremendous optimism for Europe. We confidently declared that the Lisbon strategy would make the EU the most competitive economic area in the world. Where are we now? Not where we said we would be, that’s for sure. While the rest of the world is running, Europe is sleep-walking.

Europe is ageing quickly. We’re not even close to being the most competitive; instead we’ve actually lost much of the competitiveness we had in the past. The struggle with the financial crisis seems never-ending. To make matters even worse, the EU is regulating us out of the market.

The facts are daunting, yet there’s a big difference between hopeless pessimism and honest realism. It’s not that we lack the tools to prosper. Europe is the biggest economic area in the world. We have a strong industrial base and excellent know-how, so we must put these assets to work.  Instead of burying our heads in the sand we must pick ourselves up and concentrate on changing course.

Ground-breaking innovations in digitalisation and other sectors mean that traditional industries face the choice of renewing with the booming cleantech sector, or withering away

Europe needs to renew itself. This does not mean that we should turn our backs on our longstanding industrial backbone. To the contrary, the European Commission has called for a “European Industrial Renaissance”, urging Europe to recognise the central importance of industry for creating jobs and growth, and of mainstreaming industry-related competitiveness concerns across all policy areas.

Renaissance may sound pompous, but it’s no exaggeration when it comes to what is needed. We need a whole new kind of industry. We are living in the middle of a third global industrial revolution. The world is changing faster than ever before. Ground-breaking innovations in digitalisation and other sectors mean that traditional industries face the choice of renewing with the booming cleantech sector, or withering away.

To avoid the latter scenario, we need a more integrated internal market based on rationalising the EU’s regulatory framework. We also need a competitive tax policy to attract both foreign and domestic investment. We need to finish our homework and make the single market a reality in all sectors. We still don’t have a single market in digital services, nor do we have a functioning single energy market. The EU institutions must focus on fixing this, for companies see an increase in demand and markets growing, investments will follow.

What we desperately need is less but better regulation

Regulation should always be just a means to an end. If it doesn’t serve a purpose, it isn’t needed. Today’s reality is that there is a regulatory jungle, in which companies try to navigate as best they can. For SMEs that lack the resources of big business, this jungle can be impenetrable. The REFIT programme launched by the Commission in 2012 to systematically review the EU legislation is a necessary first step, but what we desperately need is less but better regulation.

We’ve set ourselves ambitious goals for our climate and energy policy for the year 2030. Almost everyone agrees on action to tackle climate change, but we sometimes disagree on the means. While we work towards a greener Europe, we also need to make sure that we don’t outsource our emissions: we don’t want a greener Europe to mean a greyer China.

What’s key for any well-functioning policy is long term planning, and this has hardly been the case with the EU’s renewable energy policy. Companies make investment decisions based on existing regulation, so predictability is crucial. A situation where regulation changes every few years is a nightmare for companies.  Investors make decisions based on long-term growth expectations, so predictability is crucial. Europe needs to do much more to convince investors that it can be trusted.

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