Beyond the deregulation dilemma: the European ‘regulatory state’ at crossroads
Beyond the deregulation dilemma: the European ‘regulatory state’ at crossroads
Policy Analysis 3 /2025
George Kalpadakis
The views expressed in this paper are solely those of the author and do not necessarily reflect the opinions of any affiliated institutions.
Keywords: European regulatory state, transatlantic political economy, deregulation dilemma, strategic autonomy, regulatory statecraft, outcome-based regulation
Abstract: A persistent deregulation dilemma is often implied in public discourse that is framed as a trade-off between economic competitiveness and regulatory safeguards, with calls for reducing bureaucracy to spur growth on one side and concerns over maintaining essential protections on the other. However, this tension is not absolute as evidence suggests that well-calibrated regulation can enhance competitiveness when designed strategically. The European regulatory state, shaped by subsidiarity and market-driven governance since the 1990s, now faces growing pressure, accelerated by the aggressive deregulation drive of the new US administration, to simplify rules and reduce compliance burdens. However, over-deregulation could also weaken legal predictability, investor confidence, and key policy goals such as climate resilience and industrial strategy. The EU can embrace targeted regulatory refinement by emphasizing sector-specific flexibility, enforcement proportionality, and regulatory coherence as adaptive regulatory models – particularly in technology, energy, and finance – can support both governance efficiency and long-term economic resilience.
The emergence of a ‘European regulatory state’ has been a defining feature of EU governance since the late 1990s, shaped by two fundamental shifts. First, the EU’s growing reliance on subsidiarity – the principle that decision-making should be devolved to the lowest effective level –has stemmed from structural constraints on centralizing political authority. Second, the retreat of Keynesianism, which once legitimized large-scale state intervention, has given way to market-driven economic governance, diminishing the direct role of the state (Majone, 1999). In response, Brussels has compensated for its limited fiscal capacity by governing through regulation, establishing supranational rules implemented at national and sectoral levels while integrating business and stakeholder consultation into policymaking (Yeung et al., 2010; Weimer, 2025). In recent years, however, deregulation has once more gained momentum as a broader global trend, with advanced economies under mounting pressure to streamline governance structures, reduce regulatory complexity, and enhance corporate flexibility. While often framed as a response to economic stagnation and intensifying global competition, this shift raises critical concerns about its consequences for legal predictability, public accountability, and long-term sustainability.
The eurozone crisis further complicated this trajectory, expanding the EU’s role beyond market regulation into fiscal oversight and economic stabilization—not through traditional Keynesian intervention, but via financial governance and coordination mechanisms—thus challenging its status as a mere ‘regulatory state.’ Simultaneously, concerns over excessive EU overreach have fueled long-standing calls for regulatory loosening (Caporaso et al., 2014). Rather than dismantling its regulatory capacity outright, the EU has faced intensifying pressure to recalibrate its framework, a debate now amplified by the aggressive deregulatory shift of the new U.S. administration, which has sharpened transatlantic tensions between competitiveness-driven deregulation and the preservation of legal, social, and environmental safeguards. Yet, while the U.S. is leading this push, similar forces are at play in Europe, where business leaders advocate regulatory rollbacks to bolster global competitiveness. As the EU navigates these pressures, its core challenge lies in balancing economic efficiency with the regulatory safeguards necessary to sustain long-term resilience and stability.
‘Unleashing prosperity through deregulation’
The deregulatory policy adopted by Washington is poised to have both direct and spillover effects on environmental commitments, energy markets, aid and trade, public health policies – as well as an impact on regulatory governance in Europe as a whole. It is focused on reducing government rules and restrictions on businesses and industries, including sweeping rollbacks of environmental, financial, and technology regulations, Key executive actions have targeted energy policies by expanding fossil fuel production, easing emissions standards, and withdrawing from international climate commitments, while also weakening consumer and labor protections. Indeed, long before his inauguration as the 47th President on January 20th, Donald J. Trump had indicated that he would implement a drastic reorientation on this front, stepping up the drive to reduce federal oversight that he had initiated during his first term (2017-2021). In a statement reflective of this revived policy, US Vice-President J. D. Vance, addressing the world leaders at the Artificial Intelligence (AI) Action Summit in Paris, stressed that ‘excessive regulation’ of the AI sector could ‘kill’ a potentially ‘transformative industry,’ and added that this ‘deregulatory flavor’ should instruct the discussions at the summit. (Spectator, 2025).
Appealing to uncontroversial principles such as ‘prudent financial management’ and the removal of ‘unnecessary regulatory burdens,’ this new strategic approach is not unitary but constitutes a variegated mosaic of three distinct drives. It is, at once, an economic libertarian mission to reduce perceived economic constraints on private initiative, as well as a program for political deregulation that is aimed at weakening the enforcement capacities and institutional oversight of what it characterizes as the ‘deep state’ apparatus. Moreover – and in a break from the overarching deregulationist agenda – it is also a neo-mercantilist push to protect American industries and pressure trade partners by implementing new tariffs, import restrictions, and regulatory barriers.
The new US policy is being codified with striking urgency through a slue of legislative directives and reinforced by a newly founded agency headed by the billionaire and tech entrepreneur Elon Musk, which is named the Department of Government Efficiency (DOGE). The freshly issued executive order – aptly titled ‘Unleashing Prosperity Through Deregulation’ – is arguably the most emblematic expression of the mindset that guides these initiatives. Among its stipulations, it requires federal agencies to eliminate ten existing regulations for each new one, while also directing the Office of Management and Budget (OMB) to preserve the total cost of new rules substantially below zero for the fiscal year. (DOI, 2025) On this basis, the OMB has already frozen the funding of approximately 2.600 programs, including those which concern key health, food, and environmental regulators (OMB, 2025) This expansive interpretation of deregulation extends beyond the removal of business constraints to a systematic downsizing of the state’s capacity to regulate and intervene, reinforcing a vision of governance where minimal bureaucracy and market autonomy are prioritized over public oversight and intervention.
In the energy sector, initiatives such as the revival of the Keystone XL pipeline and the acceleration of liquefied natural gas export permits are set to boost domestic production, potentially affecting global energy prices and altering geopolitical alliances – not least with energy-export-dependent countries (Natter et al., 2025) The dismantling of the US Agency for International Development (USAID) is already disrupting economic development and global health programs, leaving a void that may exacerbate instability in aid-dependent regions. The suspension of USAID funding is projected to impact 141 countries that previously received various forms of assistance, resulting in approximately one million women and girls per week losing access to contraception, the cessation of essential HIV and tuberculosis treatment services in low-income nations, and a significant reduction of USAID’s workforce from over 10,000 to approximately 290 employees (Hagopian, 2025)
The deregulatory measures have also precipitated substantial budget cuts to health and environmental agencies, leading to significant layoffs within the FDA, particularly among staff responsible for overseeing food safety and medical devices. Concurrently, the abandonment of stricter chemical regulations has exacerbated concerns regarding product safety and environmental protection, potentially escalating public health risks both domestically and internationally (Amarelo, 2025; Spring & Ajasa, 2025; Perrone, 2025). Federal environmental protections are also set to be scaled back, signaling a disengagement from the global climate regime, already showcased by the withdrawal of the United States from the Paris Agreement (White House, 2025)
Moreover, the combined budget cuts to health and environmental agencies, abandonment of stricter chemical regulations, and repeal of climate-focused executive orders, is projected to result in an additional 4 billion tons of greenhouse gas emissions by 2030, exacerbating climate-related risks and potentially causing $900 million in global climate-related damages. It is also anticipated to lead to substantial layoffs within the Food and Drug Administration (FDA), particularly among staff responsible for overseeing food safety and medical devices – thereby further increasing concerns about product safety, environmental protection, and public health both domestically and internationally (Emran, 2024; Sidley, 2025).
Deregulation in the EU
It must be stressed that, in the European context, deregulation refers traditionally to the simplification and streamlining of regulatory frameworks, an approach that reflects the EU’s commitment to balancing market efficiency with social, environmental, and consumer protections. By contrast, in the United States deregulation is associated with a more radical rollback of regulatory constraints if not a wholesale removal, driven by a more laissez-faire economic philosophy that prioritizes private sector autonomy over state intervention. This widening regulatory divergence – heightened by the ongoing ‘tariff wars’ – has rendered transatlantic economic competition more acute, fueling calls from European business leaders for greater regulatory flexibility to stem capital flight and mitigate the accelerating erosion of the continent’s industrial base. At the same time, EU policymakers face the delicate task of preserving regulatory coherence and upholding social and environmental protections, while contending with mounting concerns that an overly intricate and burdensome regulatory framework may stifle investment, hinder economic dynamism, and impede the bloc’s ability to adapt to shifting global market conditions. Thus, while European deregulation has so far typically focused on reducing administrative burdens and enhancing regulatory coherence within the single market, the American approach tends to emphasize dismantling regulatory agencies and weakening enforcement mechanisms to foster market-driven governance.
The sweeping deregulation of energy markets – including the rollback of environmental restrictions and expanded fossil fuel production – is set to lower U.S. energy costs, intensifying competition for European manufacturers constrained by high carbon pricing and stringent EU climate policies. In Europe, the deepest reverberations of the new U.S. policy will likely be felt in energy-intensive industries, particularly in the continent’s waning industrial powerhouse, Germany. This is because the ongoing, sweeping deregulation of US energy markets, including the rollback of environmental restrictions and the expansion of fossil fuel production, is set to drive down U.S. energy costs, intensifying competition for European industries already burdened by high energy prices and stringent EU climate policies.
Germany’s manufacturing sector has long faced the threat of deindustrialization – aptly illustrated by the decision of the largest global chemical producer, BASF, to relocate its production facilities to China and by Volkswagen, Siemens and many smaller manufacturers to shift their operations to North America and Asia (Karnitschnig, 2023) – a trend now exacerbated by transatlantic regulatory asymmetry. Reacting to the US policy shift, trade unionists representing major German industries, such as IG Metall and IGBCE, have renewed calls for state interventionist measures to counteract these pressures, even advocating for the mandatory inclusion of European components in EU-sold products, despite concerns that such measures may violate WTO regulations (Packroff, 2025).France, another industrial pillar of the EU, seeks to address the decline of the continent’s once commanding chemical industry by proposing a Critical Chemicals Act. Modeled on other initiatives that center on raw materials and medicines, it will designate fifteen molecules as ‘strategic’ to facilitate funding access. And yet, with an unknown number of unregulated chemicals in use—due to persistent regulatory gaps, industry exemptions from full disclosure, and the complexities of global supply chains, which allow legacy substances and imported compounds to circulate without comprehensive safety evaluation—and with an estimated 70,000 chemicals poorly assessed for their hazards and exposure risks, largely because of the lack of legal requirements mandating full safety data (EC 2023; Olisah et al. 2025), it is unsurprising that leading civil society organizations, such as the European Environmental Bureau, have raised concerns over the potential environmental and health risks associated with certain substances, particularly polyvinyl chloride (PVC) and flame-retardant materials (Cater, 2025). According to the European Trade Union Confederation (ETUC) deputy secretary general condemned the process, arguing that ‘the general interest, as well as the human rights dimension, are being overlooked in favor of the demands of a few big businesses with a history of violating workers’ rights and polluting the environment.’ (ETUC 2025).
As mentioned, the idea that Europe must ease its regulatory ‘stringency’ to close its competitiveness gap had been gaining momentum in Brussels long before the US elections, even if the second Trump administration has acted as a catalyst in terms of the pressures exerted on Brussels to accelerate its efforts. The argument was reflected in the recommendations contained in two EU-commissioned reports issued in 2024 by Mario Draghi (EC 2024b & EC 2024c) and Enrico Letta (EC 2024a) respectively. Urging a revision of EU competition policies, Draghi and Letta both emphasized the need for regulators to be more adaptable to support European firms in achieving the scale necessary to rival major players from China and the US. Unlike the business community and workers’ organizations, the Draghi and Letta reports both explicitly urged EU member states to abandon economic nationalism, advocating economic supranationalism that positions competition policy as a key driver of EU economic and social cohesion. To boost European tech firms, Draghi stressed the need for more flexibility in the regulatory framework on mergers, while Letta called for a State Aid Contribution Mechanism as well as streamlined regulatory procedures with early-stage impact assessments (Janse et al., 2025). It must be pointed out that neither of the two advocates for outright deregulation, but rather for a more strategic recalibration of EU regulatory frameworks in order to enhance competitiveness, address market fragmentation, and foster industrial scale, without dismantling core social and environmental protections.
Ostensibly in response to these reports, the President of the European Commission Ursula von der Leyen introduced the ‘Competitiveness Compass,’ which she described as ‘an unprecedented simplification effort.’ It offers a strategic framework that seeks to streamline regulation, reduce administrative complexity, and enhance flexibility, preparing the EU for greater economic agility and efficiency (EC, 2025a) Central to this agenda is the Omnibus Simplification Bill (OSB), a legislative package designed to revise key corporate sustainability and competition policies that mandate companies to disclose their environmental impact, assess climate risks, and ensure their supply chains comply with environmental and human rights standards. It is currently undergoing scrutiny before the European Parliament and the European Council and will be assessed by parliamentary committees, where stakeholders – including business representatives, trade unions, and civil society organizations (CSOs) – will present their positions before it moves to plenary debates. Following negotiations, the Council will engage in interinstitutional discussions, potentially triggering a trilogue process with the Commission and Parliament to reach a final compromise. (DGC 2025) The legislative process is developing into a highly charged battleground, with competing pressures to maintain social and environmental safeguards without curbing business flexibility and investment incentives.
Meanwhile, the Commission’s vice president Teresa Ribera has unveiled a proposal to use EU subsidies to stimulate demand for electric vehicles, positioning it as a counterweight to the deregulatory push taking hold in the US. She notes that overlapping governance structures create inefficiencies, with delays in regulatory approvals undermining investor confidence, she notes, advocating for streamlining competition policy by ensuring that antitrust authorities prioritize complex mergers while reducing bureaucratic hurdles for others. This regulatory recalibration, she argues, would cut red tape while preserving the EU’s decarbonization goals, reflecting the need for refinement rather than wholesale deregulation, to balance competitiveness and stability in a shifting global landscape (Dubois, 2025).
Inspired by the US example, European business leaders are already advocating a similar overhaul of the EU’s regulatory framework. Facing acute worker shortages, looming energy price spikes, and regulatory burdens weighing on European industries, executives at Davos have urged swift deregulation with a view of sustaining competitiveness (Chowdhury & Mattackal, 2025). In the shadow of the deregulatory drive initiated from across the Atlantic, Brussels is stigmatized by the business sector as ‘the epicenter of a bureaucracy’ that is ‘regulating Europe into a standstill,’ as the President of the German Chemical Industry Association recently put it (VCI, 2024). The CEO of the Swiss pharmaceutical firm Novartis noted that the US shift brings Europe to a crossroads, calling on the Commission to follow suit and deregulate heavily to create ‘a more pro-competitive, pro-innovation environment in Europe.’ Business leaders, from the telecommunications and AI sectors to the aviation industry and the national business federations support a more agile, business-friendly framework which they claim fosters innovation and economic dynamism while reducing bureaucratic impediments to growth, arguing that excessive regulation stifles investment, prolongs decision-making processes, and creates structural inefficiencies that hinder the ability of European firms to scale and compete effectively in global markets. They content that the continent’s dense and complex regulatory framework imposes significant constraints on competitiveness, especially when contrasted with the more flexible and market-driven approach in the United States. (Gilchrist, 2025; Smith, 2025).
By contrast, a coalition of 270 CSOs, including trade unions, consumer groups, farmers' associations, civil rights advocates, and environmental organizations, has since urged the Commission to reject deregulation and prioritize the protection of people, nature, and democracy. They argue that deregulation, particularly under the guise of “simplification,” risks undermining public health, environmental protections, labor rights, and social justice, ultimately prioritizing corporate interests over societal well-being. Rejecting the claim that overregulation stifles competitiveness, they contend that Europe’s economic challenges stem from corporate inertia and inadequate investment rather than excessive rules, warning that indiscriminate deregulation could erode democratic governance and fuel public distrust. At the same time, rather than advocating for regulatory rigidity they call for refining governance frameworks to enhance efficiency while preserving safeguards essential for stability, accountability, and long-term resilience (FOTE, 2025).
Even though the European Commission has indicated that its policy response to mounting economic competitiveness challenges will not be akin to the more radical Trumpian approach, but rather a more strategic plan to streamline governance while preserving core regulatory principles, CSO, and social and environmental advocacy groups have already criticized its deregulation agenda, expressing misgivings about the dominant idea that attributes the EU’s competitiveness challenges chiefly to fragmented and overly restrictive regulations. This approach, they stress, risks prioritizing private interests over long-term economic resilience, social protections and environmental sustainability in a perpetual ‘race to the bottom.’ Indeed, an early signal that is being cited regarding this alleged trend concerns the Commission’s decision to remove the AI Liability Directive from its legislative agenda just one day after Vice President Vance’s speech at the Paris Summit (EC, 2025b).
On March 10th, 362 high-profile European trade unions and organizations which include ETUC, the European Public Service Union (EPSU), the European Transport Workers Federation (ETWF), Amnesty International, Oxfam, and WWF, expressed their opposition to the draft Omnibus directive, arguing that it weakens corporate accountability and dismantles key environmental and labor safeguards. While they acknowledge the importance of regulatory efficiency and reducing unnecessary burdens on businesses, they warn that the proposal extends far beyond mere simplification. It effectively weakens the Corporate Sustainability Due Diligence Directive (CSDDD), the Corporate Sustainability Reporting Directive (CSRD), and the EU taxonomy criteria for reporting and assessing chemical substance use. This, they argue, undermines legal clarity and creates loopholes that enable corporate impunity. Although they recognize the need for balanced regulations that foster economic productivity, they contend that deregulation must not come at the cost of workers’ rights, environmental protections, or long-term economic stability. (FIDH 2025)
A detailed analysis issued by Responsible Investor has estimated that the scope of the CSRD and the CSDDD is being undermined to such an extent that approximately 85% of the companies currently covered will likely be exempted from reporting obligations. (RI, 2025) Euro-lobby watchdogs and CSOs too have noted that big tech lobbying efforts have successfully influenced the Commission to rollback, if not dismantle, the painstakingly negotiated regulatory framework for sustainable development, demonstrating a broader trend of private industries shaping policy in Brussels, at the expense of public and regulatory safeguards (CEO, 2025). According to IndustriAll, a global union federation representing over 50 million workers in 140 countries in the mining, energy and manufacturing sectors, corporate lobbyists outnumbered trade union and NGO representatives by five to one at a key roundtable convened by the Commission in February, on the simplification of sustainability regulations (IndustriAll, 2025), while the Centre for Research on Multinational Corporations, analyzing the list of attendees at the event, notes that 87% represented “multibillion dollar multinational enterprises” and only 13% SMEs – which make up 99% of all EU businesses. (REP, 2025).
Crucially, there is also a growing political backlash, as the Commission’s claim that the Omnibus Simplification Bill (OSB) aims at mere ‘simplification’ is being strongly contested in the European Parliament by the Socialists & Democrats (S&D), the liberal, centrist to centre-right pro-European Renew group, as well as the Greens. Rejecting proposed changes to supply chain due diligence rules, they argue that the OSB effectively guts the Corporate Sustainability Due Diligence Directive (CSDDD), the Corporate Sustainability Reporting Directive (CSRD), the Carbon Border Adjustment Mechanism (CBAM), and the EU taxonomy on sustainable investments—undermining the bloc’s longstanding environmental agenda and removing corporate accountability for social and environmental harm. The S&D group, in particular, has expressed grave concerns that the proposed revisions weaken enforcement mechanisms, eliminate judicial redress for victims of corporate abuses, and narrow due diligence obligations to direct suppliers, thereby excluding the vast majority of human rights and environmental violations in global supply chains. They further emphasize that the CSDDD has not even been implemented yet, making its rollback premature and legally questionable. While acknowledging the need to reduce administrative burdens for businesses, they argue that regulatory certainty and long-term investor confidence depend on maintaining robust sustainability standards, comparable reporting data, and clear implementation guidance rather than dismantling core principles that could otherwise become a global benchmark for corporate accountability.(Griera, 2025; Gros & Griera, 2025)
Political parties, business leaders and CSOs thus appear to be advancing their own visions for the future of regulation. While industry groups push for greater flexibility to ease compliance burdens, there are warnings against dismantling regulatory safeguards that ensure corporate accountability. As the debate over deregulation intensifies, it is becoming increasingly clear that the core issue is not merely the volume or complexity of regulations, but rather their strategic purpose and long-term implications. The transatlantic regulatory divergence, accelerated by the US’s aggressive deregulatory turn, has placed European policymakers in a unique position – caught between pressures to streamline governance for global competitiveness and the need to uphold social, environmental, and consumer protections that define the EU’s regulatory identity.
Beyond the deregulation dilemma
However, while European citizens and firms express valid concerns regarding the excessive complexity and high compliance costs associated with recent sustainability due diligence and reporting mandates, the solution seems to lie not in outright deregulation but in refining these frameworks to enhance their efficiency without undermining their fundamental objectives. A more effective and streamlined regulatory approach should focus on eliminating unnecessary administrative burdens while maintaining robust oversight, ensuring that regulatory obligations remain proportionate and targeted. Moreover, integrating well-substantiated industry feedback can help align compliance mechanisms with operational realities, fostering a regulatory environment that balances corporate accountability with economic feasibility.
The ongoing conversation in Europe cannot be reduced to a dilemma between rigid regulation and unfettered markets. Instead, it demands a more nuanced approach – one that several analysts and experts have advocated for, which moves beyond deregulation as an end in itself and instead focuses on regulatory refinement, ensuring that governance structures remain both efficient and capable of advancing broader economic, social, and environmental objectives.
As Zach Meyers aptly notes in a report issued by the Centre for European Reform (Meyers 2024), while ‘better regulation’ aims to ensure EU laws are evidence-based and efficient, the growing assertiveness of the European Commission following recent political shifts may potentially compromise rigorous law-making processes: without proper checks and balances, deregulation efforts might prioritize short-term political gains over long-term economic and environmental objectives. (CEPR 2024) These concerns are echoed by Alberto Alemanno, public interest lawyer and Jean Monnet Professor in EU Law at HEC Paris, who has argued that while the EU’s deregulatory drive has been a consistent policy motif since the early 2000s, the use of omnibus bills marks a significant escalation toward full-scale market liberalization. Unlike traditional legislative procedures, omnibus bills bundle multiple unrelated measures into a single fast-tracked law, bypassing the long-standing one-subject rule, a principle rooted in Roman law’s lex satura (mixed law) prohibition. Because of their potential to dilute oversight, the EU has historically used such bills sparingly for regulatory updates, making the OSB a striking departure from precedent. By consolidating broad changes to sustainability regulations – including the Corporate Sustainability Due Diligence Directive (CSDDD), the Corporate Sustainability Reporting Directive (CSRD), and elements of the EU taxonomy – before they have even been fully implemented, the Commission risks undermining legal predictability, particularly in the green and digital transitions. Rather than enhancing access to private funding, as envisioned by the Savings and Investment Union (SIU) initiative, Alemanno warns that the OSB could erode investor confidence and trigger legal disputes over ambiguous ‘simplified’ rules (Alemanno, 2025).
The commentator of the Financial Times on European economics, Martin Sandbu, argues that linking Europe’s slower growth to overregulation is not evidence-based. He references the OECD’s Product Market Regulation (PMR) Indicators, which measure how competition-friendly regulations are across economies, showing that in fact the US scores higher (i.e., is more restrictive) than the EU on overall regulatory barriers and administrative burdens. This challenges the assumption that Europe’s slower economic growth is due to excessive regulation, as the data suggests that regulatory complexity is actually greater in the US, yet it does not appear to stifle its economic performance in the same way critics claim for Europe. He notes that rolling back regulations, such as delaying the 2035 phase-out of carbon-emitting cars or waiving fines for automakers missing EV targets, may seem pro-growth but actually penalizes innovation, rewards non-compliance, and disrupts long-term investment planning, highlighting that regulation often shapes the direction of growth rather than merely constraining its pace. Sandbu thus critiques as simplistic policies like “one in, two out” and warns that deregulation, such as delaying emissions targets, risks harming innovation by rewarding laggards over market leaders. Instead of deregulation for its own sake, the author advocates EU-level regulatory harmonization to reduce fragmentation and support economic stability. (Sandbu 2025) Meg Hillier, chair of the UK parliament’s Treasury select committee, has also challenged the notion that “stripping away financial services regulations will generate meaningful growth across the UK.” (Hillier 2025)
In a similar vein, the German economist Daniel Gros, Director of the Institute for European Policymaking at Bocconi University, interrogates the prevailing assumption that EU regulation has become excessively cumbersome, arguing that this claim is based on flawed and inconsistent metrics. He highlights two key examples: the World Bank’s abandonment of its ‘regulatory intensity’ metric in the Doing Business index due to data manipulation concerns, and the OECD’s product market regulation indicators, which show that regulatory conditions in Europe have remained largely unchanged for the last twenty-five years. The absence of reliable metrics to quantify regulatory burdens, Gros suggests, undermines the credibility of deregulation efforts and creates opportunities for politically motivated distortions. To avoid the risks accruing from a radical deregulatory policy, he advocates for a measured, evidence-based approach that prioritizes long-term economic resilience and environmental sustainability over short-term market deregulation (Gros, 2025).
Yet another thread of analysis which interrogates the deregulation dilemma derives from our evolved understanding of the nature of regulation itself. Over the past decade, as the dust of the global financial crisis settles, a more refined appreciation has been crystallizing of the complex mechanics of regulatory policy and implementation, but also, more broadly, of the role of the state as an engine of economic and social growth. The notion that markets alone drive innovation is challenged by this reconceptualization, highlighting instead how proactive, mission-oriented public investment, underpinned by a strategic regulatory framework, has historically served as the catalyst for breakthrough technologies and sustained economic transformation (Mazzucato, 2013). This more nuanced perspective is helping to transcend the rigid and outdated dichotomy – routinely invoked by politicians and currently defining the US-led deregulatory shift – that reduces the debate on regulation as a choice between laissez-faire market fundamentalism and a bloated bureaucracy that stifles innovation, overburdens businesses, and distorts competition.
Shifting focus from the deregulation dilemma to a more substantive debate on power distribution, risk allocation, and long-term economic strategy, research increasingly highlights the need for an adaptive, outcomes-focused regulatory approach which goes beyond the deregulation dilemma. Rather than viewing regulation as a rigid constraint, this perspective frames it as a strategic governance instrument that aligns economic competitiveness with broader policy objectives, market efficiency, and social protections. Regulatory effectiveness is not dictated by rule volume alone but by trust, legitimacy, and enforcement proportionality. Risk-based regulatory models in the UK, France, and Germany have proven more effective than broad, indiscriminate oversight, demonstrating the benefits of tailored enforcement strategies. They underscore the fact that regulatory complexity – i.e. the intricate and often overlapping layers of rules, procedures, and compliance requirements that govern businesses and industries – does not inherently yield better governance; instead, flexible, sector-specific frameworks with robust stakeholder engagement foster compliance, investment, and innovation without imposing undue constraints. (Russell & Hodges, 2019) Further, the newly developed Outcome-Based Collaborative (OBC) framework reinforces this shift by advocating a transition from punitive enforcement to trust-based, cooperative governance. Thus, fast-tracked omnibus deregulation risks legal uncertainty, particularly in sustainability and industrial policy. Instead of dismantling regulatory structures, the EU should refine regulatory delivery mechanisms to ensure both legal predictability and economic dynamism. (Hodges 2022)
The deregulation debate should therefore move beyond mere regulatory reduction and assess whether existing frameworks effectively balance investment flexibility, public accountability, and long-term sustainability. The European Commission can reshape its deregulation agenda by replacing broad regulatory rollbacks with a refined, outcome-based approach that prioritizes sector-specific flexibility, risk-proportionate enforcement, and strategic regulatory coherence to enhance economic competitiveness while safeguarding industrial strategy, sustainability commitments, and legal predictability. It could, for example, refine enforcement in chemicals (Registration, Evaluation, Authorization and Restriction of Chemicals – REACH) and digital markets (AI Act, Digital Markets Act, Digital Services Act) by prioritizing high-risk entities over blanket deregulation and ensuring proportional enforcement that maintains consumer and environmental protections. In more strategic sectors – and given that the OSA framework seeks to reduce reliance on external suppliers for semiconductors, batteries, and hydrogen – the EU should maintain targeted regulatory coherence that balances global competitiveness with supply chain security, pairing clean tech investments with adaptive compliance incentives. By the same token, while deregulating financial and energy markets risks generating undesirable volatility in the markets, an adaptive framework should ensure that EU Taxonomy rules and the ‘Do No Significant Harm’ (DNSH) criteria support green finance and energy transition projects, preventing investor uncertainty and reinforcing sustainability commitments rather than weakening them. Finally, since regulatory complexity alone does not improve governance, the EU must strengthen stakeholder engagement in trade, tech, and industrial policies by incorporating structured business, trade union, and civil society input in automotive (Carbon Border Adjustment Mechanism – CBAM) and chemicals (REACH) to align regulatory goals with industrial competitiveness.
Conclusion
Amid the U.S.’s renewed deregulation drive under President Trump, the EU must uphold regulatory standards, particularly in environmental and consumer protection, while reassessing whether its frameworks effectively serve long-term strategic interests. Rather than seek to address the deregulation dilemma through sweeping solutions, research underscores the need for targeted regulatory refinement to strengthen both economic resilience and public welfare. The EU’s Open Strategic Autonomy (OSA) framework reflects this approach, aiming to reduce dependence on external supply chains while maintaining regulatory coherence (Baroncelli & Ülgen, 2024). However, initiating sweeping deregulation under the pretext of boosting global competitiveness risks undermining Europe’s industrial strategy, climate policy, and technological leadership. Studies in regulatory governance highlight that an adaptive, outcome-based model, rather than broad deregulation, is key to fostering long-term resilience. A well-calibrated regulatory framework is not an impediment to competitiveness but a strategic asset that ensures economic dynamism aligns with broader policy goals, legal stability, and global influence. (Grabbe & Zettelmeyer, 2025)
While the EU’s structural challenges – namely productivity enhancement, defense capacity, and economic security – persist, the urgency to address them has been catalyzed by the ongoing regulatory shift in the US. Even though evidence linking overregulation directly to slow growth in Europe remains thin, there are genuine frustrations as a result of day-to-day experiences with burdensome regulation, administrative rigidity and regulatory overreach which fuel Eurosceptic sentiments and business grievances. However, simply dismantling regulatory safeguards in response to these pressures risks exacerbating legal uncertainty, weakening investor confidence, and undermining long-term sustainability. Instead of being trapped in the deregulation dilemma, the EU can recalibrate its regulatory frameworks to enhance efficiency, proportionality, and strategic simplification – ensuring that governance structures remain adaptive rather than burdensome. This requires moving toward a regulatory delivery model that aligns competitiveness with public accountability, long-term resilience, and social protections. In the face of the US’s aggressive deregulatory shift, the EU must strike a balance – streamlining regulations where necessary while reinforcing its foundational commitment to environmental sustainability and social responsibility as core principles of its normative identity and policy agenda.
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