As the European Commission pushes to cut rules in the name of competitiveness, it risks undermining the very foundations of responsible innovation: legal certainty, public trust, and democratic oversight.
In its Competitiveness Compass published in January 2025 (see EUROPE 13568/1), the European Commission (EC) issues a blunt diagnosis: while the European Union (EU) possesses numerous economic strengths, it has fallen behind other major global economies. To reposition itself in the global race, the EC claims, the EU needs to focus on innovation-driven productivity, with regulatory simplification as a central driver.
However, by portraying deregulation as simplification, the EC misrepresents the depth of the policy shift it is pursuing. The Compass is more than an innocuous exercise in cutting red tape and lifting bureaucratic obstacles. It reveals an identity crisis within the European project and marks a historic repositioning of priorities, in favour of corporate interests and at the expense of the foundational values that have long set Europe apart, including equality, human dignity, social protection and democratic accountability.
Removing legal requirements related to ESG standards, due diligence and democratic scrutiny will not only damage the protection enjoyed by EU citizens, workers, and the environment. It will probably also fail to accelerate innovation, as is the intention, by damaging the very basis of innovation, particularly in emerging technology sectors: legal certainty and coherence; public trust; public investment in infrastructure, education, research; and a stable private investment climate.
Economist Mariana Mazzucato, in 'The Entrepreneurial State: Debunking Public vs. Private Sector Myths', describes how many major technological breakthroughs, from the invention of the internet to green technology, began with the public sector taking the lead and assuming the greatest risks. She argues that innovation flourishes when the state actively creates and shapes markets, not when it merely steps aside.
Similarly, Science and Technology Studies (STS) scholars like Sheila Jasanoff emphasize that regulation is not an obstacle to innovation but a vital part of it. Regulation helps enable, shape, and stabilize new technologies, and public debate and democratic oversight are essential for ensuring that innovation serves the public good.
The technology sector is one in which the EU has long positioned itself as a global standard-setter for responsible innovation. This is particularly evident in the rapidly changing landscape of artificial intelligence. The AI Act, probably the world’s most ambitious attempt to regulate AI in the public interest, is one of the regulations under pressure and likely to undergo simplification in the name of competitiveness. While it officially entered into force in 2024, several chapters and articles have other dates of application. The AI Act should only be fully effective in 2027 but mounting industry pushback and the Commission’s own deregulatory agenda have already prompted calls to postpone and pause its implementation (see EUROPE 13673/15). This may even lead to a dilution or a repeal of some provisions.
The deregulation process will take place through a series of Omnibus legislative packages, which have been developed with minimal transparency and little input from stakeholders beyond industry representatives. They are ambitious, as the Commission’s objective is to reduce administrative burdens by at least 25% overall and by 35% for SMEs by the end of its current mandate. Four packages have already been announced. They focus on sustainability regulations (including the Corporate Sustainability Reporting Directive and the Corporate Sustainability Due Diligence Directive), investment instruments, the Common Agricultural Policy (CAP) and small mid-cap companies. A fifth defence-specific simplification package is in preparation and a digital package should be published in December, including an omnibus that will target the AI Act, the GDPR, the Cybersecurity Act, the Digital Networks Act and the European Business Wallet.
This deregulatory turn comes just as the global AI race is intensifying. While the Trump administration trumpets its ambition to “unleash prosperity through deregulation”, the country continues to rely heavily on publicly-led strategies and targeted investment, such as DARPA, the independent research and development agency within the US Department of Defense or the CHIPS and Science Act of 2022.
In China, the central state actively coordinates the use of public and private resources through five-year plans and offers strong institutional support for national champions in sectors like AI, electric vehicles, batteries, and solar panels. In both countries, active state intervention remains crucial for large-scale innovation, even as regulatory environments are streamlined.
The EU, by contrast, risks undermining its reputation for trustworthy, responsible and rights-respecting innovation by giving up robust regulation in exchange for short-term administrative relief. No EU innovation strategy can succeed without long-term credibility, investor confidence and public trust, all of which are put at risk by the Omnibus Packages. These create uncertainty by reopening settled and democratically established legal frameworks. They signal an unstable policy trajectory and reflect a broader miscalculation of what innovation actually requires: a clear, coherent and democratically adopted set of rules.
Aída Ponce Del Castillo, European Trade Union Institute, senior researcher