Von der Leyen launches simplification drive to revive EU competitiveness

Ursula von der Leyen has fired the starting gun on her second term with a pledge to cut the regulatory thicket she helped plant. In her first major policy announcement since returning to the Berlaymont, the Commission president unveiled the Competitiveness Compass, a five-year economic agenda that frames simplification as the prerequisite for Europe's survival in a world where the United States and China are pulling ahead in technology, energy and industrial scale.

The document is a direct response to Mario Draghi's report last September, which warned that the EU faced "a slow and agonising decline" without radical change. Draghi, the former Italian prime minister and ECB president, laid bare a statistic that has haunted Brussels: not a single EU company with a market capitalisation above €100bn has been created from scratch in the past 50 years. In the same period, all six US firms valued above €1trn were born. Von der Leyen echoed the diagnosis, declaring that the European model of the past 25 years, cheap Chinese labour, cheap Russian energy, outsourced security, "these days are gone".

The simplification targets

The headline promise is a 25 per cent reduction in administrative costs for companies and 35 per cent for small and medium-sized enterprises, assuming the Commission's proposals are adopted and transposed by member states. Von der Leyen acknowledged that European business had sent a "very clear signal" about "too much complexity" and "administrative procedures [that] are too cumbersome". The first test arrives next month, when the executive will table "far-reaching simplification" of two flagship sustainability laws: the Corporate Sustainability Reporting Directive (CSRD), in force since 2023, and the Corporate Sustainability Due Diligence Directive (CSDDD), which phases in from 2027 and 2029.

Both directives oblige companies to disclose impacts on society, the environment and human rights. Business groups have argued that the data-gathering burden is disproportionate, particularly for mid-sized firms that lack the compliance infrastructure of multinationals. The Commission's own impact assessments have previously acknowledged significant one-off costs for first-time reporters. The simplification package will be watched closely to see whether it trims reporting fields, raises thresholds, or merely clarifies guidance.

Green targets held, but car industry wins breathing space

Despite the deregulatory rhetoric, von der Leyen reaffirmed the EU's 90 per cent greenhouse gas reduction target for 2040 and promised to enshrine it in law. She argued that simplification serves the Green Deal because "the more complex [the legislation], the slower [to meet the climate targets]". That logic will be tested in the automotive sector, where manufacturers face fines for missing 2025 CO2 fleet targets. The Compass promises "possible flexibilities", a coded reference to potential credit-trading mechanisms or phased compliance, and von der Leyen meets car chiefs on Thursday for a "strategic dialogue" on the sector's transition.

The European Automobile Manufacturers' Association has lobbied hard for relief, citing a slower-than-expected uptake of electric vehicles and fierce competition from Chinese brands that benefit from state backing and lower production costs. Any concession risks angering the European Parliament's Green and Social Democrat groups, who view the 2025 targets as non-negotiable. The Commission will need to thread a needle between industrial viability and the credibility of its climate architecture.

AI factories and the innovation gap

Beyond cutting red tape, the Compass allocates political capital to artificial intelligence and quantum computing. The Commission promises "AI factories", shared supercomputing infrastructure where startups and researchers can train and develop models, and a sectoral AI strategy targeting manufacturing, automotive and financial services. The aim is to close a gap that Draghi highlighted: Europe produces world-class research but fails to scale it into commercial giants. The US and China have turned public research into trillion-dollar platforms; the EU has not.

Funding for the AI factories will likely draw on existing Horizon Europe and Digital Europe programmes, supplemented by the European High Performance Computing Joint Undertaking. Critics note that previous industrial policy initiatives, from the European Battery Alliance to the Chips Act, have moved slowly, hamstrung by state aid rules and the need for unanimous or qualified majority decisions among 27 capitals. The Compass does not propose new fiscal instruments, leaving the scale of ambition dependent on national contributions.

The 28th regime and the single market's unfinished business

Buried in the Compass is a revival of the "28th regime" concept: an optional EU-wide legal framework for labour, tax and insolvency that companies could choose instead of navigating 27 national systems. BusinessEurope, the pan-European employers' federation, has long championed the idea as a way to unlock cross-border scaling. The European Trade Union Confederation (ETUC) calls it a "recipe for disaster" that would undermine employment protections by creating a race to the bottom.

The proposal exposes the central tension of von der Leyen's agenda: the single market remains incomplete in services, capital and digital, yet every deepening step requires member state consent. Mujtaba Rahman of Eurasia Group described the package as Brussels' "most ambitious push" for economic integration since the eurozone crisis, but added that "success is far from certain". The 28th regime would need agreement from the Council and Parliament, where a blocking minority of governments, potentially including France, Poland and the Nordics, could stall or dilute it.

Green groups and the left sound the alarm

The Climate Action Network, a coalition of over 1,500 NGOs, accused the Commission of taking "a dangerous misstep by framing regulation as one of the primary obstacles to competitiveness". Bas Eickhout, co-president of the Greens in the European Parliament, warned that the Compass is "too narrowly focused on CO2 reduction alone and not on protecting nature". His group supports simplification "as a tool to make people's lives easier, but not as a byword for deregulation aimed at gutting environmental regulations".

The friction is not merely rhetorical. The CSRD and CSDDD were negotiated over years and passed with broad parliamentary majorities. Reopening them via delegated acts or omnibus legislation, the likely vehicles for simplification, will trigger intense scrutiny from MEPs who view the directives as hard-won achievements. Any perception that the Commission is yielding to corporate lobbying ahead of the 2029 elections could fracture the pro-European coalition that backed von der Leyen's reappointment.

Implementation: the real test begins now

The Compass is a communication, not legislation. Its measures, simplification omnibus bills, AI factory funding calls, automotive flexibility mechanisms, the 28th regime proposal, must each survive the ordinary legislative procedure. That means negotiation with a Parliament where the centre-right EPP, socialists, liberals and greens hold competing priorities, and a Council where national vetoes or qualified majority calculations can stall files for months.

Von der Leyen has bought herself political capital with a bold diagnosis and a clear narrative. Whether that capital converts into law depends on the Commission's technical capacity to draft simplification that satisfies auditors without eviscerating standards, and on the political skill of her team to keep 27 capitals aligned. The first concrete milestone arrives next month with the CSRD and CSDDD simplification package. If that delivers measurable relief without a green backlash, the Compass may have momentum. If it stalls, the "slow and agonising decline" Draghi warned of will have claimed another reform agenda.