Regulatory reform is increasingly vital to an EU burdened by regulation costing over €160bn a year, says Stephen Booth. And it’s also key to public confidence in Europe
EU regulation may not be very glamorous, but it is at the heart of the Union’s interaction with business and its citizens. The European Commission recognised this when in 2005 it launched its Better Regulation Agenda as a key element of the Lisbon Strategy for boosting growth and jobs.
In their public statements, EU officials are committed to slashing unnecessary red tape, yet the cost of regulation has increased dramatically in recent years. In the short time since the "Better Regulation Agenda", Open Europe has found that the annual cost to Europe of EU regulation has soared by more than 50% from €108bn to over €161bn. EU-sourced legislation introduced since 1998 now accounts for the bulk of regulatory costs throughout Europe, accounting for an average two-thirds of the total cost of regulations imposed on any of the member states’ economies. The message is therefore clear; regulatory reform at EU level is now crucial to freeing both the public and private sectors from the burden of excessive regulation. It’s essential if we are to improve Europe’s competitiveness and boost long-term employment.
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| Last autumn’s financial meltdown and the recession that has ensued has been presented by some as proof that more regulation is needed, and that the light-touch era is over. The crisis may indeed have woken us up to the fact that better targeted regulation is needed in the financial services sector, but the recession does not change the fact that for the vast majority of businesses the problem of over-regulation is as great as ever. Financial services regulation makes up only a small proportion – less than 5% – of the regulation produced by the EU and its national governments each year.
Small and medium-sized businesses pay the highest price for burdensome rules, and it is here that too much regulation still constrains competitiveness throughout Europe. Small firms are the most affected by new regulations because they have fewer human and economic resources to absorb extra regulatory costs. Politicians extol the role of small business in creating economic growth, yet little is done to protect them from regulatory interference.
EU regulation also has a potentially heavy impact on the public sector. Working time rules as amended by the European Parliament and the European Court of Justice have raised costs for governments across the EU, leading a number of member states into direct confrontation with both of these institutions.
So far, regulatory reform in the EU has centered largely on processes. There have been efforts to improve the European Commission’s impact assessment and consultation practices, and these are an important step towards making EU-policymakers more aware of the costs they impose with new regulations. But in reality, these processes have not yet started to deliver and both businesses and governments still need to see a reduction in the flow of new regulations, not least now that they are struggling to cope with the worst recession for generations.
Some of the Commissioners in the Barroso I team – notably Günther Verheugen and Charlie McCreevy – made noble attempts to simplify existing legislation and secured some real benefits. However, these improvements are being dwarfed by the sheer volume and cost of new regulations being introduced every year. The Commission’s system of impact assessment, which is the first filter for its proposals, has resulted in the abortion of only three legislative proposals.
Subsidiarity is a major issue. In 2007, the OECD found that the Commission applies the subsidiarity principle in only half of its impact assessments. This situation is simply unacceptable as there should always be clear evidence that EU-level intervention is justified.
The EU’s Better Regulation Agenda has also failed to make in-roads with the European Parliament, where its principles are upheld by only a minority of MEPs. There is no systematic method by which MEPs evaluate the impact of amendments they make despite the agreement reached between Commission, Parliament and Council that this should be done.
Member states have a responsibility, too, in the fight against over-regulation. The UK is one of the leading proponents of regulatory reform in the EU, but there is still far too little attention given to scrutinising regulations from the EU. At times, there seems a sense of political resignation in Britain over implementing EU legislation. A good example of this was when UK Transport Minister Stephen Ladyman signed-off in 2007 on a UK impact assessment of EU motor fuel regulations. This stated that the benefits of the regulation would be a mere £18.5m a year, whereas the implementation costs were £400m a year. He nonetheless signed off on the grounds “that this is expected to be the least cost of complying with our EU obligations”.
Regulatory reform in the EU needs to strike deep at the heart of the political cultures in the Commission and the European Parliament and the member states themselves if it is to have a lasting impact. The lack of public and media debate over regulation, certainly when compared to fiscal policy, belies its importance and reduces political accountability at national and EU levels.
Raising the political profile of regulatory issues is not just important for businesses, it is also an essential political point. Regulation is the principal method by which the EU exercises power, so there is therefore a democratic as well as an economic case for greater scrutiny of EU regulation.
Some argue that the origin of regulation is irrelevant because member states would have introduced much of it anyway, regardless of their EU membership. This is a short-sighted argument, and one that when advanced by politicians is an abdication of responsibility. Where regulation comes from is vitally important in terms of transparency and political accountability. If the public is to have any confidence in both national and EU-level politics and democracy, the laws governing people’s daily lives need to be subjected to rigorous scrutiny.
EU-sourced legislation reduces the room for manoeuvre because of the difficulty of repealing or making substantial changes to it. Any change to EU law requires the re-opening of complex negotiations between ministers from the 27 member states, and in many cases the approval of the European Parliament. This, as we all know, can be an extremely cumbersome process. So if the EU is to be a credible force for improving Europe’s economic performance, it has to demonstrate that it can deliver an environment in which businesses thrive. In today’s difficult economic climate, European officialdom above all must avoid stifling the innovation and creativity that holds the key to recovery. |