Europe Ahead: Socialists’ Schmit on why over-regulation isn’t Europe’s main problem

***The Europe Ahead series covers views from EU officials in charge of economic files for the main political groups in the run-up to the June European elections.

Europe’s economic problems primarily stem from insufficient private and public investment, rather than excessively burdensome regulations, the lead candidate for the European Commission presidency for the Party of European Socialists (PES) Nicolas Schmit told Euractiv in an interview.

Although Schmit, who currently serves as the European Commissioner for jobs and social rights, agreed Europe does need to “de-bureaucratise”, he stressed that it is nevertheless strongly unrealistic to think that cutting regulations alone will boost the bloc’s faltering economy.

“[There are] those who tell us Europe is weak because we have over-regulation. If it were so easy, well, we could skip 30% of our regulations and the economy [would be] booming. This is really crazy,” he said.

“I absolutely agree that there’s too much bureaucracy. [But] investment is the key.”

The Luxembourger’s comments contrast markedly with the recent growing momentum among EU leaders on the critical importance of cutting regulations to reverse Europe’s industrial decline and faltering competitiveness.

In March last year, European Commission President Ursula von der Leyen – the front-runner to retain her position as head of the EU executive after the European elections later this week  – vowed to reduce companies’ reporting obligations by 25%.

Last week, French President Emmanuel Macron and German Chancellor Olaf Scholz similarly urged their fellow European leaders to adopt “an ambitious bureaucracy reduction agenda” and called for von der Leyen’s proposal to be “implemented with specific legislation”.

Former Italian prime minister Enrico Letta also cited “over-regulation” as one of the main impediments to unlocking the “dynamism and efficiency” of the bloc’s single market, in a recent report commissioned by EU leaders.

In its Spring Economist Forecast published last month, the Commission predicted that overall investment growth in the EU would slow from 1.5% in 2023 to just 0.3% this year—significantly below the bloc’s pre-pandemic average of 4.5%.

‘A big question mark’ over Germany’s debt brake

Schmit emphasised that Europe’s lack of investment and general economic malaise have been exacerbated by numerous other factors, including high interest rates, weak internal demand, skills shortages, slow productivity growth, and the continued effects of the energy crisis triggered by Russia’s invasion of Ukraine in February 2022.

He also stressed that Europe’s lack of investment is driven in large part by several member states’ reluctance to sanction substantial increases in government spending.

In particular, he expressed grave reservations about the continued viability of Germany’s debt brake, which limits the country’s structural federal deficit to just 0.35% of annual GDP.

“We really have to relaunch investment. And yet now we have a problem: one of the biggest economies in the eurozone and in Europe has imposed some very strict limits,” Schmit said.

When directly asked if Germany should jettison its debt brake, Schmit replied: “I would say that this is a big question mark in terms of economic policy, but that’s something the Germans have to resolve.”

“The point is that Germany is a heavyweight in terms of the European economy. So what Germans decide for themselves has an impact for the others.”

A looming trade war with China?

Schmit also spoke at length about the dangers of current tensions between China and the US escalating into a full-scale trade war – and the potentially seismic impact this could have on the EU.

“There is something tough happening between the US and China. And this has tremendous consequences for Europe,” he said.

One potential risk he outlined would come from Washington increasing tariffs on Chinese exports.

This, he explained, could lead to huge quantities of Chinese goods being re-directed and effectively dumped onto the European market—thereby forcing EU leaders to introduce tariffs of their own.

“It’s clear that if the borders close on the US side, China – as it has built up in many sectors over-capacities that cannot be absorbed by the internal demand – will direct or will try to direct things towards Europe, among others… And this could then escalate into a more general trade war,” Schmit explained.

He added that avoiding a trade war will require significantly greater “unity” among Europe’s member states than currently displayed, as well as greater political backing from Washington.

“You have to get some support from the US. Otherwise it won’t work.”

[Edited by Anna Brunetti/Zoran Radosavljevic]

Europe Ahead: Greens/EFA’s Andresen on the false climate vs economy dilemma – Euractiv

Europe Ahead: EPP’s Poptcheva on taking the edge off private investment – Euractiv

Europe Ahead: ECR’s Hoogeveen on why EU needs ‘deregulation’ – Euractiv

Europe Ahead: Left’s Gusmão on following US, China path – Euractiv