Simplification or sabotage? Finance Watch responds to Commission’s competitiveness compass

The current push for “deregulation” under the guise of competitiveness, is a politically driven exercise which pursues arbitrary regulation reduction targets in a rush to satisfy today’s appetite for ‘simplification’. The Commission’s commitment to cutting 25% of “administrative burdens” for firms and 35% SMEs prioritises speed over scrutiny. Critical safeguards are being dismantled, jeopardising the foundations of a stable and sustainable economy. The EU is at risk of undoing years of progress in a reckless attempt to streamline at all costs. 

SIU and Securitisation 

Calls for the EU to “integrate and have deeper and more liquid capital markets” are welcome. The necessary steps towards a functioning Capital Markets Union (as part of the Savings and Investment Union) are well documented and Finance Watch would welcome proposals for much more unified supervision, and a clear roadmap for harmonising tax and insolvency laws. 

However, the continued emphasis on securitisation as a cornerstone of the SIU is flawed. Securitisation is a niche instrument and offers limited benefits to the real economy. The majority of securitisations are held by banks as collateral to obtain central bank liquidity and only 30% are placed on capital markets.

At the same time, reviving securitisation directly contradicts the goals of the SIU. The compass itself acknowledges that the “EU is excessively reliant on bank debt financing”. Reviving securitisation would only entrench Europe’s dependence on bank capital, instead of addressing the real problem, a lack of equity investment. 

The Competitiveness Compass identifies the right objectives but falls short on actionable measures. Instead of fixating on fringe instruments that fail to meet Europe’s investment needs, the focus must shift towards structural reforms that create a truly competitive and resilient capital market.

The 28th Regime

The Commission’s ambition to create a 28th legal regime, an optional legal framework for business across the EU, raises more questions than it answers. While the idea of simplifying rules for businesses in the Single Market may sound appealing, this initiative challenges the legal and sovereign foundations of Member States. Insolvency, labour and tax laws are deeply rooted in national systems, and the lack of clarity on how the 28th regime would interact with existing frameworks risks creating fragmentation rather than unity.

For instance, creditors may face confusion under conflicting insolvency laws, workers may be subject to unequal protections within the same country and concerns over tax competition could undermine fair play across Member States. Enforcement is another critical question – will disputes fall to national courts or a centralised EU body?

Public Finance 

The Competitiveness Compass rightly highlights the significant investment gap faced by the EU, citing Draghi’s call for an additional €800 billion annually, rising to €1.2 trillion when factoring in climate change and adaptation. This requires no less than a paradigm shift in Europe’s sources of funding, for the ‘EU budget, national funding, and private capital’.  

The Compass identifies key areas of investment including the innovation gap, decarbonisation and clean technology, mobility and transport, reduced dependencies and climate adaptation. Where will the funding for these projects come from? The Compass offers no clear path…

At the Member State level budgets remain constrained by the EU’s economic governance framework, which prioritises fiscal consolidation over the flexibility needed to address urgent investment priorities. At the EU level, the Compass proposes repackaging existing funds, such as STEP and InvestEU, but these initiatives fall significantly short of the scale outlined in the Draghi’s Report. Private capital isn’t the answer either. Constrained by basic dynamics of risk and return, vital infrastructure upgrades for essential investments, such as climate adaptation projects, will not find investors. 

To meet these challenges, the EU must adopt a bold, forward looking approach. This includes unlocking fiscal space for Member States and creating significant EU-level funding mechanisms. Without decisive action to establish an EU-level fiscal capacity, Europe will not meet its investment needs. Incremental adjustments are not enough.

Sustainable Finance

The Commission’s proposal commitment to cut 25% of “administrative burdens” for firms and 35% for SMEs is no longer just about reporting, it extends to a wider deregulatory push. This is a political exercise that prioritises arbitrary reduction targets over ensuring meaningful simplification. Alarmingly, the announced Omnibus places reporting requirements, due diligence, and the taxonomy in its crosshairs. Weakening these requirements, which are the result of years of analysis, consultation and compromise, would jeopardise the EU’s decarbonisation objectives.  

On reporting, the Corporate Sustainability Reporting Directive (CSRD) is already being implemented. Substantial resources invested in compliance are sunk costs for larger companies. Reopening the framework now would double costs for larger businesses and undermine progress on sustainability. 

The Corporate Sustainability Due Diligence Directive (CSDDD), has not yet been transposed, let alone applied. Revisiting its provisions now would create unnecessary confusion, disrupt legal certainty and disrupt progress on corporate accountability. 

Simplifying is a complex exercise. Revising the entire sustainable finance framework at once will almost certainly lead to rushed changes without adequate consultation. The Commission should instead focus on targeted, evidence based adjustments that improve effectiveness of the framework, rather than pursuing arbitrary “administrative burden” reduction targets. The Omnibus proposal is a politically driven exercise that risks derailing the EU’s policy objectives. Long term prosperity is dependent on a sustainable economy.

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