By Karel Lannoo

It is fashionable these days to call Europe uncompetitive and to demand a massive deregulation campaign at EU level. But the extent to which the economic situation is problematic depends on the definition of competitiveness, the denominator used and the benchmark, as well as the circumstances.

Moreover, competitiveness is equated with deregulation, which is incorrect, as if a massive simplification campaign will be the solution. Hence, it is important to get the parameters right to control the discourse, which could otherwise spiral out of control and land in the Eurosceptic camp.

Competitiveness as a policy objective is back, despite having never gone away – it is important to be reminded of these precedents. With the Lisbon strategy, formally adopted by the Lisbon European Council in March 2000, the EU wanted to become ‘the most competitive and dynamic knowledge-based economy in the world, capable of sustainable economic growth with more and better jobs and greater social cohesion’. Already during the Delors years, competitiveness was a concern for the European Commission – just read the famous 1994 article by Paul Krugman, who called it a ‘dangerous obsession’. Mr Delors at the time was concerned about rising European unemployment, against the backdrop of competition from the US and Japan, and proposed, as a solution, a programme of investment in infrastructure and high technology. We have heard this before.

Legislative simplification has been on the agenda for a long time as well. The Simpler Legislation for the Internal Market (SLIM) exercises started as early as 1996, when the EU had 15 Member States. Commissioner Charles McCreevy (2004-2009) favoured regulatory ‘pauses’ in 2005-06, until the financial crisis hit. Vice-President Frans Timmermans was tasked with a better regulation programme under the Juncker Commission. While all these plans were commendable, it would be better to address the root causes of regulatory complexity – the decision-making process and poor enforcement – rather than merely treating the symptoms. But with 27 Member States, this is easier said than done.

Competitiveness, at least as defined by the Draghi report, is more about productivity and GDP growth, which can give vastly different results depending on the denominator. But there are also other ways to measure competitiveness. One could look at internal versus external competitiveness. Internally, the EU appears weak, with declining productivity compared to the US. Externally, however, the EU has a trade and current account surplus, whereas the US faces a huge trade and current account deficit –  yet this does not seem to be a problem (except for President Trump).

The EU also has a much better fiscal position than the US or even Japan, though we lack precise data for an exact comparison with China. The EU’s budget deficit was about 3.5% of GDP in 2024, whereas it was almost double that in the US (6.4%). The US can finance this in international markets due to the dollar’s global standing, although medium-term interest rates in the EU and the US are diverging, signalling market concerns about the US economy. Today, the six-month market lending rate for the USD stands at 4.8%, whereas in the euro area, it is 2.5% (Euribor).

In addition, energy prices in the EU have been much higher than in the US since mid-2021, when Putin started to manipulate prices, which is a competitiveness problem for the manufacturing industry, and for Germany in particular. Today, the cost of energy in the EU is at least 50% higher than in the US.

Energy policy is another good example for the regulatory debate: is too much regulation the problem? On the contrary, the EU has a single energy market for distribution but not for production, which remains under the control of Member States. This creates problems in countries with excess production, as it drives up prices due to energy shortages in other countries, as is the case between Sweden and Germany.

Furthermore, in the digital sector, one could ask whether having no regulation is better. Do we want US-style free speech and no content moderation? Do we want an oligopolistic market as we have today?

This brief reflection emphasises that any debate on competitiveness and deregulation must be approached with the utmost care to prevent it from degenerating into a black-and-white discussion, which could negatively impact sound economic policymaking.