The European Union has long been accused of being a regulatory nightmare. Its critics have complained of everything from rules governing the curvature of bananas to strict policies around AI. Typically, these complaints emerge from the familiar Eurosceptic quarters in the UK, and less so from the continent.

So, it was surprising for many to hear the French President, Emmanuel Macron, make the same charge we are so used to hearing from the Brexiteers. In a recent address, Macron, who is de facto the chief authority in the post-Merkel EU, warned the bloc that without rapid and drastic deregulation “The EU could die”. So is the European Union a bureaucratic mess, or do its stringent regulations keep its citizens healthy and secure? And what does all this mean for emerging sectors like artificial intelligence and automation?

The EU economic growth is falling behind

In the 2000s, the EU economy was larger than the US economy. As of 2022, it was 23 per cent smaller – and that’s including the UK’s pre-Brexit contribution to the data. Over a 15-year period, the EU grew just 21 per cent, while at the same time the US grew 72 per cent and China grew a whopping 290 per cent. While China is, or was, in many ways a developing country, it is not altogether surprising that it has grown so quickly. More unusual is the EU’s severe lag behind the US, despite having a significantly larger population.

Analysis by Politicia shows that the EU is well behind its rivals in technology, with big tech companies preferring to set up their headquarters in Silicon Valley or Shanghai. It also pointed the finger at the EU’s overreliance on imports for its energy, which in recent years has become an increasingly acute crisis for the bloc, as it had nowhere to turn when its supplies of Russian gas were disrupted by sanction and subterfuge.

Moreover, while many large EU economies, and Germany in particular, have spent a small amount of their GDP on defence, they are now beefing up their armed forces in response to the war in Ukraine and other emerging threats. Its 2022 report concludes that ‘Europeans find it almost impossible to keep pace with the US and China in economic growth because of strict state aid laws and the inability to promote large national champions due to competition rules.’

A similar analysis by Polytechnique which looked at comparative growth between 2010 and 2023 showed over the thirteen years the cumulative growth rate of GDP in the US was 34 per cent, compared to just 21 per cent in the EU. It also found that labour productivity grew 22 per cent in the US and just 5 per cent in the eurozone. However, the 2023 report did not blame regulation, instead pointing toward a lack of investment in research development which has contributed to stagnating productivity. It found that:

“By 2022, investment in new technologies will represent 5 per cent of GDP in the United States and 2.8% of GDP in the eurozone. Research and development spending in 2022 will amount to 3.5 per cent of GDP in the United States and 2.3 per cent of GDP in the eurozone.

“What’s more, from 2016–2017 onwards, the investment and R&D effort in the United States increased significantly compared to that of the eurozone. At the same time, productivity began to grow much faster in the United States than in Europe. It is therefore the lag in technological investment and R&D that explains a large part of Europe’s lag behind the United States in terms of labour productivity and GDP.”

The EU’s spat with Elon Musk

The EU’s attitude toward attracting investment can perhaps best be illustrated by a recent intervention by the outgoing Vice President of the Commission, who told POLITICO that Elon Musk was a “promoter of evil.” While you might expect top officials to try and woo the world’s richest man to build his gigafactories, space ports and car plants on their turf, the EU tends to take a more stubborn approach.

Věra Jourová also used the interview to say the Tesla CEO was “not able to recognize good and evil” in a series of scathing remarks largely targeted at Musk’s acquisition of Twitter. Perhaps unsurprisingly the chief lawmaker – who worked on the now infamous GDPR legislation – also railed against the idea that the EU was stuffed full of too much regulation. As POLITICO reported:

The EU passed a raft of digital legislation over the last five years, leading some of the world’s largest technology companies to argue that they cannot launch AI tools and other innovative products in the bloc because they don’t know how the new laws work together or how they will be enforced. 

But innovation for innovation’s sake is not necessarily desirable, Jourová said: “We have to be sure that the innovations are developed to do good to people.”

“Nobody says that Google and others cannot introduce new technologies in Europe. Maybe, one, two months, half a year later than somewhere else, but we want to be sure,”

Macron calls to change course

Since Angela Merkel left office as Chancellor in 2021, the balance of the power within the EU has shifted toward France. While the Germans were hit hard by the loss of Russian energy and are facing domestic turmoil as their incumbent government coalition is under strain, France is a net energy exporter with a strong Presidential system – which is largely insulated from the chaos in the French parliamentary system. So, when Macron tells the EU to deregulate, officials are likely to sit up and listen.

Speaking in Germany, the French leader told delegates at the Berlin Global Dialogue Panel: “Our former model is over – we are over-regulating and under-investing. In the two to three years to come, if we follow our classical agenda we will be out of the market.”

Since he assumed the French Presidency, Macron has been pushing for liberalising reforms in his own country, where rules around pensions have become a flashpoint. It’s not that surprising that he would suggest the same remedies for the EU at large. It might also be no coincidence that the intervention came after a landmark report by the former Italian Prime Minister Mario Draghi, who, in September, produced a scathing assessment of European competitiveness.

The 400-page report made grim reading for some, with its findings suggesting the continued prosperity of EU citizens was threatened by the bloc’s sluggish growth. Its recommendations were twofold. Firstly, Draghi said, the EU needs renewed investment from the public and private sectors of around $800 billion. Secondly regulations would need to be slashed, with a particular focus on competition law.

The findings are set to go before the European Council in November ahead of the drafting of the next EU budget, in which it will become clear if Draghi’s report and Macron’s intervention have been heeded. And there could well be resistance to the report and its recommendations, with critics having already come out of the gates to attack the report as ‘one-sided.’ As EuroNews reported:

“[C]omplaints keep mounting as civil society organisations and NGOs have also voiced alarm that their views are not reflected in the 400-page report released on  September 9, which makes recommendations on how to bridge Europe’s widening gap with its biggest economic rivals, China and the US.

“Civil society and trade unions account for only 5 per cent of the contributions to the Draghi report, Olivier Hoedeman, Corporate Europe Observatory’s research and campaigns coordinator, told Euronews.

“With such a one-sided process, it [the report] fails to adequately address the scale of the ecological crisis and social inequality in Europe,” Hoedeman added.”

Whether EU bigwigs pay more heed to liberal lobbyists or trade unions and teachers will become apparent in its upcoming budget – with potentially enormous long-term consequences for future growth.

Is the EU in decline?

The EU’s economic lag behind the US and China reflects complex challenges, from regulatory overreach to insufficient investment in technology and research. Emmanuel Macron’s call for deregulation echoes growing concerns that the bloc’s strict competition laws and slow innovation pace are stifling growth. While some argue these regulations protect citizens, there’s a growing movement forming around the need for a more balanced approach—one that encourages competitiveness without sacrificing essential safeguards.

With upcoming debates on the EU budget and recommendations from Mario Draghi’s report, the direction Europe takes will be crucial in determining its future economic trajectory. Whether it chooses liberalization or remains cautious about deregulation will shape its ability to compete globally.