Twenty-Seven Different Regimes
- Filippo Casati
- May 13
- 15 min read
Why the 28th regime is Brussels’ answer to Europe’s scale-up problem, and is it enough?
On the 18th of March, the EU Commission decided to move towards a 28th regime for European companies, the details of which were communicated to the European Parliament. This new policy, officially called ‘EU Inc.’ is framed as a decisive step for accelerating the push for competitiveness and security in an era of change. While the European continent is bursting with innovation, as over one-fifth of all scientific publications worldwide originate in the EU, European innovative companies struggle to scale up and remain competitive against foreign rivals. As of 2025, the EU only had 331 ‘Unicorns’, private start-ups valued over $1B, a drop in the ocean compared to the United States’ 1963. The reasons for that, while disputed, can generally be traced back to regulatory barriers, which are constraining growth by hindering young companies from leveraging the single market. The high costs of adhering to heterogeneous national regulations are cutting off enterprises from a significant number of consumers and preventing enough businesses from reaching sufficient for the adoption of innovative technologies. The IMF estimates that non-tariff barriers within the EU Single Market impose costs equivalent to a 44% tariff on goods and a 110% tariff on services, thereby obstructing free trade among member States. Therefore, the EU needs a more permissive framework that allows founders to reduce administrative burdens while enabling them to operate across all 27 member states.
In order to achieve this, the EU Commission has begun the path for the approval of a long-awaited policy, already emphasised by Enrico Letta’s report in 2024: the EU Inc.
EU Inc. consists of a comprehensive set of corporate rules that follow the entire lifecycle of a company and will ensure a fully digital registration of the firm in under 48 hours, for less than €100. Still, although the 28th regime addresses Europe’s legal fragmentation, it does not resolve deeper constraints, such as capital scarcity, regulatory thresholds, and market structure, that prevent firms from scaling. To understand whether the 28th regime will be sufficient to close the innovation gap and prevent continued economic stagnation, the current roots behind lower economic growth must be explored.
Understanding Europe's hurdles
The EU has an innovation gap driven by productive stagnation, which is leading to below-average GDP growth and has been accentuating disparity between Europe and other world powers, especially the US and China. The factors behind the EU’s disappointing economic performance are widely discussed in the political debate, but often lack concrete actions to overcome them.
The Productivity Gap
As described in the Draghi report, which the former ECB governor presented to the MEPs on September 17th 2024, one of the main causes behind Europe’s economic stagnation has been below-average productivity growth. In 1995, EU productivity reached 95% of the US level, increasing rapidly after WWII. However, it has now fallen back to around 80%. The key driver of the rising productivity gap between the EU and the US has been digital technology, and Europe currently looks set to fall even further behind. In the 90s, Europe failed to capitalize on the first digital revolution. Most tech startups, such as Apple, Amazon, Microsoft, or Intel, were born in the United States, where innovation was structurally incentivized rather than regulated. Recent developments seem destined to replicate this tendency. The great majority of LLMs have been developed either in the US or China, with the only Mistral AI representing France and the EU. Yet, Mistral AI has remained quite underdeveloped when compared to its non-European peers, such as ChatGPT, Claude, Gemini, or Deepseek.
One of the roots behind the EU’s innovation gap is unorganized public spending in R&D, and especially in breakthrough innovation. In the EU, governments overall spend a similar amount to the US on R&D as a share of GDP, but only one-tenth of spending takes place at the EU level. Most Member States cannot achieve the necessary scale to deliver globally competitive research and technological infrastructures, in turn constraining innovative capacity.
At the root of Europe’s weak position in digital tech is a static industrial structure that produces a vicious circle of low investment and scarce innovation. Draghi’s diagnosis points to a deeper issue: Europe’s industrial structure is not only less dynamic, but structurally biased towards sectors with lower innovation spillovers, noting that R&D investments have been concentrated especially among automotive companies. Instead, in the US, primacy in R&D spending has shifted from automotive to pharma, and later to Big Tech firms. Furthermore, one of the main reasons behind the innovation gap has been the lack of financing and Venture Capital (VC) funds willing to provide risk capital to help innovative businesses successfully conduct their operations. The share of global VC funds raised in the EU is only 5%, compared to 52% in the United States. A significant number of European companies with high growth potential prefer to seek financing in the US.
Additionally, EU companies prefer to move to the United States due to the relative ease with which it can reach a higher number of consumers, although the EU has at least 110 million more inhabitants compared to its transatlantic ally. European firms reach a lower number of consumers because the Single Market has failed to act as a proper single market. Rather, it can be considered the combination of 27 national markets without mutual tariff. Fragmentation within the Single Market discourages innovative companies that reach the growth stage from scaling up in the EU, which in turn reduces demand for financing. This is further exacerbated by the particularly onerous regulatory barriers in the tech sector, especially for young companies, constraining economic growth, productivity, and innovation.
Lack of Scale
The causes behind the innovation gap can’t only be found in Europe's weak positioning in the VC market, nor in the excessive administrative burden, nor in the regulatory fragmentation. Other variables that have significantly constrained growth are the structural limitations to the scalability of European companies.
The EU has proportionally fewer small and medium-sized companies than the US although it has more micro companies. Numerous reasons motivate this difference, but the primary reason is that European companies neglect the benefits of a single market due to the high costs of adhering to heterogeneous national regulations, and varied tax compliance rules. Further, companies face some compliance costs that only apply when they reach a certain size, disincentivising them from growth. As implied by the GDPR (General Data Protection Regulation), companies must appoint a Data Protection Officer only if their core business involves large-scale monitoring or processing of sensitive data, while SMEs can outsource this function or skip it entirely. Another example is the CSRD (Corporate Social Reporting Directive), which requires companies with 250+ employees, €40M+ in turnover, or €20M+ in total assets to comply with stricter regulations, leading to higher compliance costs than less developed competitors.
Lack of scale must be understood as a major cause of productivity stagnation. In 2023, around 30% of large European businesses had adopted AI, while only 7% of SMEs had done the same. Size enables the adoption of more efficient technologies because larger companies can spread the high fixed costs over a greater revenue. A fragmented Single Market puts EU companies at a disadvantage in terms of the speed of adoption and diffusion of new technological applications. Ursula Von der Leyen hopes that a new corporate framework will incentivize greater scale across the EU.
Capital Markets Fragmentation
Beyond regulatory and firm-level constraints, Europe’s scale problem is also rooted in its financial architecture. High-growth firms require large amounts of risk capital to expand, particularly in technology-intensive sectors. Yet European capital markets remain fragmented along national lines, limiting the efficient allocation of capital across the Single Market. Despite a continent-wide benchmark such as the STOXX 600, European capital markets remain structurally fragmented.A key obstacle to cross-border investment is the lack of harmonization in insolvency and restructuring regimes. Investors face uncertainty over how assets will be treated in the event of failure, which increases perceived risk and discourages capital allocation across borders. Converging these frameworks would reduce uncertainty and make European firms more attractive to both domestic and international investors.
Furthermore, a unique pan-European stock exchange, or at least a more integrated system, would deepen liquidity, allowing firms to raise capital at more favorable conditions. Fragmented markets dilute investor demand, leading to lower company valuations. A unified stock exchange would instead increase visibility and investor participation. Higher liquidity could also significantly contribute towards a lower cost of capital, creating a much more favorable scaling environment for EU firms. Companies would be more incentivized to go public, strengthening the IPO market and creating a more vibrant venture capital system.
Europe does not lack capital in aggregate: it lacks mechanisms to channel it into productive investment. Institutional investors, such as pension funds and insurance companies, manage vast pools of capital but allocate only a small share to high-risk, high-growth ventures. Adjusting regulatory frameworks and incentives to encourage greater participation in venture and growth capital could significantly expand the funding available to innovative European firms.
Lower fragmentation across EU capital markets could foster scale, innovation, and productivity. Creating a stronger, unified stock exchange would completely change how financing is delivered across the continent, shifting from a loan-based system to a risk capital-centered one, more suitable for young, innovative enterprises with a high risk factor, despised by banks and credit agencies, but tolerated by investors.
Energy Market
A final factor to consider in understanding the EU's productivity stagnation is the fragmented nature of the energy market, leading to a less-efficient energy allocation and to ultimate higher costs, and therefore lower margins, for businesses.
As economic activity becomes increasingly energy-intensive, access to affordable and stable energy is emerging as a key determinant of competitiveness, especially for scale-ups. The International Atomic Energy Agency (IAEA) has projected a steady growth in energy consumption (up to 30% in 2050 in some scenarios), predicting an exceptional rise in electricity demand, expected to more than double by 2050, reaching a quota of around 43% of total energy used. The primary drivers for increased power usage include data centers, AI, greater industrial production, and the adoption of electric vehicles. All sectors where the EU is pivoting towards, or must pivot towards, if it really aims at closing the innovation gap with both China and the US.
So far, the European Union has not been able to do so. Fragmentation across energy markets has only raised costs and therefore weakened EU firms’ competitiveness. Differences in national pricing, exacerbated by the most recent energy crises, taxation, and infrastructure, create significant cost disparities between member States. These differences translate into higher uncertainty due to more volatile costs. Greater integration in the energy market would deliver a more efficient allocation of energy, reducing price disparity and increasing system resilience.
Industry electricity prices are estimated to be between two and three times higher than those in the US, raising marginal costs for European businesses and reducing their ability to compete against foreign companies. This happens especially because, even if the United States’ market has higher network charges, there is no federal tax imposed on the consumption of electricity. Addressing energy costs is therefore critical if the EU aims to strengthen competitiveness beyond regulatory reform.
Taken together, these constraints point to a broader conclusion: the EU’s innovation is not the result of a single bottleneck, but of a combination of structural factors that reinforce one another. European businesses have to deal with fragmented capital markets, high energy costs and severe regulation. These dynamics create an environment in which firms struggle to grow beyond a certain size, hindering competitiveness and growth.
In this context, the limitations of the 28th regime become clearer.
Understanding EU INC.
The 28th regime is designed to address one of the most visible constraints on European firms: regulatory fragmentation. By allowing companies to opt into a single, harmonized corporate framework, EU Inc. aims to reduce the legal and administrative costs of operating across borders. In principle, this should enable firms to scale more rapidly within the Single Market. In practice, however, its impact will depend on how much of Europe’s scale problem is driven by legal, rather than other factors.
Firstly, the 28th regime will make it both faster and cheaper to start an enterprise. Founders will be able to register their businesses in less than 48 hours and for less than €100. The EU Register will offer EU Inc. companies an integrated and seamless user experience, allowing them, amongst others, to virtually manage fundamental bureaucratic practices and to access key information such as their corporate structure and activities. It will also remove any requirements for in-person activities. EU Inc. companies will be able to choose which member state they wish to incorporate in, and a blacklist of prohibited national practices, which the EU Commission has yet to make clear, will ensure they will be treated equally as any other limited liability company from another member state.
The Commission also aims to develop complementary measures to ensure these reforms have the greatest impact on the economy. A greater digitalization of all matters relating to doing business in the single market will be promoted to enable a more efficient corporate framework that will be able to attract investors coming both from inside and outside the EU. Firms will have access to this new digital environment thanks to the European Business Wallet. With this tool, EU Inc. companies will be able to reduce administrative complexity such as submitting tax returns, applying for permits, signing and exchanging contracts with public authorities and business partners across the EU without the need for physical documentation or in-person interactions. A certified AI-based automatic translation will allow businesses to overcome the language barrier and easily share documents across all 27 Member States.
Furthermore, the 28th regime is expected to guarantee faster and easier access to capital for startups and scaleups. This can be anticipated as they will be able to take full advantage of the depth of the European capital market, with a wide range of financing opportunities. However, the Commission hasn’t specified what measures will be approved to promote a less fragmented lending market. By focusing on legal harmonization, EU Inc. assumes that reducing administrative costs will unlock scalability.
However, the constraints facing European firms are not purely legal, but financial and structural. As stated in the EU Inc. official document, as part of the package, Von der Leyen’s team commits towards greater reform efforts. Specifically, an imminent review of the European Venture Capital Funds Regulation is designed to facilitate access to credit for young, innovative companies. Furthermore, the Commission is set to explore, in the forthcoming Fair Labour Mobility package, the possibility of a 100% cross-border telework for startups and scaleups across the Union, applying the social security legislation of the Member State where the employer is located. Lastly, the Business in Europe Framework for Income Taxation is set to establish a common framework for corporate taxation in the EU, reducing the high tax compliance costs that are constraining the growth of European scaleups. These measures, taken together, intend to create an innovation-friendly ecosystem, reducing the number of EU firms establishing in the US.
The EU Inc. is not just a 28th regime, it isn't just a parallel corporate framework, but an effective tool to reduce administrative frictions, lowering the fixed costs associated with cross-border expansion and promoting scale across innovative companies. If legislative fragmentation is the problem, EU Inc. is the answer. The question is whether legislative fragmentation is the only fragmentation that matters.
Towards a more competitive European Union
If the Commission wants to fight for domestic firms’ competitiveness, it must not stop with the 28th regime but must take initiative towards a significantly less fragmented EU, across not only regulatory frameworks, but also capital markets, energy, and research. While EU Inc. should be praised as an embodiment of the political will to work towards a more integrated Union, it must not be Von der Leyen’s only measure to narrow the innovation gap. Further integration is possible and necessary to create the conditions under which companies can scale efficiently.
The EU must invest in developing large-scale research centers and innovation infrastructure, focusing on excellence across breakthrough technologies. If done correctly, businesses will be able to take advantage of more groundbreaking research and consequently be more easily able to implement innovative solutions for launch on the market. To pursue this goal, the EU should enlarge the mandate of the European Investment Bank (EIB), allowing direct equity investment in companies operating in priority sectors such as AI, semiconductors, or research. The EIB would therefore be able to finance the para-statal companies managing EU-level research centers. Most of the funding towards R&D should be spent at the EU level, rather than by national governments, to exploit synergies and create excellence-oriented research centers.
One of the main reasons holding back the scale-up of European companies is, as previously assessed, the insufficiencies in VC financing and the excessively predominant role of traditional credit, favoring low-risk scenarios rather than high-growth opportunities. A first-step solution to this complex issue would be increasing the budget of the European Investment Fund (EIF), the part of the EIB financing SMEs, assisting small and medium companies by offering venture capital, guarantees, and microfinance to support their growth and creation. Moreover, it’s necessary to harmonize the rules for IPOs and the monitoring of public companies across all EU markets, strengthening the formation of the highly awaited Capital Union. This would de facto create a multi-located pan-European stock market. Furthermore, the EU must reduce the regulatory complexity for companies going public, aligning with more competitive non-EU stock markets. A more efficient stock market is necessary to grant companies access to large amounts of capital and to reduce the predominant role of bank loans in the credit market.
Another aspect affecting EU firms’ competitiveness has been the significant skills gap and resources misallocation these businesses have faced. Companies have a hard time finding the abilities they are looking for. Skills shortages are considered the most serious problem by over 54% of both large and small/medium enterprises. The skills gap is especially large for ICT specialists: approximately 63% of companies report difficulty filling vacancies in this sector. The EU should give a mandate to member-states to implement a more tech-focused educational system, where teaching of coding and the use of IT programs becomes mandatory. Moreover, an improved allocation of skills and labour capacity across the 27 member States, that could be achieved via a more mobile labor market, could temporarily reduce the skills gap. The Commission should further discuss whether to standardize the requirement of specific qualifications for access to specific professions, therefore reducing regulatory barriers and creating a more developed intra-EU talent mobility market
From the regulatory perspective, EU laws should stop penalizing growth by introducing thresholds once companies reach a certain size (as in the previously cited GDPR and CSRD), because the greater compliance costs often become incentives for remaining small rather than scaling up. Europe should create a smoother scaling curve, fostering a more dynamic business environment. Administrative burden should also be reduced, as over 34% of companies assess it as their biggest issue, giving them a considerable competitive disadvantage against the less-regulated foreign peers. Regulatory hurdles are especially meaningful across tech sectors, once again discouraging innovation and productivity.
Commissioners must also foster greater cost competitiveness from the energy procurement perspective. At the moment, EU companies pay between two and three times more for electric energy as US competitors, translating into not only higher consumer prices, but also lower margins and economic possibilities in funding substantial investments in R&D. This problem is at the root of the innovation gap, especially as edge-cutting sectors such as AI or semiconductors are quite energy intensive and expected to boost the electricity demand. The EU should support joint purchasing via procurement, granting an easier management of short-term market fluctuations and reducing average costs thanks to a greater contractual power. Moreover, a further integration of both the regulatory and supervision framework across the financial markets for energy would ensure that trading in energy derivatives can tolerate greater volatility with a lower loss of trading volume. Von der Leyen must enact a review of the price mechanisms for gas, currently determined on the Dutch virtual trading hub by the Title Transfer Facility Index (TTF), following supply and demand dynamics. A more cost-reflective price mechanism would allow lower costs for both businesses and final consumers, as well as reducing uncertainty from high price volatility.
To incentivize scale across high-potential companies and slash the leak of innovative firms towards the US, Europe must develop a coordinated strategy for the procurement of critical raw materials, such as Arsenic, Manganese, or Nickel. To guarantee firms low-cost access to such CRMs, both the EU and member States’ governments must enhance the domestic production of these materials, to avoid national customs barriers and uncertainty in such a politically sensitive sector. Uncertainty can also be reduced with a greater diversification of procurement sources, to protect the raw materials offered from possible shocks. Additionally, permitting procedures for exploring geological resources should also be simplified.
Taken together, these measures, which are only some of the policies the EU should implement, reflect the complex challenges of today. Closing the competition gap and fostering innovation requires more than a single initiative, more than a new corporate framework: it requires coordinated actions across multiple domains and the political will to pursue a further integration process, thus accepting the loss of national sovereignty for a more favorable economic outlook. The 28th regime may help European firms navigate the Single Market, but only deeper structural integration will allow them to fully exploit it.
Conclusion
In conclusion, the EU’s competitiveness problem is not simply rooted in a lack of innovation, as European entrepreneurs are not only very creative and solution-oriented, but can also count on a solid basic research system producing over one-fifth of scientific publications. However, the EU has failed to build a scale-friendly environment due to an excessive administrative burden, higher compliance costs for large businesses, and a fragmented capital market system hindering Venture Capital financing. EU Inc. is an effective policy for diminishing legal barriers across the Single Market, therefore fostering scale. Yet, as this analysis has shown, simplifying company law does not address the deeper constraints that affect Europe’s economic performance.The real challenge lies in moving from a nominal Single Market to a functional one. Without deeper financial integration, more efficient capital allocation, and a more competitive cost base, European firms will continue to face structural disadvantages relative to their global peers. However, the EU currently lacks the political will to seriously tackle fragmentation, limiting the possibility of enacting reforms that could boost productivity and close the innovation gap. The 28th regime may make it easier to start a business in Europe, but only broader structural reforms will determine whether it is possible to build one at scale.
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