A way out for our drowning businesses

How AI can help businesses and regulators to manage better the EU's regulatory overload that is suffocating competitiveness and growth

— Stefano Mallia, President of the Employers' Group of the European Economic and Social Committee

— Zdeněk Zajíček, President of the Czech Chamber of Commerce

The European Union’s regulatory maze is under increasing scrutiny as businesses and policymakers alike recognize that we havereached saturation point. In their respective reports on the Single Market and EU competitiveness, former Italian prime ministers Enrico Letta and Mario Draghi, called for the urgent reduction of the regulatory burden weighing on European companies, a burden that hampers both economic growth and decarbonization efforts.

The Regulatory Overload

At a federal level, the United States enacted 3,500 pieces of legislation and around 2,000 resolutions between 2019 and 2024. By comparison, the European Union passed a staggering 13,000 acts in the same period, as highlighted by Draghi in his report. This sheer volume of regulation places an immense strain on businesses, particularly small and medium-sized enterprises, which often lack the resources to navigate these complex regulatory frameworks.

The EU lacks a standardized methodology to assess and measure this regulatory burden. Without a proper overview, it's difficult to identify where the most significant challenges lie. This lack of transparency further complicates the ability and efforts to streamline and simplify the rules businesses must follow.

A New Approach Is Needed

We need a fresh, innovative approach to regulation. The current system forces entrepreneurs to sift through hundreds of pages of legal texts in order to identify which rules apply to their businesses. This task, which is often outsourced to lawyers or consultancies, is a growing burden for companies, requiring both time and financial resources. For SMEs, this burden is disproportionately high, as SME entrepreneurs often have to do this work themselves.

Digital tools could offer a solution. In the 21^st century, it's unacceptable to expect businesses to manually parse through dense legal language. Instead, regulation should be translated into clear, easy-to-understand language. Seven years ago the Czech Chamber of Commerce pioneered an initiative, creating a system where every law is accompanied by a simple table that outlines the duties for entrepreneurs. This “innovation”, set to become mandatory for Czech legislators from January next year, distils long legal texts into a concise and easily digestible format.

The Czech Model: A Blueprint for the EU

The Czech system represents a potential model for the EU. By appending a table of duties to every new law, entrepreneurs can quickly understand their obligations without wading through pages of complex legal jargon. This not only benefits businesses but also helps regulators gain a clearer understanding of the duties they are imposing, reducing the risk of overlaps, contradictions, and duplications.

The crown jewel of this initiative is its digital application, which allows entrepreneurs to easily track their obligations, sanctions, and compliance requirements in real-time. This tool offers a significant advantage for competitiveness, as it is freeing up entrepreneurs to focus on growing their businesses instead of spending hours navigating regulatory red tape. At the same time, regulators can use the system to better enforce existing laws and improve future legislation.

The Case for Artificial Intelligence

In addition to simplifying regulations, artificial intelligence can play a critical role in creating models that further streamline the regulatory process. By leveraging AI, the EU can develop systems that automatically assess regulatory burdens, identify potential areas for simplification, and ensure that new laws do not unnecessarily complicate business operations.. At the same time, these technologies are being developed globally, and if not used by the us, somebody else will use it to see the loopholes in the regulation.

A Regulatory Stock-Taking Exercise

The EU’s regulatory environment has been likened to a pond where the water level—representing the regulatory burden—is unknown. Without knowing how deep the water is, it's impossible to determine whether the fish (businesses) have enough space to grow and thrive. A proper regulatory inventory would allow policymakers to identify the most burdensome regulations and create space for businesses to innovate and expand.

The business community has long called for such a stock-taking exercise, and it appears the time has finally come. Draghi who called for the EU to act quickly to stop the competitiveness haemorrhage recommends that the first six months of any new EU mandate be dedicated to this task. By conducting a regulatory inventory, the EU can pinpoint which rules are most problematic and take steps to reduce or eliminate them.

The Financial Impact

In the Czech Republic alone, the cost of legislative duties for entrepreneurs amounts to nearly €3 billion. The Czech legal framework includes 30,000 laws and 10,000 specific duties, a heavy burden for businesses to manage. By simplifying these obligations, significant savings could be achieved - not only for entrepreneurs but also for the state. The money saved could be reinvested in innovation, job creation, and decarbonization efforts, areas that are critical for Europe's future competitiveness.

A Path Forward for the EU

The time has come for a more systematic approach to regulation in the EU. As the new EU term begins, the opportunity exists to translate complex legal rules into clear, actionable duties and identify the most burdensome red tape. National examples, such as the Czech Republic’s simplified regulatory system, should serve as a source of inspiration for EU-wide reform.

By making regulations more accessible and easier to understand, the EU can reduce the regulatory burden on businesses, fostering greater competitiveness and innovation. At the same time, the EU can benefit from more efficient regulatory enforcement and cost savings. Most importantly, reducing red tape would free up resources for critical areas such as decarbonization, ensuring that Europe remains a leader in the global push toward a more sustainable future.