As Brussels’ summer recess has come to an end, the debate on the EU’s next Multiannual Financial Framework (MFF) is about to restart. At stake is not only how much the EU spends, but also whether its budget priorities are aligned with one of Europe’s most pressing challenges: restoring competitiveness. The European Commission has responded with proposals ranging from a new Competitiveness Fund to efforts at cutting red tape. The question, however, remains: are they enough?
To explore these issues, EU Perspectives spoke with Lúcio Vinhas de Souza, Chief Economist and Director of the Economics Department at BusinessEurope, the federation representing national business associations across the continent. He argues that while the MFF has taken steps in the right direction by prioritizing European competitiveness, more is needed to truly turn this priority into action.
On the right track but how it all comes together will matter the most
Overall, how do you look at the Multiannual Financial Framework (MFF)?
To understand the MFF, we first need to understand the figures. The overall size of the MFF has not changed significantly compared to the previous cycle. Even though it now stands at almost €2 trillion, or 1.26% of the EU’s gross national income (GNI) [compared to around 1.02% of GNI in the previous budget cycle], increases are only marginal: The main reason for the increase is the inclusion of loan repayments linked to NextGenerationEU, the COVID recovery fund. Taking this into consideration, the MFF remains more or less constant.
Europe has become, as some say, the “Silicon Valley of regulation”. Businesses are constrained by an excessive regulatory burden.
That being said, the real issue is not in the numbers but in the allocation of funds. Is Europe doing enough for the right priorities? In this sense, we support reallocation toward competitiveness and innovation. But whether the MFF is “large enough” depends on how effectively the money is used; whether programmes are streamlined and overlaps reduced, and whether funds are made accessible in a timely way. The most important issue is that the MFF must be commensurate with Europe’s priorities, not just be larger in size.
What difference will the fund make?
An important part of the MFF is the introduction of the European Competitiveness Fund. Is this the answer to Europe’s competitiveness challenge?
The fund is a step in the right direction, especially given its proposed size of over €400bn. But Europe’s fundamental competitiveness problem is not only about resources. It is about the regulatory environment. Europe has become, as some say, the “Silicon Valley of regulation”. Businesses are constrained by an excessive regulatory burden. That has been the case for a long time, but worsened particularly after a wave of legislation introduced under the previous Commission.
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This must be addressed alongside the Competitiveness Fund; the two must go hand-in-hand. Overall, we see the Competitiveness Fund as a right step forward, but the devil, as always, will be in the details.
The Commission has taken various steps recently to reduce that burden [for example, delaying the due diligence law, the deforestation law, and CO₂ targets for the automotive industry]. Is that the right answer?
We do see some progress, the Commission is listening to businesses more than before. The so-called Omnibus proposal [the Commission’s legislative package aimed at reducing regulatory burdens] shows a willingness to engage. But for now, it is only at the proposal stage as the Council still needs to approve it. It is too early to say whether it will deliver the real simplification that European businesses need.
New EU-level taxes would be a red line for us. Europe is already overburdened and overtaxed, and adding further levies would only raise the cost of doing business.
How do you view the proposed corporate tax?
Parallel to enhancing the competitiveness climate for European business, the EU is also hoping to have business contribute more to the budget, specifically through the proposed corporate tax (CORE). What is your view on this proposal?
New EU-level taxes would be a red line for us. Europe is already overburdened and overtaxed, and adding further levies would only raise the cost of doing business. That would, by definition, make European companies less competitive. Our assessment is therefore rather negative on this point.
Another challenge for European businesses is the surge of products from China, exacerbated by US tariffs on Chinese goods, which create further market imbalances for the EU. How is this affecting your members, and what should the Commission do?
The surge in low-cost Chinese products creates unfair competition, often linked to subsidies and tax loopholes. The recent Commission proposal for a €2 levy on small packages is a positive first step. But there is a bigger systemic problem: Chinese firms, for example in the EV-sector, benefit from state guarantees and subsidies that distort competition, while European companies do not have access to equivalent support. This undermines the level playing field inside the Single Market and needs a more systematic correction.
How can we keep start-ups from leaving?
Something Mario Draghi also warned about in his recent report is the large number of startups that leave the EU when they want to scale up. What role does the Competitiveness Fund play in this regard?
The ECF aims to enhance innovation, which is a welcome step. However, innovation requires a lot of funding, and it is risky business. For that we need more than the ECF alone.
Selling across European borders remains difficult. In 2017, internal trade between US Federal States amounted to 74% of US GDP, while intra-EU trade among EU Members States was 21% of EU GDP – and that figure has been falling since then.
The EU still does not have a truly integrated financial market, and Member States have been resisting the emergence of European-wide banks as well as integrated capital markets. This lack of possibility to scale up is why many scale-ups move abroad.
Money is only one part of the equation. The full policy response must include regulatory simplification, an integrated financial market, and the targeted use of funds aligned with competitiveness priorities.
In order to solve this, the idea of a Capital Markets Union, now referred to as the Savings and Investment Union (SIU), must be fully implemented. We need to reduce fragmentation and remove barriers. The MFF can play a role, but the bigger picture is about creating a real European financial market and reducing regulatory burdens. Only then can startups grow and compete globally.
So in summary, while the MFF includes many steps in the right direction, it is not enough?
Exactly. Money is only one part of the equation. The full policy response must include regulatory simplification, an integrated financial market, and the targeted use of funds aligned with competitiveness priorities. Only then will European businesses be able to truly compete again.
