Harry Geels: The EU's best weapon against Trump is a strong internal market

February 11, 2025

_{This column was originally written in Dutch. This is an English translation.}

By Harry Geels

It is increasingly being claimed that the US is no longer a reliable political and economic partner for Europe and that we should rely on our own strength. If we take that as our starting point, our most important task now is to strengthen the internal market, supplemented by deregulation, tax relief and less bureaucracy. That is precisely what is lacking.

Although Ursula von der Leyen has recently suggested a few times that the bureaucratic hassle for companies should be reduced by 25% and has even launched a Competitiveness Compass, the preached deregulation practice appears more stubborn. Research by FTM, for example, shows that only roughly 25% of all recently submitted proposals by the various services of the European Commission contain some form of deregulation and that there is not even a good overview of all EU rules.

Another complication is the amount of rules and laws that are still to come. The Competitiveness Compass itself provides an overview of everything that is still in the pipeline (see Figure 1). The train of regulation that has been racing ahead since the credit crisis has not yet stopped. Supporters of this regulation indicate that all these rules and laws will increase the economic independence of the EU and the competitive strength of sustainable products on the world market. Without clear evidence, of course.

Figure 1: Competitiveness Compass

Regulation is usually not the holy grail

Before we look at possible solutions for a ‘resurrection’ of Europe, let's first make some general remarks about rules. They may sometimes seem necessary, but they usually are not. Bureaucrats tend to solve problems with rules (and taxes). However, this usually involves treating the symptoms. New rules are deemed necessary because previous rules did not work properly. The sociologist Robert K. Merton was one of the first to point out the unintended consequences of policy.

A good economics programme will cover many of the negative aspects of regulation, such as Jevons' paradox (so-called efficiency measures actually lead to increased use), Goodhart's Law (if a measure becomes a goal, it loses its value as a measure), Lucas's thesis (people adapt their behaviour to new policies, which means they no longer work), or perverse incentives (stricter rules create shadow markets or undesirable behaviour, such as low earners no longer working to avoid losing benefits).

There are additional Kafkaesque problems. Rules limit freedom. Society becomes increasingly complicated as a result, resulting in an increasing juridification. Furthermore, the need for more policy and enforcement staff is increasing, which takes people away from the real economy. I have previously argued that the climate transition is best served by freer markets. Well-intentioned policy often turns into complexity, paperwork and greenwashing. We could call this the ‘green tape effect’ or the ‘carbon chokehold’.

Three-step plan

The way forward for Europe is roughly along three lines. First, externalities must be priced in to speed up climate transformation. It is unacceptable that certain groups of consumers demand products from companies that are too cheap and that cause damage to external parties (other groups of consumers and the planet). If the EU charges higher prices for certain externalities than foreign products, these differences will be levied as import tariffs (for a level playing field).

Secondly, we should not think in regional camps (Europe versus the US and China). It is a common divide and conquer strategy, but the world benefits from cooperation and mutual trade in terms of prosperity in the broadest sense. Moral superiority over others is always just around the corner. An old Dutch saying goes: ‘what you say [about someone else] is what you are yourself.’ Shall we talk about all the EU trade barriers? A danger of concentrating on your own region is also a self-reinforcing spiral of regional monopolies of power.

But the most important solution is to look at ourselves when it comes to competitiveness. In recent decades, we have allowed the EU to create more and more rules and have occupied ourselves with political (integration) concerns. The internal market, economic cooperation, has made far too few steps forward. According to the IMF, internal trade barriers within European industry equal a tariff of 45%, while in the US these barriers between states are three times lower – closer to 15%.

A European banking sector, however necessary it is considered for international and mutual competition, is still not in place. Instead, there are inefficient banking oligopolies in each country. According to an opinion piece in the Dutch newspaper FD, all trade barriers in the European service sector, where the internal market has made hardly any progress, cause trade barriers whose costs are comparable to a tariff of 110%. The market for venture and private equity in the EU is also far too fragmented and limited.

This article contains the personal opinion of Harry Geels

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