Europe proposes a magical fix for its half-finished single market

If it ain’t broke, don’t fix it. But what if it ain’t really working in the first place? That is the question that has long plagued the European Union when it comes to the single market. In theory, the bloc’s economic policy is meant to fuse 27 national markets into one pool of 450m consumers. In practice, an idea that was conceived in the age of coal and cars has failed to keep up as the economy has shifted to ChatGPT queries and Spotify streams. Paradoxically, because national laws are tangled, pedlars of services—whether whizzy startups, staid banks, nit-picky lawyers or others—often find it harder to export their offerings within the EU than firms that physically ship stuff across borders. The bloc has tried to harmonise countries’ rules for decades, with precious little to show for it. Now a strategy is being floated as a way to get things moving. Instead of entrepreneurs setting up a French or German company and trying to sell their wares across EU borders, could they set up a pan-European company which would be eligible to do business across the bloc from the get-go? It is certainly a bold plan. Can it work?

The notion of a “28th regime”—ie, one that does not belong to any of the EU’s existing 27 member states, but somehow floats above them—has gathered a lot of attention of late. Two chunky reports on how to revitalise the European economy by former Italian prime ministers, Enrico Letta and Mario Draghi, proposed the idea as a way to boost the single market. Ursula von der Leyen, president of the European Commission, has mentioned it in speeches at not one but two Davos gatherings (raising the question of what was done in the intervening 12 months). On February 12th the EU’s various presidents and prime ministers will meet in a Belgian chateau for a confab on how to revive European competitiveness. Ahead of their meeting, the 28th regime is being hailed as a way to cut through the tangle and get Europe growing again. A legal proposal is expected from the commission next month.

The idea of the pan-European company model is to let firms opt out of being a German GmbH or French SA, and incorporate as an “EU Inc” instead. Supporters pitch it as an instant untangler of red tape, a way to bypass the 27 sets of domestic regulations that make doing business within the EU so hard. Instead of struggling to understand Italian accounting rules or the Danish code on insolvency law, a company with pan-European aspirations would have the choice of following one new set of common regulations instead. That the term “EU Inc” has an American twang is no coincidence. Proponents look to their transatlantic economic rival, which has done a better job (aided by a strong federal government and single language) of creating a unified market for its firms. There, for example, banks can decide whether to be regulated by states or chartered directly by the federal government.

If this sounds too good to be true, it partly is. Many of the impediments that make doing business in Europe difficult arise from regulations that are firmly in the purview of national governments. For example, it is in Madrid, Paris and Stockholm that most labour law is enacted, not Brussels—and there are no plans to harmonise rules on how companies hire and fire. National capitals also keep a tight grip on tax matters. Myriad other rules that differ from one country to the next, such as those that regulate the necessary professional qualifications of everything from pharmacists to ski instructors, will not be swept away simply by having a new way to register companies. The fact that a firm of Polish architects has decided to incorporate as an EU Inc would not grant it a licence to start designing skyscrapers in Portugal.

Past attempts at setting up a pan-European company format have largely fallen flat. One created in 2004, the Societas Europaea, has attracted few takers. Boosters of the 28th regime say this time is different. The benefits of being an EU Inc may be modest at first—making it easier for startups to pay their staff with shares, for example—but could become more ambitious over time, exempting entrepreneurs from some national regulations. That seems optimistic. Unions in particular are on the lookout for any hint of companies being able to dodge stringent labour rules. Incumbent firms are also keen to keep things just the way they are.

Maybe this time politicians will have the stomach to take on special interests. Europe’s sluggish economy used to be a mere irritant for policymakers; in a world of red-toothed great-power rivalry, it is an existential weakness. More GDP enables more defence spending. Deepening the single market is a way to bolster Europe against competitors. Barriers between EU countries are bigger impediments to trade than any tariffs that Donald Trump might impose to hobble European firms in America.

Yet given this diagnosis, the 28th regime is a timid place to start. The risk is that the EU opts for a solution that looks radical on paper but brings little change in practice. That would distract from what is really urgent. The work needed to deepen the single market is, in fact, well understood. It requires politicians to favour the broad interest of the EU and its consumers over the narrow gain of favoured industries. Yet tell that to German ministers delaying capital-markets integration lest it harm their regional banks, or French ones scuppering electric interconnectors to protect the state-owned power utility. There are hundreds of such examples.

Above all, deepening the single market requires the commission to enforce EU rules that make it a reality—a job for which it has shown little appetite of late. Europe hosts a fabulous amalgamation of petty corporate fiefs, some of them protected by regulation dating back to medieval guilds, that collectively hold its economy back. To suggest there is a quick fix to this centuries-old problem is to be deluded about the scale of the task ahead.■