How the EU could slash regulations and go for growth

EUROPEANS are shooting themselves in the foot. In the middle of recession, there have been no attempts to roll back the EU’s massive regulatory burden. Yet regulation is just as much an obstacle to recovery as unsustainable debt.

The Eurozone’s structural problems can seem hopeless. But there’s plenty of low-hanging fruit and European leaders could push for major regulatory reform. At a minimum, the EU ought to repeal regulations with costs demonstrably exceeding their benefits.

According to a report by Open Europe, between 1998 and 2008 the cost of regulation in the UK was an estimated £148.2bn. Regulations adopted at the EU level accounted for £106.6bn, or 72 per cent of the total. In the area of health and safety, 94 per cent of the regulatory costs are explained by European regulations.

Not all EU regulations are unnecessary or harmful – but many are. In the area of health and safety, in particular, very few pass a robust impact assessment. According to the UK’s Health and Safety Executive (HSE), the European Artificial Optical Radiation directive, adopted in 2010 to protect workers from exposure to ultraviolet, infrared, and visible light, was “expected to bring no additional benefit to health and safety.” The cost to businesses in the first year alone was estimated at between £2.96m and £6.67m.

The EU also issued two directives to address the problem of “work-related musculoskeletal disorders” (back pain and repetitive strain injuries). The HSE concluded that “the costs of the proposal will have a disproportionate impact on small businesses, without any demonstrable benefits to health and safety.”

Remember the working time directive, stipulating that the average working week must be no longer than 48 hours. And the cookie directive to protect computer users from unwelcome website cookies, by requiring explicit permission before downloading any content. Costs for the UK were estimated at £10bn, in a “worst case scenario” outlined by the customer data platform QuBit.

While repeal of unnecessary regulations would be a great step forward, the EU can do more. It can revive service sector liberalisation, attempted in the 2006 Bolkestein directive. The directive was stillborn. Following pressure by interest groups, its central idea of requiring cross-border competitors to only comply with regulations in their country of origin was dropped. Without it, the directive requires service providers to comply with regulations in every country in which they operate. Now the EU must re-open the issue and create a genuinely open space for competition in services.

Sceptics will say that liberalisation is unlikely to be the silver bullet to Europe’s economic woes. However, the Nordic countries in the 1990s and New Zealand in the 1980s show that we shouldn’t underestimate the effects of serious regulatory reforms. By pushing for a major EU-wide deregulation instead of dreaming of a European super state, the EU would finally do something helpful.

Dalibor Rohac is an economist at the Legatum Institute. Follow him on Twitter @daliborrohac