Metsola & Sass: Commission’s billion-euro savings melt away in new legislation

The European Commission published last week its first Annual Report on Simplification, Implementation and Enforcement. In the background of the simplification objectives is former Italian Prime Minister Enrico Letta’s report on the future of the European internal market and former European Central Bank president Mario Draghi’s competitiveness report, both of which emphasized how administrative burdens and the complexity of EU legislation limit the EU’s economic potential. The Commission’s course is correct, and its objectives are worth to be encouraged, but the level of ambition should be raised.

According to the Commission, with the Omnibus packages and other simplification measures it has proposed, savings of up to 8.6 billion euros can be achieved from companies’ recurring administrative costs. The proposals already presented are the first step in the Commission’s objective to reduce both the resulting costs and the reporting obligations by at least 25 percent for all companies, aiming for savings of 37.5 billion euros, as well as by at least 35 percent for small and medium-sized enterprises by the year 2030.

As the first year of the agenda aiming to simplify regulation is now behind us, it seems that the Commission still cannot do anything about its nature as a law-making machine. According to the current Presidency of the Council, Denmark’s assessments, the proposals currently being negotiated and implemented would cause companies annual costs of about 71–86 billion euros and one-off costs of about 63–70 billion euros. So, at the same time as the Omnibus proposals have managed to cut costs, there is legislation already on the table leading to nearly ten times higher costs.

Criticism can also be directed at the cost savings already achieved, since the majority (two-thirds) of the savings originate from regulatory frameworks proposed during the Commission’s previous term, such as the sustainability reporting and corporate sustainability due diligence directives. As an everyday example, the Commission’s calculation method could be compared to a municipality first deciding to raise residents’ waste management fees by 100 euros per year, but due to complaints, cancelling the increase for some residents and lowering the fees by 10 euros – and then announcing in the local papers that residents have achieved significant savings. If the guiding principle of the Commission’s work is truly to revive the EU’s competitiveness, there must be significant changes in the Commission’s calculation method and ways of thinking.

Because the idea of reducing administrative burdens is nothing new, one would expect a more ambitious approach from the Commission in this regard. Already during his first term as President of the Commission, José Manuel Barroso launched a program aimed at reducing the burdens on companies arising from EU legislation by 25 percent by 2012. The proposals by the Commission since 2007, which often took inspiration from the 15-member High Level Group on Administrative Burden, chaired by former Prime Minister of the State of Bavaria, Edmund Stoiber, eventually led to estimated annual savings of 33.4 billion euros for companies. According to Barroso, the targets concerning cost savings were thus even exceeded.

Behind the cost savings praised by Barroso are the calculations of Stoiber’s Group on the total amount of 150 billion euros of administrative costs, which were estimated at the beginning of the millennium. It is noteworthy that Barroso’s calculation of cost savings did not take into account the new legislation enacted at the same time (just as the current Commission’s calculations do not), and that the same calculations have also been used in von der Leyen’s 2025 Competitiveness Compass and as the basis for the current Commission’s cost-saving target of 37.5 billion euros. The assessment framework used for estimating the total amount of costs is therefore from before the financial crisis, because of which it has been justifiably criticized by Finnish scholars. Especially when taking into account that between the years 1994 and 2024 the number of EU regulations and directives has been estimated to have increased by 729 percent.

In summary, it can be stated that the European Commission’s calculation methods for reducing regulatory costs are fundamentally flawed. EK’s own study on the costs caused by regulation to Finnish companies will be published in the coming weeks.