Europe’s Misguided Obsession with Bureaucracy

Brussels is mired in debates that miss the mark. While the EU and Member States tinker with regulatory details and symbolic gestures, Europe’s economy suffocates under unchecked bureaucracy and a tax burden that stifles growth. It’s time for a radical rethink – not more rules, but fewer; not more spending, but smarter governance; not more rhetoric, but decisive action. Member States must take the lead.

Citizens and businesses across the EU face a maze of inefficiency that stifles productivity and innovation. Yet there is little evidence of serious commitment to removing outdated laws or obligations in EU work programmes or mission letters. Instead, Brussels continues to double down on regulatory overreach, potentially amplified by massive public funding driven by political ambition to steer and control research and technological progress in Member States.

The Crushing Cost of Bureaucracy in Germany

Germany exemplifies this issue, reflecting the broader challenge of our time. As detailed in comprehensive analyses by the ifo Institute, Germany’s bureaucratic culture, deeply rooted in a political command-and-control mindset, has become a key factor in its economic decline – sending ripple effects across the EU. Government officials, political parties ­– including conservatives (CDU) and liberals (FDP), which portray themselves as business-friendly – and, regrettably, many academics, have long prioritised the proliferation of regulations in every corner of the economy while neglecting the effective enforcement of critical laws.

In Germany, the excessive bureaucratic hurdles in approval processes and the complexity of the tax system severely undermine investment confidence. Reducing these burdens is essential to preserving Germany’s competitiveness as a business hub and ensuring that domestic investment is not only retained but actively encouraged.

The economic toll is undeniable. In Germany, businesses face EUR 65 billion annually in direct compliance costs, with another EUR 146 billion lost in unrealised economic potential. Across the EU, redundant processes and overregulation discourage entrepreneurship and drive investment elsewhere. Let’s zoom in on Germany:

• Property Registration: Registering property in Germany requires six bureaucratic steps and takes 52 hours, compared to Sweden’s one step and seven hours. This inefficiency delays property transactions, increases costs, and discourages investment in real estate.
• Tax Compliance: German businesses spend an average of 218 hours annually on tax compliance, nearly double Sweden’s 122 hours. The complexity of Germany’s tax system imposes significant costs, particularly on small and medium-sized enterprises (SMEs), reducing productivity and international competitiveness.
• Building Permits: Obtaining building permits in Germany is plagued by delays and administrative complexity, making projects 30% more expensive and 20% slower than in comparable European countries. These hurdles particularly harm construction and infrastructure projects, slowing economic development.
• Energy Transition Approvals: Renewable energy projects face prolonged approval processes, often taking four to five years. Combined with additional compliance burdens under the Building Energy Act (GEG), these delays impede Germany’s shift to renewable energy and deter private sector investment.
• Unresolved Money-Laundering Reports: A backlog of 290,000 unresolved suspicious transaction reports highlights the inefficiency of compliance systems. Overwhelmed enforcement capacities undermine Germany’s ability to tackle financial crime effectively.
• Hotel Registration Forms: Guests in German hotels are still required to fill out physical registration forms, an outdated and unnecessary practice. This contrasts with the digitalised and streamlined systems in many other EU countries, highlighting Germany’s slow adoption of modernisation.
• Customs Documentation: Importers and exporters must navigate lengthy customs procedures involving extensive paperwork, delaying supply chains and raising operational costs. These inefficiencies weaken Germany’s position as a leader in global trade.
• Sector-Specific Bureaucracy Costs: Certain industries bear disproportionate regulatory costs. For instance, the energy sector incurs EUR 6.5 billion annually due to compliance requirements, while the construction sector faces EUR 4.2 billion. These burdens stifle innovation and reduce sectoral competitiveness.
• Federal and State Overlap: Germany’s federal system results in overlapping and conflicting regulations between national and state levels. This duplication creates confusion and additional administrative burdens for businesses operating across different regions.
• Public Funding Documentation: Municipalities face excessive requirements to access public funding, including detailed documentation and proof-of-use reports. Smaller municipalities are disproportionately burdened by these processes, limiting their ability to implement projects effectively.

Symbolism Over Substance

Brussels’ ongoing obsession with regulatory micromanagement comes at the expense of real impact. Complex laws often benefit large corporations, which can afford armies of consultants and legal advisors to ensure compliance, while smaller businesses struggle or shut down. The EU’s Corporate Sustainability Due Diligence Directive (CSDDD) is emblematic of the political micromanagement desire: designed to promote ethical supply chains, its burdensome requirements force small businesses out of international markets and hurt the developing nations it claims to protect.

Or take the broad and vague EU’s Digital Markets Act (DMA), proclaimed to facilitate “fair competition”. The complexity of compliance often overwhelms enforcement capabilities, and vice versa, as unforeseeable enforcement further complicates compliance by fostering uncertainty and inconsistent application of the rules.

European Tax Regimes Stifle Economic Development

While EU rhetoric about bureaucracy is making some headlines, very high taxes on labour and corporate income quietly kill Europe’s competitiveness. By contrast, US tax rates for corporate and labour income encourage broad investment and job creation, while supporting consumer spending. Similarly, Ireland and Estonia, with their competitive tax regimes, attract talent and investment. Yet Brussels and most Member states cling to a high-tax, high-regulation model that stifles growth. Member State governments must embrace much simpler tax regimes and lower taxes to remain competitive globally.

The EU’s Limited Leverage Over Member States

New symbolic efforts to cut bureaucracy once again create the illusion of progress while leaving Europe’s systemic challenges unaddressed. Worse still, the EU’s influence over Member State reforms remains deeply constrained. Brussels cannot compel national governments to streamline their systems or reduce their tax burdens. With only soft incentives and recommendations at its disposal, the EU lacks the tools to tackle entrenched bureaucracies at the national level. This inability to drive meaningful reform undermines its credibility and exacerbates economic stagnation across the continent.

What EU Member States Need Now

The EU must change course. National political leaders need to stop adding rules and instead focus on pragmatic governance that delivers results. Here’s where to start:

• Simplify and Streamline: Member States must dismantle its bureaucracy, not add to it. Countries like France, with its 2006 administrative reform, and Sweden, with its efficient regulatory processes, provide examples of what is possible.
• Cut and Simplify Taxes, Unleash Growth: Lower taxes and significant tax code simplification are not just sound policy – they are vital to ensuring Europe’s competitiveness on the global stage. Member States must prioritise bold supply-side improving tax reforms that encourage economic activity and innovation while resisting the reflex to inject additional tax complexity and impose higher taxes to finance ever-expanding EU programmes.
• Focus on Outcomes, Not Rules: Resources for law enforcement should be directed toward enforcing high-impact areas like tackling fraud, environmental standards, and financial crime—not burdensome compliance checks that produce no real benefit.
• Work With Member States, Not Around Them: The EU must acknowledge its limits in pushing reform at the national level. Instead of vague mission letters and weak programmes, the European Commission should provide Member States with strong economic analysis to embrace unprecedented deregulation and lower taxes on workers and companies.

Germany is a case in point. Every year of inaction drains Member States of billions in lost economic growth and squandered opportunities. The time for symbolic gestures at the EU level is over – Brussels and national governments must prioritise dismantling the bureaucratic and regulatory burdens at EU and national level.

A new German government, potentially led by the Christian Democrats, could provide the decisive leadership Germany so desperately needs, delivering meaningful reforms that not only revitalise its own economy but also inspire a wave of change across the EU.