At the World Economic Forum in Davos, all eyes were on Donald Trump. However, our attention should be focussed on the words of the EU Commission President, who has announced a common legal framework for companies. This Commission’s plan will weaken the Member States because their tax and monetary competences will be undermined; and Europe will become even more dependent on the US financial system, Ulrike Reisner
writes.
In her speech at this year’s WEF in Davos, Ursula von der Leyen not only announced a deep and liquid Capital Markets Union: „We do not lack capital. We lack an efficient capital market that turns savings into investments, particularly for early-stage technologies that have game-changing potential. This is why we will create a European Savings and Investments Union.” She also made clear that the Commission was ready to “bring down barriers” when it comes to economic investment: “We will offer (instead) to innovative companies to operate all across our Union under one single set of rules. We call it the 28th regime. Corporate law, insolvency, labour law, taxation – one single and simple framework across our Union.”
As a matter of fact, the Commission is currently struggling to boost the agenda for economic and technological competitiveness. Three years of sanctions against the Russian Federation, the “homemade” energy crisis, as well as an increasing economic war between the United States and China have caused enormous damage to Europe’s economy. Proposals have been put forward in recent reports by Mario Draghi, former President of the ECB and Italian Prime Minister (2021–2022), Enrico Letta, Draghi’s predecessor in Italy (2013–2014) and President of the European think tank Jacques Delors, the McKinsey Global Institute and others.
28th regime to boost economy
As underlined in an article by the French legal company Gide the concept of a 28th regime, an optional legal framework to harmonize contract laws within the European Union, has come up repeatedly for several years: “Despite proposals that have thrived in certain areas (such as the European unitary patent), the concrete implementation of a 28th regime represents untapped potential and constitutes a major challenge for the European Union”.
The report by Mario Draghi now suggests the creation of an EU-wide legal status. Gide underlines that this status would allow companies to benefit from harmonized legislation with respect to company law, insolvency, labour law, and even taxation, facilitating activity across the Union without requiring separate incorporation in each Member State.
As to Gide, EU Commissioner in charge Michael McGrath has already highlighted a bundle of measures for start-ups that could characterize this 28th regime: being set up fully online, materialising the once-only principle when setting up subsidiaries and branches in another Member State, ending the requirement for an apostille, establishing a unique European identifier for companies which would provide a single identity and a multilingual digital EU company certificate.
Undermining sovereignty
According to certain political elites, Europe’s economy is facing a “state of emergency” due to sanctions against the Russian Federation, energy crisis, the trade war with China and the United States, Trump’s tariffs rhetoric – not to forget the ongoing debt crisis in many of the Member States. This is why they call for “a strong sign of unity” within the EU. As to these elites, the creation of a Capital Markets Union and a 28th regime, a single set of rules for companies, should be such a strong sign of unity.
The President of the European Commission as well as many lobbyists and economic experts agree that completing the single market could overcome the current fragmentation; and that simplified regulation could lead to a significant increase in investment.
However, it has to be stressed, that the close interaction between the ECB and the Commission, as can be observed in this case again, has been highly problematic for years: the Commission’s competences are constantly being exceeded, for example in the areas of monetary and fiscal policy, in foreign or energy policy. This is justified by “emergencies”; for example, the emergency clause has been systematically abused by the Commission in the area of energy policy in order to undermine the Member States’ reservations regarding sovereignty in the area of energy policy. In practice, more and more competences are thus being transferred to the executive, the Commission.
De facto, the Commission’s approach is – again – tantamount to an attempted coup – if the Member States were functioning, they could put a stop to it immediately by tabling a motion of censure against the Commission.
Conclusion
The Commission’s plan for a 28th regime will harm Europe and its economy in two ways: on the one hand, it will weaken the Member States (especially those that do not belong to the Eurozone) because their tax and monetary competences are undermined; on the other hand, it will become even easier to buy European companies or acquire a majority stake in them.
The BRICS are leading the way for Europe by gradually making themselves independent of the dollar and the US-controlled SWIFT system. However, the approach being pushed now by the Commission is exactly the opposite: it damages Europe and its economy through this 28th regime because Europe will remain dependent on the dollar and the SWIFT system!
How will Europe be able to compete with the US if this form of financial integration continues? The US rejects any form of uniform taxation of global corporations – Donald Trump has made this immediately and unequivocally clear. So, if the US lowers corporate taxes for competitive reasons, Europe has no choice but to do the same.
The more pressure there is on the dollar as a reserve currency and on the SWIFT system, the more aggressive the US reaction will be – especially when it comes to Europe. This should be clear to all Member States, when discussing whether or not support the 28th regime.
