The Hidden Cost of EU Regulation
Why Policy Design Matters for Growth, Competitiveness, and Investment
The cost of regulation extends beyond paperwork. Uncertain rules, poorly sequenced transitions and overlapping obligations can delay investment, constrain innovation and undermine the very objectives policies are designed to achieve. This report examines those hidden costs—and the economic gains available from better policy design.
About the publication
Europe’s competitiveness depends not only on the objectives it sets, but on how it pursues them. When regulatory ambitions run ahead of economic evidence, infrastructure readiness or implementation capacity, the result can be a costly cycle of uncertainty, delayed investment and last-minute policy revisions.
The Hidden Cost of EU Regulation examines these recurring weaknesses across three major policy cases: the EU–MERCOSUR trade agreement, the automotive transition and the Common Agricultural Policy. Despite their different objectives, the report identifies a shared pattern: economic and distributional consequences are addressed too late, leaving governments and businesses to manage costs that better preparation could have reduced.
The analysis then considers five regulatory areas through scenarios for 2026–2030: the revision of the Tobacco Products Directive, AI regulation, the Packaging and Packaging Waste Regulation, the Carbon Border Adjustment Mechanism, and biotechnology and novel foods. For each, it compares a restrictive baseline with a better-regulation alternative, examining the implications for GDP, employment and investment.
Key findings
- Around €63 billion in annual frictional costs across three major policy cases. The report associates weaknesses in the design and implementation of EU–MERCOSUR, the automotive transition and the Common Agricultural Policy with economic costs equivalent to approximately 0.35% of EU GDP.
- Around €159 billion in projected annual GDP losses across five regulatory areas. Under the report’s restrictive baseline scenarios for 2026–2030, these files are associated with an annual investment shortfall of approximately €36 billion and around 419,000 jobs at risk.
- Better policy design could make a €125 billion annual difference. Compared with the restrictive baselines, the better-regulation scenarios imply approximately €125 billion more in annual GDP, €28 billion more in annual investment and an improvement in the modelled employment impact of roughly 241,000 jobs.
The prospective figures are scenario-based estimates, not observed losses or guaranteed outcomes. GDP and investment impacts are expressed as annual averages over 2026–2030.
Towards “Stability-by-Design”
The report’s central argument is that economic trade-offs should be explicit, proportionate and supported by evidence—not allowed to emerge through accumulated uncertainty and avoidable implementation failures.
Its proposed Stability-by-Design approach brings economic assessment and stakeholder engagement into policymaking from the outset. It calls for predictable regulatory frameworks, instruments tailored to differences between sectors, technologies and firms, and implementation timelines aligned with infrastructure, supply chains and enforcement capacity.
Crucially, it also calls for assessing how policies interact. Businesses do not experience each regulation in isolation: they face multiple obligations, often arriving at the same time and drawing on the same investment and administrative resources.
The objective is not to abandon Europe’s health, environmental or safety ambitions. It is to design credible pathways to achieving them—while preserving the investment, innovation and economic capacity on which successful implementation depends.
