“America innovates, Europe regulates": we have heard this phrase many times, revealing a fundamental difference in approach between the two continents. America undoubtedly produces economic giants, and Europe specialises in regulating them, failing to bring forth true world champions of European origin.

The simplification is undoubtedly unfair, but it highlights the dangers of regulations that are designed primarily to constrain innovation and growth rather than to promote it. [1]

It also illustrates a certain European propensity for self-pity. We Europeans need to recognise our strengths. The European scale is the only relevant one if we are to have economic clout against the United States and China. The single market is a major lever of power in this respect, but it is still incomplete. Fragmented national regulations are obstacles to the emergence of European champions of global standing. This is still an issue in many areas where Europe could take the lead in international competition, such as the circular economy.

Regulation can therefore be a double-edged sword, depending on whether it harmonises or makes things more difficult. But it seems to have been forgotten that it should above all serve a vision. It must be recognised that the United States has made clear choices and has given itself the means to produce champions. The limitations in Europe stem largely from the lack of a clear vision like this, which automatically results in inconsistent and inefficient regulations.

The current economic and geopolitical challenge must be seen as an opportunity for the European Union to bounce back, as it is forced to transform very quickly. A change of approach in the way the question of regulation in Europe is addressed will necessarily have to form part of this effort of reinvention.

The facts: Europe is falling behind

Firstly, it is important to remember that the risk of Europe's economic decline is becoming a reality. Per capita disposable income has grown twice as fast in the United States as in Europe since 2000.

As the Draghi report recently emphasised, the excellence of our research is not being translated into a level of innovation that lives up to expectations at European level. No European company with a market capitalisation of more than €100 billion has been created in the last fifty years. Conversely, the six American companies with a capitalisation of more than €1,000 billion were created during the same period.

Even when world champions of European origin emerge, the old continent struggles to retain them. For example, 30% of unicorns founded in Europe between 2008 and 2021 have moved their headquarters outside Europe, often to the United States.

Of course, European regulation alone cannot be held responsible for this disengagement. Capital markets and a fundamentally different attitude to risk on the other side of the Atlantic may help to explain this. But the rules of competition, designed primarily for consumers, disregarding the question of production on European soil, certainly play a part, as does a determination to support an approach to free trade based on the law, in a context in which our trading partners can free themselves from the rules of international trade.

European regulations are identified by the companies themselves as one of the obstacles to investment, the main driver of growth. Regulation is cited by 60% of European companies as an obstacle to investment, according to the European Investment Bank's Investment Survey. This is particularly problematic for small and medium-sized enterprises, 55% of which mention red tape and regulatory obstacles as the main challenge they face.

It is becoming urgent to stem this decline and remove the obstacles to growth. This is all the more important given that our future growth can no longer be based solely on population growth. We will need to mobilise other levers and accelerate public policies that promote economic growth so that the European model can reinvent itself in the new phase of a more uncertain globalisation.

A global context that raises the question of regulation

As the head of a major global industrial company, Michelin, which is present in 174 countries and headquartered in France, I see first-hand the effects of national and regional regulations on economic activity wherever we operate.

To better understand these effects and how companies view them in the European Union, I think it is important to look back at recent developments.

The momentum created by the Paris Agreements in 2015 inspired many sectoral regulations that made a lot of sense. From 2019, the Green Deal boosted European ambitions, putting Europe in a position to become the first carbon-neutral continent. Michelin has been particularly active in supporting the need for this plan and its implementation, which was in line with the deep aspirations of truly sustainable development, anchored in the company's DNA.

However, the framework that was established proved to be more punitive than incentivising, and did not contribute sufficiently to a truly sustainable, competitive and innovative economy. The major change in context introduced from 2016 onwards by the geopolitical hardening observed throughout the world, and by the return of war in Europe in 2022, has made the imperative of competitiveness even more pressing. In this new context, poorly designed and poorly implemented regulations have weighed on European companies already exposed to fierce competition and highly volatile energy prices.

Deforestation, an example of a regulation that is failing in its execution

Specific examples must be examined in detail to understand how a regulation can be based on a positive intention but prove to be penalising when it is poorly implemented.

The European Union's regulation against deforestation and forest degradation (EUDR) aims to ensure that the European Union does not import, or export products derived from deforestation, which is a major contributor to global warming and loss of biodiversity.

85% of the world's natural rubber production comes from small farms with an average surface area of 2 to 3 hectares, which provide a living for 30 million people. Michelin has long been committed to improving the living conditions of smallholders and to working with them towards better land management and forest preservation. We were the first tyre manufacturer to make a commitment, as early as 2015, to use natural rubber free from all deforestation.

But the European regulation creates major difficulties of application by imposing the same requirements for very different value chains: coffee, cocoa, beef, soy, palm oil, wood and natural rubber.

The requirement of plot traceability means that Michelin must provide millions of coordinates, corresponding to the many small producers with whom we work. Then it must provide proof that none of these plots has been deforested after 31 December 2020.

corresponding to the many small producers with whom we work. Then it must provide proof that none of these plots has been deforested after 31 December 2020.

Michelin has set about this colossal task. In practice, this does not change the commitments that the company has already made and implemented (they amount to tens of millions of euros), but introduces an administrative complexity that has led Michelin to commit an additional €100 million to secure the supply of compliant rubber.

This also impacts all players further down the chain. Each of our customers has to collect 35,000 monthly declarations so that they can make their own declarations.

Faced with the growing complexity in terms of implementation, the European Parliament endorsed a first one-year postponement of the application of the European regulation on 17 December 2024 and a second one-year report on 26 November last. Michelin has nevertheless decided to apply it as planned, since the necessary steps had already been taken. This postponement demonstrates a lack of consideration for the most committed stakeholders on the ground and recognises the impracticality of a poorly designed text for the same reason. However, it creates inequity down the line and effectively penalises those who have played by the rules.

In support of growth-compatible European regulation

I have developed this example from the point of view of a company directly affected by this regulation because it seems to me to reveal several biases that are found in other recent European regulations.

• A regulation designed primarily for the few bad pupils, which means that the European Union penalises all other companies in international competition.
• An unstable regulation, which creates an uncertain operating framework and discourages decisions that would nevertheless be beneficial for economic activity.
• A maximalist regulation, which turns a laudable intention into an administrative burden.

The European Union has many strengths. One of the keys to its future lies in its ability to put its normative power at the service of its economic power while preparing for the challenge of global warming.

Several simple principles will ensure that the standard truly creates value.

Firstly, the regulations must serve an overall strategic vision and be at the right level. The European public authorities have the important responsibility of setting the course. It is then up to the innovators to mobilise all their knowledge to determine how we are going to achieve it. By resisting the temptation to regulate every detail of every area of economic life, the European Union will maximise its chances of focusing its regulatory efforts where they can have the greatest positive impact and therefore unleash the many forces of innovation present on the continent.

Then, the regulations must be adapted to the specific characteristics of each sector. Seeking to impose a single rule on sectors with different structures and issues will automatically lead to counterproductive situations.

The impact analysis phase should allow for an assessment of the effects that a rule will have on the various parties concerned, and to adapt or simplify them to preserve their scope, while limiting their harmful effects.

The regulations must take global realities into account and not hesitate to defend European champions. The new geopolitical context makes it urgent for the European Union to realise the full extent of its strengths in world trade. There are innovative and ambitious European companies committed to sustainability. Europe must know how to listen to them and defend them to propose regulations that make sense for the consumer, for the planet, and for European economic power. In this respect, the inclusion of European industrial policy in the analysis of mergers is a positive direction taken by the Commission in its powers in competition, which means that the contribution of a transaction to innovation and efficiency gains can also be considered.

More generally, we need regulations that facilitate access for European companies to the unified European market and remove the barriers that continue to fragment it. The single market remains a treasure, the only relevant scale for innovative young companies and major industrial players to establish themselves and carry weight on the global stage. It is also the relevant scale of the financial markets, which allow them to raise funds and develop. Deepening it must remain a strategic priority.

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In a profoundly changed geopolitical context, the European Union faces the choice of renewal or disappearance. The memory of Robert Schuman invites us to return to its source, the method of ‘small steps’ at the origin of the European integration. This empirical spirit should guide us in the design of a standard based on real-life experience, in the service of a clear strategic vision and the prosperity of our continent.