Internal barriers and regulatory obstacles are holding back growth, competitiveness and innovation in Europe

The expression “ autotazi ” was popularized by Mario Draghi, in an article published in the Financial Times on February 14, 2025. Donald Trump had just entered the White House and was already threatening an escalation of protectionism that would culminate on “Liberation Day” on April 2. European leaders and representatives of exporting industries were understandably worried. To their fears, the former Prime Minister responded by stressing “Europe’s long-standing inability to address its own supply constraints, especially those due to high internal barriers and regulatory hurdles. They are far more damaging to growth than any tariffs that might come from the US – and their harmful effects grow over time”.

This formula has had great success: there is no politician, Italian or European, who does not make it a programmatic declaration. Just two examples. Giorgia Meloni at the Confindustria assembly in Bologna : “I hope that Europe has the courage to remove the internal duties that it has imposed on itself in recent years”. Elly Schlein at the Ali – Italian Local Authorities assembly: “The response to duties must look to a relaunch of the internal market and an increase in wages”. With different nuances, the prime minister and the secretary of the Democratic Party make the analysis their own. The representatives of the other member states do the same.

But if everyone agrees, why does no one do anything? Why were internal barriers introduced, and why did no one think of eliminating them?

To answer, we must first understand what these phantom self-duties are and where they come from: as much as they harm many, they exist because of the benefits they bring to some. Draghi refers to a 2024 study by the International Monetary Fund, dedicated to the decline in productivity growth rates in Europe. In truth, the long-term trend of productivity is an enigma all over the world. But there is no doubt that, after a phase of flattening, the development of digital technologies has given a boost to growth in the United States. The report on competitiveness prepared by the former president of the European Central Bank identifies the "medium-tech trap" as the main reason for the gap with the US: in practice, European companies are very good at making incremental innovation (and this is the reason for our manufacturing success, the main cause of the EU trade surplus) but they do not know how to invent new things - they do not know how or cannot do what scholars call "disruptive" innovation. As we will see, this has a lot to do with self-duties.

The IMF paper explains that the gap arises at the corporate level: “Compared to the US, the EU landscape is characterized by large companies that innovate less, a smaller number of startups that are less dynamic, and – partly as a consequence, but partly because of a lower rate of market exit – an overabundance of small, mature and low-growth companies”. The IMF scholars point the finger at two main causes: “ The limited size of European markets, which limits the growth opportunities of companies, and the reduced dependence of companies on venture capital, which determines 'jolts' and pro-cyclical investments in research and development ”. While this second point is also linked to cultural factors and in any case can be traced back to the small size of European companies, the first has to do essentially with political choices: in fact, talking about the limited size of markets means recognizing that, despite the enormous effort and the indisputable progress in economic integration, there are still barriers that, in fact, prevent competition on a truly European scale. "Removing the remaining barriers to intra-European competition," IMF economists argue, "could increase the effective size of the market and stimulate business productivity. Compared with the evolution of trade costs between non-European countries, barriers between EU member states in the period 1950-2010 fell by 6 percentage points for goods and 11 percentage points for services. But the equivalent burden of the remaining ones can be estimated at around 45 percent for the average of manufacturing sectors - three times the corresponding value among US states - and as high as 110 percent for the average of services sectors."

These barriers arise both from European choices, which impose unjustified or disproportionate burdens on businesses, and from national policies, aimed at protecting sectors or businesses that governments deem “strategic”. They are the result of a stratification of interventions to which practically all European ruling classes, past and present, have contributed . If we do not start from this awareness – and therefore from the recognition of a necessary and shared revision of the rules in force – it will be difficult for the issue of self-duties to go beyond mere political controversy. To quote the Supreme Poet: even if you believe yourselves absolved, you are involved anyway.

European auto duties

The European Commission is well aware of the nature and origin of internal barriers. In a communication published a few weeks ago, it put the complexity of the rules at the top of the list of problems to be addressed, along with their fragmentation and the choice of many member states to set standards even more restrictive than the common ones (a phenomenon known as gold plating).

Excess bureaucracy acts as an “internal duty” through two channels . First, it imposes costs that companies must bear by dedicating their own staff or hiring consultants to deal with compliance. These are resources, financial and human, taken away from productive investments and, ultimately, taken away from the companies’ own activity, which is to produce their own products, improve their quality, seek out new markets, expand. But there is also a second and more subtle effect: these higher costs prevent many companies, especially those of smaller size or more recent establishment, from entering the market and competing on equal terms . They act as a real barrier to entry and, in this way, reduce competition, to the advantage of large players who occupy a consolidated position. It is no coincidence that, often, these rules – even if they later turn out to be counterproductive – arise from protectionist maneuvers implemented by the companies themselves. Richard Posner – one of the protagonists of the Chicago revolution – in a brilliant essay of 1971 had explained the fundamental equivalence between regulation and taxation: “One of the functions of regulation is to perform redistributive and allocative tasks that we normally associate with fiscal or financial choices of the state”. Rules have equivalent effects to taxes and should be interpreted, and treated, as such.

A perhaps sensational case is that of the regulation of emissions from light vehicles. Today, the European automotive industry is terrified of the effects of the ban on internal combustion engines starting in 2035, because it perceives its backwardness compared to its more aggressive American and especially Chinese competitors . The latter are able to offer technologically more advanced electric cars at lower costs. However, if we rewind the tape to just a few years ago, it was the same protagonists of the sector who were asking for more stringent rules, because they saw in them an opportunity to receive public funding and artificially accelerate the turnover of the fleets in circulation . Things went differently, as is obvious. But it is even more interesting to ask why Italians, French and Germans were so far behind, on electric engines, compared to Americans and Chinese. Surely part of the explanation lies in corporate orientations, strategies and errors. But it is difficult to ignore that, for thirty years, it was the European regulation itself – the evolution of the euro standards, which from other points of view was a success – that forced us to invest in spasmodically improving the performance of thermal engines. Today we have the most efficient and clean internal combustion engine in the world but, unfortunately, no incremental improvement could have reached the nirvana of net zero: this requires a change of paradigm and production platform. Thus, those who went hunting for subsidies discovered that the monster of industrial policy, once evoked, is not tame.

Another example, perhaps the subject of rethinking, is the climate reporting obligations. It is clear that it is necessary to introduce metrics to measure the environmental impacts of production processes and consumption habits; it is also clear that it is necessary to combat “green washing” by companies, which often boast environmental virtues that are yet to be demonstrated, if not non-existent. These legitimate needs have generated, in the European legal system, a regulatory hydra that requires documenting, in addition to direct emissions (which is already largely done), also indirect emissions, i.e. those attributable to suppliers and, in some cases, even to customers. The Commission is trying to patch things up by postponing some deadlines and, above all, by excluding small and medium-sized enterprises from reporting obligations. This is a partial and hypocritical solution. If, in fact, large companies will still have to fulfill these obligations, tracking emissions upstream and downstream, in reality it will be them (by contractual means) who impose on SMEs those same obligations that (by legislation) have been suspended.

The situation reaches paradoxical levels in the case of the Cbam, the duty on the carbon content of imported products in some sectors (iron and steel, cement, fertilizers, aluminum and electricity). Importers must declare (under their own responsibility) precise information on the carbon footprint of imported goods, including indirect emissions (for example the origin of the electricity used by production plants in non-European countries) and, in some cases, even trace the emissions of precursor products (i.e. used as input by the foreign producer). It is clear that this data is incredibly complex to collect and generally impossible to verify. It is no coincidence that European industry is concerned about the effects of the Cbam: applying only to intermediate products, it could incentivize the import of finished products (for example wind turbines), damaging European companies downstream; Furthermore, since it is accompanied by the end of the distribution of free emission quotas in energy-intensive and trade-exposed sectors, the CBAM could weaken European exporters, which are the backbone of our manufacturing competitiveness.

It is true that some companies are mobilizing against the easing of obligations, because they believe that their strength lies in the environmental quality of their products. But it is not clear why they are convinced that this added value cannot be recognized by the market and must therefore be imposed by regulation, without distinguishing between those who can and those who, for technical reasons, are not currently able to cut emissions beyond a certain level. Perhaps they think that a high regulatory standard is an effective tool for protecting, not so much competitiveness on foreign markets, but rather profits on the domestic market? No competitive advantage is as easy to gain as the taxation of competitors (which is, after all, the exact definition of a “duty”).

Member States' self-duties

Most of the self-duties, however, have a different origin: they arise, on the one hand, from the efforts of the member states to hinder cross-border competition in “strategic” sectors; on the other hand, from the progressive abdication of the European Commission from its fundamental task of enforcing compliance with the common rules that were designed specifically to ensure the functioning of the internal market .

Every country has its bestiary of self-duties. Italy is second to none. Political news has been punctuated for at least a quarter of a century by constant resistance to any form of opening of protected markets. Wherever there are public concessions, there is a rent and a self-duty: and yet, the word "tenders" is still taboo in sectors as diverse as local public services and hydroelectricity, public transport and waste, electricity and water distribution networks, highways and beach resorts. The rhetoric is always the same: "This sector is not like the others", "it is a strategic sector", "there is no reciprocity". Behind these three pretexts lies the avalanche of rents that Italian consumers and businesses - those exposed to international competition and without saints in heaven - must sustain by paying for services more than they are worth on the market or by paying the treasury a disproportionate tax burden. Just one example among many: as Andrea Giuricin has shown , local public transport has production costs, in European best practices , of around 3 euros/kilometer: in Italy they average around 4.5-5.5 euros which can exceed 7 in the most inefficient situations . It is like saying that, for every kilometer traveled by bus, Italians pay a tax of at least one euro in exchange for the dubious privilege of the Italianness of the rides and the crocodile tears over the lack of reciprocity.

The indiscriminate use of packaging and labeling regulations as a lever for protectionism. The golden power, perhaps the most sensational case of self-duty in Italy. The more limits are established, the more difficult it is to innovate. The role of Brussels. The example of the Bolkestein directive

National rules intervene in subtle ways in many other sectors. The aforementioned Commission document recalls, among many, two: the difficulties for professionals from one country to have their qualifications recognized in other Member States and the indiscriminate use of rules on packaging and labeling as a lever for protectionism. For example, “to sell lighting equipment in the EU, a company must simultaneously comply with extended producer responsibility obligations in three categories: packaging, electrical and electronic equipment, and batteries. To be able to sell in three large Member States, the company must obtain 16 different registrations in the various extended producer responsibility schemes, interacting with 10 different authorities, following separate and complex procedures with specific requirements and paying separate administrative and registration fees. Once registered, the company is subject to different reporting obligations for each scheme, with varying communication frequencies”. Before crying scandal, we should look at how many proposed laws or amendments have been presented over the years, with the more or less explicit blessing of which parliamentarians or ministers and with which sponsors (from Coldiretti to Confindustria): the expression “autodazi” is effective not so much for the noun “dazi” which recalls its effect, but for the prefix which clearly defines its authors.

Perhaps the most sensational case of autotazio in Italy is the golden power , the aim of which is to apply to the ownership structures of companies the same constraints that trade duties impose on goods . Born to give the government the possibility of intervening on specific assets in cases relevant to national security, it has now expanded to the point of becoming the maximum expression of arbitrariness and the whim of the prince . In 2024 alone, the Presidency of the Council received almost seven hundred notifications (there were only a few dozen before Covid). The operations analyzed concern all sectors, companies of any size and are not even limited by the nationality of the companies involved: initially the special powers applied only to non-European companies, then they were extended to those of other member states and now they also apply to Italy-to-Italy operations; in the case of 5G, even to the choice of suppliers. There is worse: the provisions have lost all connection with the purpose of national security, as they concern issues such as the protection of employment levels or strategies for purchasing public debt. The golden power has become a gym of “ends without borders” (to steal an effective expression from Giuliano Amato), which inevitably will have to be addressed sooner or later by the Court of Justice. Here too, from a political perspective, it is useful to underline the absolute coherence in the expansion of the golden power, to which centre-left governments (Gentiloni and Conte-2), populists (Conte-1), technicians (Draghi) and, now, centre-right (Meloni) have happily contributed.

Faced with all this, one wonders: are these measures really consistent with the Treaties? The short answer is “no”. And it is a clear, explicit and indisputable “no”, given that it is written in countless Commission documents (just browse the country-specific recommendations). But the Commission is not the spiritual guide of governments: it is a political body to which the Treaty itself gives the power to intervene, by opening infringement procedures, against those who do not comply. Unfortunately, despite its regulatory bulimia, the Commission has surprisingly renounced this function: as economist and former MEP Luis Garicano pointed out, “in December 2024, only 658 procedures were open on the internal market, 6 percent less than the previous year and 20 percent less than in 2020”. In 2023, only 529 new procedures were started, compared to 1,347 in 2013. This decline is not due to the greater correctness of the states, which on average take more than 61 months to comply with the decisions of the Court of Justice. Simply, today's European Union tolerates a greater and growing degree of fragmentation than in the past. The trend was amplified during Ursula von der Leyen's first mandate.

Even taking Covid into account, the regulatory activity of European institutions has in fact intensified, especially in sectors most exposed to technological innovation (for example, digital and personal data privacy) or in those linked to the ecological transition. Apparently, the Commission has attempted to stem the phenomenon: while the number of measures approved has remained roughly constant over time, its composition has changed. Previously, the ratio between directives (which must be ratified and grant greater flexibility to member states) and regulations (self-enforcing and therefore uniform throughout the Union) was approximately 50-50; over time, it has reached 70-30 in favor of the latter. But the greater rigidity turned into a boomerang when Brussels did not intervene to rein in the escapes and "free interpretations" of member states. Thus, asymmetric implementation, weak enforcement and frequent recourse to gold plating have caused intra-European obligations and divergences to multiply. A study published in 2016 in the “Review of Financial Studies” showed that, in financial markets, the Commission’s activism has not led to greater harmonization but to the opposite. The more barriers are set, the more difficult it becomes to innovate and experiment. This is why Europe struggles to produce innovation and, lately, even to import it.

In short: we have more rules at the European level but these do not replace national rules; on the contrary, they offer member states the possibility of exploiting the application flexibility where they exist, forcing the limits in other cases. The creation of barriers by means of barriers.

What to do?

In a world full of enemies, Europe is its own first enemy . The good news is that if the problem depends on us, the solution also depends on us.

The first step is to start a serious investigation, at European and member state level, on internal barriers. The Commission is partly doing this, as can be seen from the slowdown or even the reversal of course on some fronts. But the Commission is involved and lacks the necessary detachment: how can we ask those same political leaders and technical structures that wanted, wrote and defended the rules under accusation, to now do self-criticism and clean up? Instead, it is necessary, starting from the existing literature and analyses, to set up a multi-level body that carries out a sort of trial on each individual rule introduced in recent years: what is it for? Does it work? With what benefits and what costs? We always talk about spending review: a similar work of regulatory review is urgently needed that has as its ultimate objective not the simplification of the rules, but a deeper and more radical work that questions their very purpose, proportionality, effectiveness and efficiency (strictly in this order). And, given the fundamental identity between the effects of regulation and those of taxes, as these require coverage, the principle should also be established for the rules that the overall level cannot grow indefinitely: for each new prescription, (at least) one old one should be cancelled.

The second step is to restore the Commission to its primary function: before adding laws, ensure compliance with existing ones. No reform is needed to counter the proliferation of national rules that are contrary to EU law in the fields of packaging, labeling, competition and digital, telecommunications, finance, energy, state aid and so on. Yet the Commission seems to give in to the sirens calling for fewer constraints on state aid or competition policy: this is equivalent to giving the blessing to self-duties, instead of fighting them. Therefore, the request to compensate for European extra costs by giving free rein to member states is contradictory, as Commissioner Teresa Ribera seems to suggest, who has just opened the door to a “free for all” for aid in the field of energy and the environment and has even spoken of public investment in the capital of companies. In this way, the disparities will only widen, as was seen with the aid on energy costs during the 2022 crisis, which favored companies from the most generous, financially sound and brazen countries (such as Germany) to the detriment of others. But it is also contradictory to start from the bottom: the Draghi Report, for example, points the finger at the telecommunications market, where dozens of operators operate against a handful in the US. Beyond the fact that the quality of service and prices in the United States are not necessarily better than in the EU, because the liberalization of telecommunications markets is an isolated case of extraordinary success, the problem of excessive fragmentation cannot be solved by favoring mergers between companies without regard to the effects on downstream competition. The causes must be removed: we have dozens of operators because we have dozens of national markets; when we have a single market, consolidation can occur in a healthy way. Europe needs a few operators competing for a single market, not a few (almost) national monopolists. Brussels should return to having the grim face of the censor of the member states' tricks, not the mellifluous one it has shown in recent years. Also because the first is accompanied by equanimity towards the member states, the second with the double standards that we have seen too often, by virtue of which the mistakes of politically friendly governments are tolerated and those of others are sanctioned. This is not a state of law but feudalism and is one of the many sources of uncertainty and fragmentation of European law (as well as distrust towards the Union institutions).

Finally, the third step is to pick up where we lost our way. In 2006, the EU launched the controversial Bolkestein Directive on the liberalization of the services market. The founding principle was that of the country of origin: recognizing that every company has the right to offer its services in a member state on the basis of the rules in force in the country of origin. In the goods market, things had been like this since 1979, thanks to the Court of Justice. But in the meantime, instead of liberalizing services, barriers to goods were reinstated, albeit in more subtle ways. The Bolkestein Directive itself was heavily watered down, excluding entire areas of application such as the employment of workers abroad, financial services and public services. It saw the light after a troubled process that ended two years after the end of the mandate of the Dutch commissioner who had conceived it, Frits Bolkestein, who recently passed away. And yet, the country of origin principle can once again become the crowbar with which to undermine trade barriers at their roots. The proposal put forward by Enrico Letta in his report on the internal market goes in this direction, that is, to introduce a European “twenty-eighth regime”, available to all companies from any member state. Initially, it should apply to the procedures for establishing new companies; tomorrow, who knows.

The fact is that the diagnosis of self-duties is relatively easy, the prognosis is not in question and the therapy has been known for a long time . Their origin is also very clear: George Stigler, Nobel Prize winner for Economics in 1982, showed that "in principle, regulation is acquired by industry and is designed and managed primarily for its advantage". All those that we call barriers and whose devastating aggregate effect on European productivity we see, were born as favors from governments to specific companies, which were able to benefit from them in terms of reduced competitive pressure and higher profits. This is an inevitable result when the interests of some are confused with those of the community. Sometimes the two things coincide, more often they do not. To have a competitive economy, politics must not protect companies, but competition; not strategic sectors, but markets.

More on these topics: