Smart Regulation: The Forgotten Reform and Why We Need It Now More Than Ever

In the Era of U.S. Deregulation and the Draghi Report, Can Europe Finally Get Regulation Right?

The world is facing a new regulatory moment. On one side of the Atlantic, the United States is moving toward aggressive deregulation, a hallmark of Donald Trump’s political agenda. On the other, the European Union, under the weight of decades of bureaucratic expansion, is reassessing its regulatory framework, with the Draghi Report signaling the need for a new economic approach. Between these competing forces lies a crucial, often neglected concept—Smart Regulation.

The idea behind Smart Regulation is simple: rules should be clear, proportionate, and designed to enable, rather than stifle, economic growth and innovation. Yet, despite its intellectual appeal, Smart Regulation has remained largely aspirational, particularly in Europe. The EU once championed the concept as a way to streamline governance, but the project failed to gain traction. Today, as businesses struggle under the weight of regulatory complexity, and as governments debate between excessive regulation and indiscriminate deregulation, the time has come to revisit the promise of Smart Regulation—this time, with the political will to make it work.

Regulatory debates are often framed as a binary choice: regulate more to protect consumers and society, or deregulate to spur economic growth. This false dilemma has led to policy swings that create more problems than they solve. The Biden administration leaned toward heavy regulation, particularly in technology and environmental policy, while Trump’s return signals a reversal, with his administration likely to dismantle many of those measures. In Europe, the regulatory state has been growing for decades, making the cost of compliance one of the biggest concerns for businesses. The Draghi Report, commissioned by the European Commission to address economic stagnation, acknowledges the urgent need for structural reforms. One of its key findings is that Europe’s complex regulatory environment hampers growth and prevents the EU from being a global economic leader.

Smart Regulation offers a third way—one that avoids the pitfalls of both overregulation and reckless deregulation. It aims to simplify, modernize, and rationalize rules to ensure they meet their objectives without suffocating economic dynamism. However, deregulation, when done hastily, often leads to unintended consequences. The U.S. financial crisis of 2008 is a case study in what happens when rules are removed without considering systemic risks. In contrast, the EU’s sluggish regulatory reform has led to a growing compliance burden that discourages investment. Governments tend to regulate in cycles, overreacting to crises with excessive rulemaking and then swinging to indiscriminate deregulation when political winds change. Many deregulation efforts are driven by ideology rather than evidence, cutting regulations for the sake of optics rather than efficiency. Instead of modernizing outdated rules, policymakers often focus on the quantity rather than the quality of regulation, leaving ineffective frameworks intact.

To avoid these pitfalls, deregulation must be evidence-based, ensuring that reforms improve efficiency rather than simply reducing the number of rules on paper. Smart Regulation promotes regulatory impact assessments, public-private consultations, and mechanisms that ensure rules remain fit for purpose over time.

The EU introduced Smart Regulation as a policy goal in the early 2000s, but it never became a core priority. There are three key reasons for this failure. The first is bureaucratic resistance. The EU’s complex institutional structure favors risk-averse policymaking, making it difficult to eliminate or streamline regulations once they are in place. The second reason is the lack of political incentives. Politicians gain more credit for introducing new rules than for refining or removing existing ones, leading to regulatory accumulation. The third reason is fragmented implementation. The EU’s member states interpret and apply regulations differently, creating a web of compliance requirements rather than a harmonized system.

Despite these challenges, the current moment presents a new opportunity. The Draghi Report has made clear that regulatory reform is essential for the EU’s economic future. The rise of artificial intelligence and digital economies necessitates smarter, more adaptive rules. Finally, the EU’s ambition to maintain global competitiveness means it cannot afford to lag behind in regulatory efficiency.

The path forward requires a fundamental shift in regulatory philosophy. Smart Regulation should not be a side project but a core principle of governance. Every new rule should undergo rigorous testing for its economic impact, and old regulations should be systematically reviewed. Artificial intelligence can help governments identify redundant rules, predict regulatory bottlenecks, and provide automated compliance tools for businesses. The EU and its member states need to prioritize regulatory streamlining as an economic strategy, not just an administrative exercise. For Europe to remain competitive, regulatory fragmentation must be reduced, ensuring businesses operate under a predictable and unified legal framework.

The U.S. and EU are at regulatory crossroads. One is set to embark on sweeping deregulation, while the other is struggling under regulatory inertia. Both need Smart Regulation—an approach that ensures rules are effective, efficient, and adaptable to economic realities. If Europe can learn from past failures and implement targeted, evidence-based reforms, it can lead the way in creating a governance model that fosters innovation without sacrificing protections. If the U.S. pursues deregulation without smart oversight, it risks repeating past mistakes.

Now is the time for a serious discussion on Smart Regulation—not as an abstract ideal, but as a practical necessity for economic growth, innovation, and competitiveness in the 21st century.