Will ‘EU Inc.’ be a game changer for Europe’s competitiveness?

If it were up to the European Commission, it will soon be possible to set up a company that operates across multiple EU member states at once. The aim is to strengthen the internal market and, in doing so, boost Europe’s competitiveness. But will this measure really make a difference? We discuss it in a quick call with Johan Barnard, Head of International Public Affairs at APG.

The plans for a so‑called EU Inc. are known as a “28th regime.” What does that actually mean?
“When you set up a company in the Netherlands, you are subject to Dutch corporate law. The same applies across the EU: each of the 27 member states has its own national rules for incorporating a business. Because harmonizing all those national regimes has proven unworkable, the idea now is to introduce a so‑called 28th regime alongside them. This would be a European corporate form, the EU Inc., existing next to national legal forms such as the Dutch BV or NV.

An EU Inc. established under European rules would be able to operate more easily across borders within the EU. The intention is also that such a company can be incorporated very simply, at very low cost, and very quickly. By placing the European regime alongside, rather than instead of, national legislation, it becomes easier for member states to accept it, since they do not have to abandon their own corporate laws. That said, this is only partly true. If the European alternative becomes sufficiently attractive, why would you still set up a Dutch BV or an Irish LTD? But if the European form is not attractive enough, the idea risks becoming a paper tiger. For the European Commission, this proposal is therefore a delicate balancing act.”

How is this proposal being received by the member states?
“Recently, the finance ministers of the EU’s six largest economies—Germany, France, Italy, Spain, Poland, and the Netherlands—published an open letter calling for a number of measures to advance the Savings and Investment Union. This was previously known as the Capital Markets Union, but the objective remains the same: creating a single European financial space for saving and investing. An EU Inc. would be one of its crown jewels.

The challenge, however, is that finance ministers are not responsible for corporate law; that falls under their counterparts in the justice ministries. And it remains to be seen whether they are equally enthusiastic. In any case, some caution about feasibility is warranted, as many complex issues and technical details still need to be negotiated, including the decision‑making procedure.”

The idea behind the measure is to make the EU more attractive to European start‑ups and scale‑ups, which are currently constrained in their growth and often move to the United States. What kind of economic impact could this measure have?
“The current focus does indeed seem to be on small, innovative start‑ups and scale‑ups. That makes sense, as they may be the most important group for the future. If the EU Inc. does come into being, it could turn out to be a game changer. That said, more will be needed for the European internal market to become a serious alternative to the U.S. market.

Today, a European entrepreneur with a brilliant idea often still thinks, ‘I need to go to the U.S.’ And as long as the U.S. capital market is much larger than Europe’s, that is unlikely to change overnight. But the fact that the European market still faces multiple barriers does not mean you should do nothing. What we need to do in Europe is keep a steady course and gradually improve the conditions for European entrepreneurs.

Ideally, this would happen in conjunction with other measures under the Savings and Investment Union, including a package presented last November on supplementary occupational and individual pensions. Pension funds, in particular, can make a significant contribution to long‑term investment and economic growth in Europe. Even on its own, however, the introduction of an EU Inc. would already be a major step forward. And even if only a limited number of EU Incs are established initially, that number could grow as the legislation is refined over time and the European corporate form becomes the norm.

The idea of a European legal form also has other appealing aspects, such as faster bankruptcy procedures, which could be attractive to investors. The fact that the Commission is clearly betting on more entrepreneurship while also seeking to support investors is very much the direction the EU needs to move in.”

What would be the consequences if this proposal were to fail in the European Parliament or among the member states?
“The European Commission presents this proposal as having no real alternative, partly because a great deal of political capital is tied up in it. If the proposal were to be rejected by the European Parliament or the member states, or watered down too far, the reputational damage would be significant. Critics would be quick to claim, once again, that the EU does not work.

But talking yourself into a corner is rarely a good way to foster economic growth. The European internal market goes through periods of tailwinds and headwinds, but in the long run it has consistently moved toward deeper integration. Establishing the 28th regime for an EU Inc. would be an important milestone in that process.

I am not overly pessimistic about the feasibility of this plan, particularly over the longer term and through incremental steps. At the same time, I am not among those who believe paradise will suddenly arrive if this measure is adopted. Let’s simply take things one step at a time and do what is achievable.”