The bicycle belongs to Draghi, but “Europe is pedalling straight into the wall of bureaucracy”

According to Jacques Delors’ famous metaphor, “Europe is like a bicycle; it must keep moving forwards: if it stops, it falls over”. But the problem in this era of major technological change, says Luis Garicano, is that excessive European regulation has become a huge obstacle to innovation: “We are cycling towards a wall of bureaucracy”. Garicano, an economist at the London School of Economics and a former Liberal MEP, is the executive director of the Rhine Group, the think tank chaired by Mario Draghi and Patrick Collison, the co-founder of the payments company Stripe. What is the aim of the initiative? "Growth and reforms in Europe," Garicano tells "Il Foglio". “Europe focused on reforms following the Draghi Report, but after Trump’s election and the wars, there has been a shift in focus and a loss of momentum to carry out the necessary reforms proposed by Draghi in that report.”

It is as though Europe has been distracted by crises and emergencies. Consequently, the Rhine Group’s initiative is seen as a spur to the European Commission, which appears to have slowed down the reform process set out in the Draghi agenda. “I wouldn’t say just the Commission, but Europe in general, including the European countries,” says Garicano. “It happens in our personal lives too: the reaction to urgency takes precedence over the important matters. In this case, Europe’s problems are both urgent and important, and there is a reform agenda that needs to be implemented.”

In the Group’s manifesto, the changes cited as having made the global environment more hostile for Europe include both the Trump administration’s tariffs and China’s aggressive commercial expansion. For Europe, is protectionism something to defend against, as in the case of Trump, or a weapon to defend itself with, as in the case of China? “My personal view,” says the economist, “is that Europe was founded on the principles enshrined in the Treaty of Rome to seek prosperity, openness and integration. And these principles are still relevant today. We must fight for open trade, but we must emphasise reciprocity. Both in relation to US tariffs and in relation to China, where there is significant overcapacity in many industries that is flooding European markets in what many call the ‘second Chinese shock’. We must ensure, in both cases, that the same rules apply to everyone.”

Unlike many think tanks, which are predominantly made up of academics and politicians, the Rhine Group brings together leading scholars (one need only think of Nobel laureates Philippe Aghion and Bengt Holmström) with founders of innovative start-ups, venture capitalists and traditional entrepreneurs. This mix is evident in its dual leadership: the unlikely pairing of Draghi and Collison – a veteran of European institutions and a young start-up founder. How does collaboration work between such different and often incommunicable worlds? “We haven’t started working yet,” replies the economist. But the aim is to bring together academics who know how to conduct analysis and people who understand real-world problems. Entrepreneurs who are familiar with specific sectors and who face the daily challenge of getting on with the job and entering markets. All these people need a realistic perspective and, at the same time, people who know how to implement change. Furthermore, we academics sometimes run the risk of coming up with grand ideas without really knowing how to put them into practice. We therefore need people with political experience who have actually tried to implement reforms. There are three key elements: real-world experience, analytical skills and the implementation of reforms. And that is what sets us apart from other organisations.”

For years, Europe has seen itself as a regulatory superpower, lulled by the ‘Brussels effect’ – the idea that European regulations would go on to become the standard for the rest of the world. Now, with the development of new technologies and artificial intelligence, there is a sense of disillusionment. Can Europe regulate innovation that it does not produce? “I think it was a crazy idea,” says Garicano. “This process has resulted in European companies being smaller than their global competitors. Just take the GDPR. If you’re Google, the compliance costs are manageable, but if you’re a small start-up trying to grow in Italy or Spain, the fixed costs of the GDPR are a major obstacle. A paragraph in the Draghi Report explains this perfectly. Ultimately, these rules are a burden on new, innovative European businesses and a shield for the big American firms in Silicon Valley.” So do we need a period of deregulation? “Deregulation is a controversial term. The problem is that much European regulation aims to harmonise standards, but it does not remove the national layer that is then added on top. The result is a duplication of rules and a fragmentation of markets. And the consequence is that European companies cannot grow and scale up.”

The Rhine Group’s manifesto states that Europe must “compete, build and grow again”. What is needed? “To focus on growth. At present, Europe is trying to do too many things; it is trying to solve all the world’s problems, but it needs to return to the Rome agenda: growth and prosperity within the Single Market. We have strayed from that path and risk losing our capacity for innovation.”