European Union

Written by Anna Flynn.

Start-ups are important in boosting competitiveness, which is a key priority during the EU’s 2024-2029 legislative term.

So, the EU is taking steps to foster its strategic innovation agenda, both financially and through policy measures. Evidence shows that the EU is falling behind competitors here (especially the US and China) – notably in the sectors of AI, biotech, clean tech, and defence tech.

The need for reform was highlighted by two 2024 papers – the Letta and Draghi reports, which set out recommendations to strengthen the EU’s single market and competitiveness, respectively.

Building on these reports, in January 2025, the Commission adopted the competitiveness compass. The compass is an economic framework that outlines three ‘imperatives’ – closing the innovation gap, decarbonising the economy, and reducing foreign dependencies.

Following this, the Commission launched the start-up and scale-up strategy (SSS) in May 2025. The aim is to make Europe an attractive place to set up and grow innovative companies. The SSS is linked to other initiatives such as the savings and investments union, the single market strategy, and the union of skills. In addition, the SSS will also encompass a 28th regime, with a focus on supporting startups.

The 28th regime is a long-standing concept. It would be a separate initiative that creates a single set of rules for businesses in the EU. The objective is to simplify laws and mitigate the fact that there are varying national regulations that create barriers for companies. The Letta report states that this ‘would be a transformative step towards a more unified single market’. The 28th regime would replace national law where the EU has exclusive competence, and it would supplement national legislation in other cases. It would also address relevant laws such as insolvency, labour, and tax rules. The Commission has indicated that the legislative proposal for this is scheduled for the first quarter of 2026.

ERPS has identified four challenges relevant to the 28th regime; to help the European Parliament’s Committee on Legal Affairs (JURI) prepare a legislative-initiative report supporting the proposal’s development. The four issues are that:

• the European financing ecosystem has a low appetite for risk and cross-border investment;
• Member States and innovative European companies struggle to attract skilled, entrepreneurial workers;
• the high cost of failure and restructuring for innovative European companies;
• high geographical variation in legal frameworks and innovation across the EU.

EPRS studies have corroborated that a transnational, pro-innovation perspective would bring economic benefit to the EU: a coordinated approach at EU level, instead of Member States acting alone, could add 0.9 % (or, with a more ambitious integrated approach, 2.6 %) to GDP by 2035.

Amid Parliament’s preparatory work, during a plenary debate on 7 October 2025, some MEPs noted that the 28th regime could consolidate the single market, while others expressed reservations about the potential impact on national laws.

JURI’s legislative-initiative report is expected to be voted in plenary during the January 2026 session.

Links

• The 28th regime
• Savings and investments union: Overview and state of play
• Scaling up European innovation – What is the potential European added value of a 28th regime?
• Single market strategy
• Union of skills
• A competitive compass for the EU
• Cost of non-Europe in strategic innovation
• Deepening the single market in the light of the Letta and Draghi reports

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