Calling something the 28th regime does not make it one
The trick to achieve more is to cover less
This post is co-authored with Ulrike Malmendier. A version of this post has appeared yesterday, on 16 March 2026, as an Opinion piece in the Frankfurter Allgemeine Zeitung (FAZ) and in Le Monde.
On March 18, the European Commission will unveil its 28th regime for European companies. The regime is supposed to be the most significant step yet in the post-Draghi attempt to strengthen the single market, give European firms better access to 450 million consumers, and increase economic growth.
So far, it seems unlikely that this will happen. A draft of the 28th regime proposal was leaked a few days ago. We hope that the final version undergoes further revision, as, in its current form, it leaves a lot to be desired.
The main feature in the leaked proposal is an EU registry that will allow firms to incorporate digitally, within 48 hours, for a maximum fee of €100. Commissioner Michael McGrath, whose portfolio includes the proposal, has said he wants to apply this new regime to the widest possible scope of companies, not just innovative growth firms. The impact assessment reportedly estimates the reduction in the regulatory burden on companies of around €400 million over ten years. This is a rounding error for a continent whose internal trade barriers cost it hundreds of billions annually.
The message we hear everywhere in Brussels is a call for patience: bear with us, we are just getting started, and we will be more ambitious later. This is starting to become grating. Why should we expect there to be better chances in the future? It won’t be easier to create a supranational regime than in the immediate aftermath of the Draghi report, after the Parliament voted 492 to 144 in favour, and after France and Germany made it a joint priority.
As one of us has noted before on this blog, Europe does not actually lack startups. It lacks large, dynamic companies — startups that have scaled. It is the frictions around scaling that the 28th regime is supposed remove. A company expanding from Lisbon to Berlin currently may need a new legal entity, a new employment structure, kafkaesque rules on cross-border labour contracts, a new compliance apparatus, and a new VAT registration before it even closes its next financing round. Winding down a business means navigating different creditor hierarchies in each country. And, just as importantly, Europe is bad at allowing founders to exit successfully from their start up by selling it or going public. Between 2008 and 2021, 147 European unicorns were founded. Forty relocated their headquarters abroad, the vast majority to the United States.
The idea behind the 28th regime, which was proposed in both the Letta and Draghi reports, was to create an outside option: a single set of European rules that firms could opt into if their national system held them back. The current proposal doesn’t do that. Even though it takes the form of a regulation directly applicable to all member states, it does not create a supranational company. It is incorporated in member states, governed by the law of the member state of registration, with national law filling any gap not covered by regulation. Notarial preventative control is still required for every formation and amendment of the articles of association, preserving the gatekeepers the whole regime was meant to bypass. By having incorporation take place through national registers, subjecting it to national preventive controls, and deferring to national law on every matter possible outside the scope of the regulation, it will de facto result in 27 different 28th regimes.
This has happened before. The European Company (Societas Europaea), introduced in 2004, was supposed to achieve the same goal. But, out of 23 million EU corporations, only a few thousand are SEs. Why? The law contains so many referrals to national law that it is more complex than the national systems it was meant to avoid.
To be clear, this is not really the fault of Brussels. Many member states do not want a 28th regime that competes with their own systems. The whole point of a successful outside option is that it reveals which national rules promote efficiency and which ones protect incumbents. That is what governments fear. So, every national hobby horse gets carved out from the new regime. McGrath has already promised unions that national rules will be unchallenged on all collective bargaining, codetermination, and labour questions.
The current proposal isn’t any good and the structural forces described above mean that any similar attempt from Brussels, however well-intentioned, will also fail. But it would be a mistake to conclude that no deepening of the single market for start-ups is possible. The key, we suspect, is to trade ambition about scope for ambition about content.
A 28th regime open to all companies ensures that every member state will imagine the regime cannibalizing its own corporate and labour order. The features that matter are then stripped out in the name of safeguards.
The difficulty with a narrower but more ambitious statute has been the fear of not ‘catching’ innovative companies. As Fiona Scott Morton and Reinhilde Veugelers have argued, even predictable criteria such as minimum R&D ratios or patent requirements miss many of the innovative firms we want to help. Facebook launched without patents. Amazon took three years to file its first one (1-click) after foundation. Netflix six.
The regime should apply to young, independent, non-listed companies that are cross-border scalable. That is the class of company for which fragmentation is uniquely destructive. Eligibility should be based on evidence such as risk-capital backing or cross-border activity.1 To ease concerns about labour protection, the regime could apply only to founders and key employees above certain income and ownership thresholds. The regime could also start as a regulatory sandbox and then be reviewed after five years to see whether it has worked in practice.
Once the scope is defined that way, the new regime can afford real substance. We can give this small subset of firms a genuine EU registry, standard venture documents, standard share classes, a simple path from formation to dissolution, one VAT registration, filing and refund channel for firms fully inside the regime.
The Commission’s own proposal may contain a proof of concept. The reported plan includes an EU-wide stock option regime, with common standards for exiting from equity compensation that all countries must respect, based on internal market law. This would be a significant improvement. It shows that Brussels can be ambitious when it narrows the target. Startup associations are putting huge emphasis on this component. This logic simply needs to be made more general: if you can harmonize the way you treat shares for founders and key employees, why not do the same with some labour provisions, tax filing and compliance?
When the United States allowed companies to bypass state securities laws through federal regulation, late-stage firms became four times more likely to attract out-of-state investors. Europe could do the same, and create a regime that opens the door to the same growth opportunities. Countries that wish to maintain their legal traditions can keep them. Young, new firms seeking scale can bypass them.
If it doesn’t decrease its ambition for who it includes, EU Inc. will be another Brussels concept with a logo and a website. Precisely by excluding more companies, the 28th regime could become something that matters, and give Europe’s best firms a reason to be born, to hire, to grow, and to stay in Europe. That is the outside option the continent needs.
See the piece by Fiona Scott Morton and Reinhilde Veugelers (2025) for some concrete implementable ideas.