EU: ECB’s calls for simplification: “Competitiveness stems from harmonisation, not deregulation”

Brussels – “Competitiveness stems from harmonisation, integration, and economies of scale, not from deregulation.” The European Central Bank has issued a warning to the European Commission and EU Member States, who are intent on overhauling the common legislative framework through a series of simplification measures in the name of competitiveness: be careful not to go too far. The EU in 2025 has been dominated by omnibus packages, a set of regulatory simplification measures designed to unleash the full potential of the single market and breathe new life into the twelve-star economy. 

In the proposal drafted by the ECB’s  Executive Board for a stronger, more competitive banking system better suited to the new competitiveness objectives, Frankfurt calls for action to break down barriers between states rather than to rewrite directives and regulations. At least as far as the banking sector is concerned, it is emphasised that “competitiveness is now hampered by unnecessary complexity and fragmentation between the various EU and eurozone member states.” This is the response to the consultation launched by the European Commission to draft bank-friendly proposals, and it is unequivocal: the priority is not omnibus packages. 

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The banking sector requires “concrete measures to establish a European deposit insurance scheme (EDIS), with a clear implementation timetable,” the ECB emphasises, referring to a dossier that the institution itself has been pushing for a decade, which remains deadlocked. The lack of progress on EDIS is having an impact on a banking union that remains incomplete, but the completion of the banking union project also requires the ratification of the treaty reforming the European Stability Mechanism (ESM), with the bailout fund providing a financial buffer for credit institutions in difficulty and acting as a crisis-response mechanism. Italy, however, remains unwilling to ratify it because, according to Prime Minister Giorgia Meloni, the ESM reform is based on the rules of the previous stability pact rather than the reformed one. Although the ECB makes no mention of it, ratification of the proposed amendment to the ESM is also required, which for Italy’s partners must not be changed.

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Furthermore, “policy-makers need to promote deeper capital markets by making progress on Savings Union and investment”, in what is a clear call for reform. On the subject of reforms, the ECB Governing Council insists and reiterates: “Measures aimed at simplifying regulation must tackle excessive complexity without undermining resilience” of the Eurosystem and the banking sector. Hence, a warning: “Safeguard mechanisms such as the minimum production threshold and the prudential treatment of non-performing loans help to adequately cover risks and should be maintained.”