Luxembourg’s Prime Minister Luc Frieden has urged European leaders to cut regulatory complexity and mobilize private capital to address the continent’s economic and security challenges, arguing that excessive bureaucracy is stifling investment.
In an opinion piece published in the Financial Times on Thursday, Frieden outlined a vision for a more efficient European financial system, calling for a simplification of existing regulations to unlock capital for investment in critical areas such as defense, digital transformation, and climate transition.
“Europe is awash with cash that sits idly with no productive use,” Frieden wrote. “It is time to turn those savings into investments.”
Frieden emphasized the need for a deeper capital markets union based on a single rule book rather than a patchwork of national regulations. He warned that excessive and fragmented regulation was holding back growth, particularly for Europe’s 25 million small and medium-sized enterprises (SMEs).
“Europe has taken regulation too far,” he said, pointing to the Markets in Financial Instruments Directive (Mifid II) and its accompanying regulation, which have generated more than 80 delegated regulations and 100 soft law texts. He argued that such complexity was discouraging investors precisely when Europe needs funding for its major policy goals.
Reform priorities
Frieden laid out three key areas for reform. First, he called for better use of existing financial frameworks, particularly in pension investment and securitization, to channel private savings into productive assets.
Second, he urged the EU to improve financial literacy and create standardized labels for long-term investment products to make them more accessible to savers.
Finally, he advocated for eliminating national barriers to capital flows, arguing that a decentralized but harmonized supervisory system could facilitate investment while avoiding unnecessary bureaucracy.
“Our national authorities can be enablers of vibrant capital markets through convergent approaches—a network of supervisory centers of excellence,” he said.
Frieden welcomed the European Commission’s recent efforts to simplify financial regulations but said they did not go far enough. “The first simplification omnibus package is a welcome first step. But it won’t be enough. More simplification is needed.”
Frieden positioned Luxembourg, home to Europe’s largest fund industry, as a leader in that effort. He argued that by making regulation “proportionate, clear, and easy to implement,” Europe could attract more investment without undermining financial stability.
“This is not about deregulation but better and smarter regulation,” he said. “Our citizens and businesses do not call for more centralization or complexity. They will measure our success by the degree of simplification we achieve, the financing we unlock, and the economic decisions we take to boost their welfare and security.”