Abstract
A year after the Draghi Report’s call to restore European competitiveness, the EU remains short of outcome-oriented instruments to accurately monitor the tangible effects of its regulatory agenda. This article proposes a new, streamlined monitoring system based on three foundations (decentralisation, outcome-based indicators, and incentivised compliance) and discusses ways in which blockchain and artificial intelligence can lower compliance costs and enable real-time monitoring though regulatory sandboxes, innovation partnerships, and smarter, trust-enabled monitoring, rendering accountability a force for change.
Introduction
The 2024 Draghi Report bluntly warned that Europe’s chronic low growth and slow innovation, if unaddressed, would lead to ‘slow agony’, diminishing the European Union’s global influence (Blenkinsop, 2024). His call for a revival of European competitiveness underscored the urgent need for swift reforms and decisive action. In response, EU leaders rhetorically embraced competitiveness – Commission President Ursula von der Leyen even integrated parts of Draghi’s agenda into her 2024–2029 programme (European Commission, 2025) (e.g., the Competitiveness Compass) – yet tangible improvements remain elusive on the ground.
One of the main problems is that Europe’s existing monitoring and governing instruments are not producing meaningful change. The Single Market Scoreboard, European Semester, and Recovery and Resilience Facility (RRF) performance trackers all produce reams of reports and data but too often on inputs and process compliance, as opposed to real economic results. As the European Court of Auditors (ECA) recently reported on the RRF, milestones and objectives ‘focus on output rather than results’ (European Court of Auditors, 2024) and preliminary reports had limited information on performance. The report confirmed that the monitoring system of the RRF did monitor implementation progress but only partially monitored the RRF’s performance, which indicated a gap in measuring real-world impact. Similarly, the European Semester – the EU’s yearly economic policy coordination cycle – is prone to focusing on fiscal rules, structural reform packages, and administrative checklists, with varied results in energising growth-friendly reforms. The Single Market Scoreboard, while providing an exhaustive overview of law transposition and compliance by Member States, tends to focus on formal compliance (e.g., transposition rates, infringement cases) rather than tangible competitiveness outcomes in each Member State. The result is a ream of statistics and forms which all too frequently fails to induce real reforms or provoke significant changes in the business environment of the EU.
This overinvestment in compliance procedures has the potential to be self-defeating, particularly for Europe’s legion of small and medium-sized enterprises (SMEs), which represent 99% of business in the EU (European Commission, n.d.c). Administrative burden is also an age-old grievance because SMEs do not have the armies of lawyers and consultants that larger firms have to deal with regulatory requirements (Mauer, 2024). The Draghi Report itself points to regulatory burdens as an investment and innovation barrier frequently cited by EU businesses. Over 60% of EU businesses view regulation as an investment barrier, and regulatory barriers and administrative burden is identified by 55% of SMEs as their greatest challenge (BusinessEurope, 2025). EU politicians have made commitments to cut red tape, with scant success: von der Leyen set a target for her Commission to reduce reporting requirements by at least 25% overall (and 35% for SMEs) (Draghi, 2024; Eurochamber, 2024). Industry representatives assert that overall regulatory burden has, in fact, grown in recent years in the face of a wave of new EU action (Draghi, 2024; Eurochamber, 2024). New monitoring systems in the EU are therefore susceptible to designing ‘burdensome compliance checks that create no actual value’, channelling efforts into box-ticking rather than results (Mauer, 2024).
This article contends that the EU should and must revisit competitiveness monitoring – attaining accountability for results without unleashing new bureaucratic overkill. The goal is to substitute the current bloated but empty monitoring with lean, smart frameworks that are in tune with innovation, market dynamism, and institutional trust. The monitoring of progress must not mean adding more layers of bureaucracy but, instead, crafting clever feedback loops that stimulate policy learning and adaptation. What we propose in this article is a new monitoring system grounded on three pillars: decentralisation, results, and incentives. These three pillars are a roadmap to streamline EU competitiveness monitoring into a more efficient and business-friendly process and sustain the Draghi agenda of a dynamic Europe without damaging the economy.
Before detailing the structure of the pillars, we first discuss why current EU monitoring mechanisms are inadequate, and why there needs to be a paradigm shift. We then describe each pillar – (1) decentralised, industry-led monitoring, (2) open, results-based indicators, and (3) incentive-driven compliance – with detailed proposals for implementation. We also analyse the role that new technologies such as blockchain and artificial intelligence (AI) can have in making compliance cheaper and providing real-time regulatory feedback. Finally, we address how innovation partnerships and regulatory sandboxes can deliver real-time insights on regulation-in-action, shaping investment in smarter rules. Throughout, the emphasis is on accountability without overreach: holding policymakers and market players to account for competitiveness effects, but through fluid and trust-based mechanisms rather than coercive micro-regulation.
The shortcomings of current EU monitoring frameworks
Europe’s current tools for tracking reforms and competitiveness are extensive but too frequently ineffectual. One example is the European Semester (European Commission, n.d.e) – the EU flagship economic monitoring procedure initiated in 2011. The Commission and Council publish country-specific recommendations (CSRs) and demand structural reforms (from labour market reforms up to research and development (R&D) expenditure) as well as Member State reports on progress on an annual basis. Although the Semester has enhanced policy coordination, its real competitiveness performance impact has been limited, in part due to voluntary compliance and a lack of enforcement. Member States too often pursue only portions of the recommended reforms, and there is no direct connection between checking off reform ‘inputs’ (e.g., enactment of legislation) and producing outcomes such as increased productivity or innovative ability. The system produces lengthy reports and formal ‘scores’, but these report on whether procedures were followed through on – and not whether people’s abilities improved or new companies were created as a result. Most EU Member States, as the OECD (2022) explained, do not systematically assess whether rules really work. This discrepancy between formal compliance and real outcomes is at the core of Europe’s competitiveness monitoring issue.
In a similar manner, the Single Market & Competitiveness Scoreboard (previously simply the Single Market Scoreboard) (European Commission, n.d.f) gathers wide-ranging measures of Member States’ implementation of Single Market rules and performance against a succession of ‘competitiveness drivers’ – such as innovation capacity, digital uptake, SME participation in cross-border trade, and business environment quality. The most recent Scoreboards monitor such matters as numbers of Single Market infringement cases, EU directive transposition deficit, and some outcome indicators (e.g., SME shares of exports, innovation measures). Though helpful for transparency, this too is plagued by information overload with little impact. Member States are colour coded on scores of indicators but there is little evidence to show that a red or yellow in the Scoreboard initiates effective policy reform. Compliance measurement has not been shown to ensure competitiveness. For instance, a nation may be nearly 100% lawfully compliant on Single Market rules and yet have low results for the creation of new businesses or digital take-up. The breadth of the Scoreboard can also weaken concentration – administrations may employ strong scores on some indicators to gloss over weaknesses on others. Overall, an enforcement-only dashboard with no real accountability or incentives for reform is tantamount to a ‘naming and shaming’ exercise to which no one pays attention. Nor does it examine the progress achieved in the dismantling of entrenched impediments, such as barriers to cross-border public procurement or the lack of mutual recognition for professional qualifications – issues reflected today but also first reported 20 years ago (ERT, 2024).
The RRF (European Commission, n.d.b) performance monitoring highlights the weaknesses of the EU’s input orientation. The RRF – the EU’s €723 billion COVID-19 recovery fund – was marketed as ‘performance-based’, with payment tied to milestones and targets instead of cost reimbursement (Darvas, Welslau, & Zettelmeyer, 2023). On paper, this meant money for results. Practically, though, the term ‘results’ was watered down. The European Commission’s national recovery plan guidelines firmly discourage result indicators, and many nations barely included any actual outcomes in their plans. A majority of milestones tracked progress against investment completion or the adoption of legislation instead of the effects of the measures. As the ECA also concluded in late 2023, the RRF design ‘measures implementation progress but only partly [captures] performance’ by emphasising outputs rather than outcomes (European Court of Auditors, 2024). The ECA noted that initial RRF reports met reporting requirements but did very little to inform on whether supported projects had the desired economic impact. That is, a bridge may be constructed on schedule (output), but is it adding to connectivity and development in the region (outcome)? These were questions that remained unanswered. The RRF Scoreboard, which is supposed to deliver transparency, was not free from data quality and transparency issues either. The RRF is the embodiment of the problems haunting the EU: significant reporting infrastructure including endless details, but without a clue whether policies are having any effect on the ground.
Aside from these specific tools, there is a more general issue of excess bureaucracy undermining competitiveness that current surveillance does little to combat. The EU procedures are fixated on legalistic adherence – whether it is about regulations being properly transposed, paperwork filled out, or requirements fulfilled – rather than questioning whether those regulations are smart, essential, or if they could be improved. There is a tendency to double down on overregulation, piling on rules and reporting under a misguided assumption that more control will translate into better results (Thomadakis & Marcus, 2025). In practice, complicated regulations serve big corporations (which most of the time can handle them) and overburden small businesses. These results speak to an inverted reality: over-monitoring and paperwork can turn into competitiveness hindrances, draining entrepreneurial energy and diverting resources from innovation to compliance (Heiber & Helzer, 2023).
Importantly, the EU’s power to impose change through such monitoring mechanisms is constrained by design. In contrast to monetary or trade policy, most of the levers of competitiveness (education, taxation, R&D, industry regulation) remain in the hands of Member States. The Semester and accompanying processes depend on soft pressure since Brussels cannot force national governments to maximise their systems or lower tax rates. The outcome is an implementation gap: European institutions can define problems and even dictate solutions, but they cannot follow through. Too frequently, this results in frustration on both sides – EU officials repeatedly threaten to freeze reforms, while national leaders resent what they perceive as overreach or top-down interference. In the absence of clear responsibility and ownership, no one is truly accountable for delivering tangible outcomes.
In short, the current state of EU monitoring is marked by fragmented efforts, an emphasis on process rather than outcomes, and burdensome bureaucratic reporting. It generates significant amounts of data but very little useful information, and few consequences for inaction. Worse, it can impose actual compliance costs – a €65 billion direct yearly cost of compliance by companies in one Member State (Germany) alone, and another €146 billion of unrealised economic value lost because of bureaucratic delay (Mauer, 2024) – with no offsetting benefits. Seemingly, Europe requires a new way: one that holds governments and businesses accountable to the goal of competitiveness but does not micromanage.
The shortcomings outlined above reveal that Europe’s current competitiveness monitoring landscape is not just inefficient – it actively undermines the very goals it purports to serve. A new approach is urgently needed, one that moves beyond formal compliance and begins to engage more seriously with real-world outcomes, business realities, and innovation dynamics. This shift requires a conceptual reset: away from centralised bureaucracy and towards flexible, collaborative, and data-informed governance. Such a model must build trust between institutions and economic actors, minimise administrative burden, and ensure that monitoring supports – rather than stifles – competitiveness. In the following section, we present a three-pillar framework designed to achieve precisely this. These pillars – (1) decentralised, industry-led monitoring, (2) outcome-oriented performance metrics, and (3) incentive-driven compliance – form the core of a reimagined monitoring system that aligns institutional oversight with market realities and the EU’s long-term growth agenda.
A Three Pillar Model
Pillar 1: Decentralised, bottom-up monitoring – an industry-driven approach
The first component of a new system would be a step away from EU-led, top-down monitoring towards industry-led, decentralised systems of monitoring. Rather than EU institutions alone collecting and evaluating all the relevant data (usually with considerable lag and bureaucracy), the vision is to enable the private sector – companies and industry associations – to generate voluntarily and in real time what are considered the key competitiveness indicators. In essence, it would be to create a network of lean, cooperative data platforms in which firms themselves, sector by sector, report measures that are essential to competitiveness, including innovation and market performance. This bottom-up monitoring would supplement official statistics and scoreboards with rich, real-world data without heavy-handed mandates. Because participation would be voluntary and tailored to what firms already track for operational purposes, it would not impose an additional administrative burden but rather harness existing information flows for policy relevance.
How could this work in practice? Industry-led platforms could be created for key industries or clusters (a digital innovation platform, a manufacturing competitiveness dashboard, etc.), as outlined in Pillar 3. Firms may release data points indicating their competitive performance and the business environment, for example, number of patents filed, product launch time-to-market, number of new start-ups or SMEs established, success rate of scale-up, R&D spending, SME export growth, and so forth. Most importantly, these are top-line indicators of competitiveness – they tell us whether innovation is occurring and companies are expanding – not procedural indicators such as the number of regulatory requirements met.
Platforms would be supported by open standards and third-party authentication to be credible. All participating firms would report data according to agreed definitions/formats (much as financial reporting follows standards), making the information comparable and aggregable. Third parties, for example, universities, research institutions, or certified auditors, would validate data at a sample or aggregate level to avoid misreporting or manipulation of the system. Crucially, this assurance would not involve intrusive audit of all companies (which would recreate burden), but rather light-touch verification or statistical confirmation to underpin confidence in the dataset. Blockchain technology (discussed in a subsequent section) might even assist in generating tamper-evident evidence of uploaded measurements, further supporting trust (Kaul, 2024).
One of the core principles of this decentralised strategy is that it does not run the risk of instigating public criticism or regulatory sanctions against individual companies for the information they provide. The goal is to create candid, valuable data, not ‘sticks’ for non-compliance. Therefore, data may be published anonymously or in aggregate form, particularly if commercially sensitive. As an example, an industry platform could display sector means or distributions of time-to-market for new products without mentioning the value of each firm. Companies can then report their performance indicators accurately and without fear of public exposure or reputational harm. The data would be used cooperatively, for diagnosis: to detect bottlenecks (e.g., if mean time-to-market is increasing, e.g., with slower regulatory approvals) and to exchange best practices. It flips the tone from ‘regulators watching over the regulated’ to ‘everyone taking care of the system’s well-being together’.
Decentralised monitoring takes advantage of the reality that companies are best positioned to have the timeliest information about what is going on in their market. Instead of waiting for the official surveys a year hence, a tech start-up group could, for example, voluntarily release a monthly index of the number of AI start-ups formed and how efficiently they coped with licensing procedures. When a new regulation single-handedly reduces that index, it serves as a quick red flag – and one raised within the industry itself. This sort of real-time, crowdsourced knowledge can alert policymakers to unintended effects sooner than conventional reviews. It also minimises duplicate reporting: firms already must monitor a significant quantity of these numbers internally (for corporate performance), so reporting them through an automated feed or periodic format is much less burdensome than typing them onto independent government forms. Over time, one could envision these sites integrated with firms’ systems through application programming interfaces (APIs), so contribution becomes a question of a one-click tour.
One of the key advantages of the industry model is that it can maintain business autonomy and minimise bureaucratic overhead. Businesses are still accountable for their data sharing (within the stipulated frameworks) and can add context or stress to the numbers through discussion forums on the platform. Peer pressure and collaboration might arise: businesses, for instance, might compare themselves to industry averages on the platform and attempt to bridge the gap if they are lagging. Sector groups would hold seminars on how best to enhance specific measures (e.g., reducing product approval lead times) and meet with regulators armed with concrete data. This would be achieved without the EU authority micro-managing centrally. The role of the EU would be that of a facilitator and standard setter, not that of an all-seeing inspector. This does not conflict with the principle of subsidiarity and utilises the capability of the private sector to innovate. It acknowledges that in a rapidly evolving and volatile economy, distributed networks are better positioned than centralized hierarchies to detect and adapt to change swiftly and accurately.
Notably, there have already been some steps in that direction in certain areas. The European Commission has become interested in ‘competitiveness proofing’ and forward-looking stakeholder consultation. In 2023, for example, the Commission introduced compulsory competitiveness checks for all its legislative impact assessments. The most recent Competitiveness Council discussions include cooperation with businesses as part of improved regulation. The Competitiveness Compass suggested keeping rules simple and adopting innovation-friendly approaches in early 2025 (European Commission, 2025; Whelan, 2025). By providing industry with a direct route to communicate where rules are hindering competitiveness (through data and feedback mechanisms), policymakers would be made aware of the realities on the ground.
Pillar 2: From procedural metrics to outcome-oriented metrics
The second pillar involves a fundamental shift of focus in what we are measuring and tracking: namely, to move away from procedural metrics towards open, results-based metrics directly connected to competitiveness outcomes. That is, discontinue measuring success in tick-box terms and instead begin measuring it in economic terms. This involves being clear about competitiveness and innovation indicators, making them transparent, and including them within public accountability systems.
Why outcomes? Because what gets measured gets done. The EU’s recent practice of measuring inputs (e.g., cost incurred, laws enacted) or outputs (documents prepared, tasks accomplished) has been inadequate and insufficient (Darvas, Welslau, & Zettelmeyer, 2023). As the former Commission Vice-President Kristalina Georgieva once put it, ‘we can build a road with 0% error rate, but if it goes nowhere, it is still a road to nowhere’ (Darvas, Welslau, & Zettelmeyer, 2023). A flawless procedural badge is worthless if the result is bad. By contrast, outcome metrics force everyone to focus on the end goal – making the economy more dynamic, innovative, and productive – rather than the paperwork along the way.
What type of metrics? We suggest that the EU and Member States employ a set of key competitiveness indicators (KCIs) which are publicly monitored. These would cover innovation outcomes (e.g., number of patent filings or high-tech patents issued, particularly in frontier technologies), new business creation and expansion (e.g., start-up density per capita, rate of successful scale-ups, SME growth in revenue and jobs), digital adoption (e.g., rate of firms adopting advanced digital technologies such as AI or cloud – similar to metrics followed by the Digital Economy and Society Index) (European Commission, n.d.d), R&D performance (e.g., percentage of R&D expenditure as a share of GDP, but most significantly rate of commercialisation of research), skills and talent indicators (e.g., number of STEM graduates, rate of individuals undertaking upskilling courses), and quality of regulatory environment (possibly measured by international ratings or business attitudes towards regulation surveys). Some of these indicators already exist in some form or other – the European Innovation Scoreboard and DESI already aggregate most of the relevant data points. The innovation there would be to bring these outcome indicators into the spotlight of surveillance, as opposed to taking them as background statistics.
Such outcome-focused measures should be placed on public dashboards which facilitate easy comparison among Member States. Imagine an easy-to-use web portal where one can view, say, how France, Germany, and Poland rank on start-up levels or on average number of days to obtain a business permit, refreshed annually or quarterly. The Single Market Scoreboard achieves that to some extent with a handful of indicators of performance, but a competitiveness dashboard could further highlight the outcomes. Ideally, it would be interactive and provide real-time information to the extent possible (with the decentralised data streams of Pillar 1 keeping the information up to date). Most of all, these dashboards need to be made accessible not only to specialists but also to the public, media, and national parliaments in a non-technical format. For instance, a Europe heat map indicating which nations are green, yellow, or red on certain competitiveness KPIs could prompt healthy public debate. If a country sees itself lagging behind its peers, that becomes a prompt for voters and lawmakers to ask why, and what needs to be done?
Member State benchmarking has the effect of unleashing a little competitive energy and peer pressure – a proven instrument in the EU’s “open method of coordination” (European Parliament, 2014). National governments can be made accountable by their own citizens and firms with open results. A parliamentarian can point to the dashboard and ask the government: ‘Our neighbour has twice our rate of new innovative firms – what reforms are we putting in place to catch up?’ Similarly, investors and civil society can mobilise around the evidence to create pressure for change. By laying out actual outcomes, it becomes more difficult for underperformance to hide behind bureaucratic compliance.
For example, if Country A has enacted all the ‘right’ laws according to EU advice (compliance process), but still its productivity or innovation levels stagnate, the outcome dashboard will pick up on that. In contrast, if Country B followed a different policy path but its start-up scene is flourishing (outcome success), then that too is highlighted. This encourages focusing on policies that work, and not policies that merely check EU boxes. Furthermore, it can even produce policy innovation: nations can borrow success recipes from their neighbours (it is simpler to take note of best practices if success is well defined).
In effect, the focus on monitoring shifts from ‘Did you do what Brussels needed?’ to ‘Is your economy creating competitiveness gains?’. The latter is what matters for citizens – employment, earnings, innovation. Monitoring should be tailored to that.
It is important to note that outcome monitoring should not ‘name and shame’ in and of itself; instead, it should apply constructive pressure and facilitate learning. The EU can do this by tying the dashboards to annual forums or competitiveness reviews – open debates where Commission staff, external experts, and national governments debate why some are performing better and how lessons can be learned from success. This echoes the idea of the Semester concept but in terms of outcomes: not merely in Commission-to-country recommendations, but perhaps more as a multilateral review of scoreboard outcomes.
Some fear that an emphasis on results would force governments to attempt to achieve targets regardless of their health. But the indicators that are chosen must be balanced and consistent with sustainable competitiveness (e.g., innovation quality instead of quantity; jobs in industries at the front edge instead of any jobs). Moreover, outcome monitoring does not amount to ignoring rule of law or compliance – it is ‘in addition to’, not ‘instead of’. Governments would still need to comply with EU law, but the emphasis would be on delivering what those laws were meant to do.
By monitoring such outcomes as innovation and growth on a straightforward basis, the EU can better align its wide agendas (e.g., Green Deal or Digital Decade) to competitiveness. For example, if decarbonisation is a mission, then one of the indicators could be a ‘green innovation index’ – are EU businesses more strongly patenting and exporting green technology solutions? Draghi’s report emphasised linking the decarbonisation agenda with competitiveness, ‘not allowing the pursuit of one to be at the expense of the other’ (Chang, 2024). Outcome metrics could capture this balance (e.g., emissions reduced and cleantech market share gained).
Pillar 3: Incentives over mandates – encouraging compliance through rewards
The third pillar addresses the question of how to promote compliance and change in a manner that reduces coercion and encourages voluntary take-up. Since the EU generally does not have hard instruments of enforcement in competitiveness policy at its disposal (except for the infringement or conditionality of finance), it is reasonable to bet on incentive mechanisms. The idea is to encourage those making credible attempts to fulfil competitiveness goals, rather than only rewarding Member States or firms that are already top performers. This approach of positive reinforcement can help foster a culture of continuous improvement and trust, in contrast to the resistance often provoked by rigid, top-down mandates.
What forms could these incentives take? A range of options is available, targeting both Member State governments and individual firms or sectors:
- Regulatory green lanes or simplified reporting for good performers: the EU may choose to reward a nation or a business firm if they consistently achieve competitiveness benchmarks or anticipate reform by giving them relief from certain administrative burdens. For instance, companies with a sterling track record of compliance along with proof of innovation may be subject to less frequent scrutiny or receive regulatory clearances on time. In fact, the principle of proportionate supervision has already been introduced – for example, the EU’s proposals related to agriculture, to subject farms with long-term engagement in sustainability to fewer inspections and controls (Anghelescu, 2025). The same applies to other sectors: if you prove competitive improvement in good faith, the regulatory framework allows you room to breathe. This gives the high-flyers space and lightens the burdens (makes compliance more bearable).
- Financial incentives and recognition: the EU or governments may provide tax credits, innovation subsidies, or lower charges to companies adopting competitiveness-driven practices or undertaking productivity investment (such as tax relief for green investment or R&D). At the Member State level, allocation of EU funds can involve bonus schemes: for example, a Member State that meets certain innovation or SME performance criteria can receive an additional structural fund top-up or be granted greater flexibility in their allocation. While RRF was a one-off, future EU funding can involve a modest competitiveness performance reserve. Another soft incentive could be public recognition, for example, an EU Competitiveness Award or ranking that governments effectively desire for political motives. People and institutions react to reputation; structuring a leading vs lagging narrative on competitiveness (underpinned by outcome evidence) can motivate action.
- Conditional relief or leniency: in certain instances, the EU can commit to holding back on suspension or refraining from taking punitive action against a Member State should it reform at will according to competitiveness objectives. For instance, if a nation is lagging on some procedural aspect but is obviously heading in the right direction regarding outcomes, the Commission has leeway in enforcement. While rule of law needs to be followed, there is room for discretionary adjustment in timelines and interpretation. If utilised effectively, regulatory leniency as a carrot will get laggards to move on to the new technology without worrying about ongoing infringement wars. Transparency and fairness are paramount – leniency only for concrete progress.
Peer and market pressure via transparency: some incentives are indirect but powerful. By making comparative results public (as Pillar 2 recommends), the EU leverages peer pressure – a more efficient approach in a community of democracies than fear of legislation. No government likes to be seen as the one where doing business is hardest. Furthermore, investors (markets, firms) would observe the data and act accordingly. On the one hand, a nation which repeatedly performs poorly on the EU’s competitiveness data might experience lower investment, pressuring leaders to act. One which is improving, on the other hand, might receive increased investment, rendering a positive incentive. Transparency in and of itself is thus an incentive tool, inducing voluntary convergent alignment with best practices.
Spontaneous readjustment towards EU standards – and reputational clout and openness – is often a more attractive second-best option to command-and-control strategies. This particularly applies to cyclical industries and heterogeneous economies. In troubled industries (during a downturn), draconian directives may be self-defeating, but the provision of support and flexibility in return for reform attempts can elicit greater compliance. For instance, instead of imposing new, expensive regulations on manufacturing plants straight away during an industrial downturn, the EU might relax its rules temporarily but on the condition that the company invests in efficiency or retraining (so that competitiveness is increased through the recovery).
A real-world analogy is regulation of the environment: several nations have ‘voluntary compliance programmes’ where companies that exceed the minimum are rewarded with incentives such as reductions in inspections or public certification. Evidence suggests that compliance improves when businesses are met with open doors rather than drawn swords – voluntary schemes built on mutual benefit tend to generate more engagement than those driven by fear of sanctions (Anghelescu, 2025). The EU itself has implicitly followed the same approach – for example, the EU Transparency Register for lobbyists, ostensibly voluntary but incentivised by providing access to policymakers for opt-in registrants (an ‘incentive-based system’ for transparency) (European Commission, n.d.g).
An important feature of compliance based on incentives is that it forms a more trusting relationship between the regulators and the regulated. If Member States and businesses understand that the EU will reward good behaviour – in whatever guise, be it positive publicity, a lighter touch, or assistance – they will be more likely to come to compliance in good faith, not just as a cost to be minimised. It is cooperation in the interest of common objectives (competitiveness, sustainability, etc.), not a cat-and-mouse game of conflict. That fits with the idea of institutional faith at a more general level: if companies have faith that the monitoring mechanism is equitable and discerning, then they will cooperate more, divulging better data and results. A coercion framework, however, precipitates minimum-necessary compliance, creative evasions, or a culture of box-ticking.
Naturally, the incentives must be clearly defined so as not to induce moral hazard or indolence. The incentives must be linked to meaningful progress milestones (hence the importance of outcome measures). An example would be a tax reduction contingent on a company boosting its R&D spending or employee training. Simplifying a country’s reporting may be made dependent on it agreeing to a reform roadmap. The European Commission’s recent introduction of a ‘competitiveness check’ in legislative assessments is a promising ex ante step. However, we recommend extending this approach to ex post governance as well – actively guiding the acquis through targeted support mechanisms for those genuinely advancing EU competitiveness goals.
Ursula von der Leyen’s recent action points towards an incentive policy. The Commission’s 2025 ‘Omnibus’ regulation simplification package is a move towards industry’s desire to ‘simplify EU rules, increase competitiveness, and free up investment’, potentially even delaying or revising some of the upcoming requirements (Directorate-General for Financial Stability, Financial Services and Capital Markets Union, 2025). By recalibrating burdens (e.g., encouraging voluntary measures rather than mandatory requirements where possible), the EU is acknowledging that coaxing cooperation can work better than compelling it. Our proposal builds on that insight: use incentives to support those who genuinely strive to meet competitiveness targets, rather than assuming everyone must be forced or punished.
In practice, the EU might integrate an ‘incentive framework’ into the European Semester or a new Competitiveness Pact (Baccini, 2024), that is, a menu of incentives that are offered to Member States (technical support, additional funding, reduction of some EU regulation) in exchange for committing to and achieving concrete reforms. For companies, the EU can collaborate with national governments to promote similar regulatory sandbox or grace-period ideas for entrepreneurs.
Lastly, compliance by incentive is also aligned with human nature and organisational behaviour principles (Zhu et al., 2023). Human beings respond positively to constructive feedback. A fear-driven or burden-driven culture leads to do-the-minimum behaviour; an aspiration-driven and reward-driven culture leads to continuous improvement. The challenge for Europe, to become competitive again, is as much cultural as it is technological – it will require the cooperation of officials, employees, and entrepreneurs on all sides. Incentives can prompt that cooperation.
Leveraging technology: Blockchain and AI for smart compliance
Enabling all three pillars can also represent a strategic application of breakthrough technologies such as blockchain and AI to automate compliance and monitoring. Technology can reduce regulatory reporting costs and labour, so that potentially onerous work becomes an automated real-time process. In the creation of a lean monitoring environment, the EU would do well to adopt so-called regtech (regulatory technology) solutions – digital tools specifically designed to simplify and streamline regulatory compliance. These solutions can help companies meet their obligations more efficiently, using automation and data integration, rather than adding new layers of reporting burden (Charoenwong et al., 2024).
Blockchain technology is unique in its ability to enable transparency and trust in compliance information without requiring constant audits. A blockchain is an immutable, distributed ledger that allows all relevant parties to access a single, verifiable record of transactions or compliance events. Unlike traditional self-certified reporting, where companies internally produce compliance declarations subject to later verification (if at all), blockchain enables real-time, tamper-proof disclosure of relevant data that is visible to regulators as it is generated. In self-certified reporting, firms attest that they are compliant – often through periodic forms or reports – without providing underlying data unless specifically audited. This creates a time lag, room for selective reporting, and a reliance on trust or later inspections. In contrast, a blockchain-based system records compliance activities (e.g., emissions data, licensing renewals, safety checks) as they happen, with cryptographic proof that the data has not been altered. For example, a factory’s emission output could be automatically logged via sensors into a blockchain-linked system, allowing regulators to access a real-time living ledger of environmental data. Because entries are time-stamped, decentralised, and resistant to tampering, regulators no longer need to wait for disclosures or verify them after the fact – the evidence is embedded in the process itself. This approach drastically reduces the need for paper-based bureaucracy and repetitive audits. If the data is already securely recorded, publicly verified, and trustworthy by design, then there is less need for supplementary forms or manual confirmation. In short, blockchain shifts the compliance model from ‘trust then verify’ to ‘verify by design’.
When it comes to competitiveness, blockchain would be applied to track the product approval cycle (every step stamped on a ledger) or the compliance supply chain (confirmation that products comply with Single Market regulations). It enables traceability – every transaction is stamped – and immutability – it cannot be edited but only added to. Checking compliance can thus be automated to a high degree. The increased level of trust enabled by a decentralised audit approach is the key factor here: instead of having to send sheaves of paperwork to a central bureaucracy to verify you did X, Y, Z, you just let the authority read the data, referenced by the blockchain record, at all times. In many situations, it may well eliminate interim reporting or reduce inspection frequency. The ECA found that the RRF scoreboard had data quality issues; a well-designed blockchain system would eliminate that by enabling data integrity at the source.
AI, and specifically machine learning, can also revolutionise regulatory monitoring by handling the analysis of large data streams and automating routine compliance tasks. For instance, AI algorithms can process companies’ data to detect anomalies or trends that indicate compliance issues or emerging risks. In the finance sector, AI is already used to flag unusual transactions for anti-money laundering (Vinther Daugaard et al., 2024) – a task that would be impossibly labour-intensive manually. The same principle can apply to competitiveness monitoring: AI could churn through the decentralised data from Pillar 1 platforms and identify patterns – say, a certain permit process taking longer and longer in one country, or a dip in start-up registrations correlated with a new regulation – and alert regulators to these trends in real time.
The combination of blockchain and AI also presents new possibilities. Blockchain provides the rock-solid data pipeline; AI processes that data for intelligence. Blockchain can facilitate traceability and trust without the need for continuous audits, and AI can review compliance information and mark trends without burdensome reporting. Imagine a regulatory framework where the compliance activities of companies (standards complied with, permits secured, etc.) are tracked constantly on a blockchain. AI keeps an eye on this book, and when it detects a deviation (say, a permit that should normally be renewed monthly wasn’t) it sends a reminder to the regulator and the company – perhaps even with recommendations on what to do next. But if all is well, then no report needs to be submitted at all – compliance is done quietly in the background. This turns the current model on its head: instead of burdensome routine reporting to establish compliance, compliance is assumed under the open system unless demonstrated otherwise.
Trial tools: Regulatory sandboxes and innovation deals for live testing
To successfully implement the above pillars, the EU should also expand its experimental application of regulatory instruments – regulatory sandboxes and innovation deals/agreements. These enable new regulation or policy to be piloted in live markets on a small scale, and live evidence of their impact (including unintended impact on competitiveness) is formed prior to wider roll-out. They also offer a risk-free space in which regulatory barriers to innovation may be uncovered and removed.
Regulatory sandboxes are controlled environments where a few regulations are relaxed or tailored to the participants who engage in them under the supervision of a regulator. They have been developed in fintech and are spreading into areas such as health tech, energy, and AI. The concept is to allow innovation to experiment with new products or business models without being required to meet all rules upfront, with the regulator watching and deriving lessons. This provides priceless insights: what rules stifle innovation? What protection is really needed? Sandboxes provide us with facts on what regulatory approaches work or do not work, as compared with speculative hypotheses (Leimüller & Wasserbacher-Schwarzer, 2020).
The EU has recognised the value of sandboxes. The European Commission recommended their use in 2020 and even published guidance on ‘test beds’ and sandboxes within its Better Regulation Toolbox (European Council, 2020). Various pieces of EU legislation now specifically permit sandbox methods (e.g., the draft AI Act contains sandbox rules for AI developers). The Commission Staff Working Document on regulatory experimentation (European Commission, 2023b) points out that experimental environments are useful in detecting whether a regulatory environment remains fit for purpose or must be adjusted by engaging with experimenters in live or near-live scenarios (European Commission, 2023a). Essentially, sandboxes generate immediate feedback on the way regulation really works – and how it can stifle innovation. This feeds directly into wiser monitoring: regulators receive early warning of unreasonably burdensome regulations.
Innovation deals (also referred to as innovation agreements) are a related instrument. They represent bilateral collaboration arrangements between innovators (e.g., companies), the authorities, and the Commission aimed at the identification and circumvention of regulatory obstacles to innovation. Launched as a pilot in 2016, innovation agreements were created to bring together all relevant actors when a company encounters legislation that is either unclear or not well suited to an innovation (European Commission, n.d.a). The goal is to find practical solutions without necessarily having to amend the law. It works as a kind of fast-track dialogue: the company presents the regulatory obstacle, and authorities assess whether the law can be interpreted flexibly. If not, the issue may be escalated for possible legal revision. In essence, it is a bottom-up, entrepreneur-driven approach that uses real cases to guide regulatory adaptation. For example, one of only two EU-wide piloted Innovation Deals resolved regulatory uncertainty around the use of recycled water in industry in a circular economy initiative (Leimüller & Wasserbacher-Schwarzer, 2020). The deal convened national officials and Commission experts to resolve the uncertainty as to how EU water legislation had been applied, thus unblocking the initiative and informing policy development going forward (in practice, the outcomes can be input to the REFIT – Regulatory Fitness – assessments).
Both innovation partnerships and sandboxes aim to establish a feedback loop from practice back to policy. They complement our monitoring pillars by offering qualitative evidence and case studies that can inform the interpretation of quantitative trends. For example, if our Pillar 1 decentralised data indicate patenting is declining in industry X, then a sandbox in industry X would continue to find that an outdated rule is making experimentation way too expensive – something learned through live testing. Or if country Y’s outcome measures (Pillar 2) reveal they are lagging in some digital service, an innovation agreement can be signed with businesses in that country to ascertain what national rule is inhibiting growth.
Notably, our tools also implement the decentralisation and trust vision. They entail regulators trusting innovators enough to ease rules in a managed manner, and innovators trusting regulators enough to voluntarily open up about the challenges they face. This creates a win–win relationship and shared knowledge that can then be leveraged to drive more industry-tailored rule-making. It also tames the adversarial approach – firms know that regulators are open to hearing them out and changing, so they will cooperate more and even assist in creating improved regulations.
As the EU progresses, a well-defined sandbox and innovation agreement framework being a part of integrated policy initiatives could become the norm. For instance, each new major regulation could come with an accompanying sandbox duration or a clause granting permission for short-term pilot deployment. The upcoming AI Act already considers this, and others should follow.
Conclusion
One year after the release of the Draghi Report, the EU is still struggling to attain competitiveness under efficient oversight without bureaucratic weight. A thinner model of accountability through decentralisation, outcome-based monitoring, and compliance via incentives, all means which would redirect focus away from procedural box-ticking towards actual economic advancement, is greatly needed yet still absent from the scene.
By engaging with industry directly, measuring actual outcomes such as innovation and growth in SMEs, and rewarding reformers with flexibility and trust, the EU can shift away from compliance towards performance enablement. New technologies such as blockchain and AI enable this vision, providing low-burden, real-time insights.
Rather than more rules, Europe needs smarter governance, tailored to produce results, not reports. If implemented, this approach would enhance trust, transparency, and innovation – making ‘accountability without overreach’ not just a principle, but a source of competitive advantage.
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