The European Commission has spent much of 2025 promising to boost Europe’s competitiveness. Under this banner, EU policymakers have been loosening rules for financial institutions, officially with the aim of channeling more money into the economy.
The Omnibus proposal intends to reduce reporting obligations for companies. New “capital relief” measures under the Savings and Investment Union make it more profitable for large investors, such as insurers and pension funds, to invest in various types of products, such as long-term equities or securitisation - the practice of bundling hundreds of loans together and selling them on financial markets.
The Commission’s narrative is simple: make more capital available to support economic growth. But in practice, the emphasis on competitiveness risks overshadowing Europe’s sustainability commitments. ‘Freed-up’ capital doesn’t automatically flow into useful investments that strengthen communities, support the green transition, or enhance resilience. It’s drawn towards activities that maximise short-term profit,
Short-term wins, long-term risks
We’ve already seen what happens when companies get more financial flexibility without conditions. Instead of investing in workers, innovation, or long-term expansion, many large firms have used extra cash to buy back their own shares. This practice raises the price of stocks and rewards shareholders, but it doesn’t create jobs or strengthen the wider economy. It’s a system that makes the rich richer without spreading benefits across society.
The insurance sector is another example. In 2024, insurers across Europe posted record profits while continuing to underwrite fossil fuel projects that lock in future emissions. At the same time, they raised premiums and pulled coverage from households in areas hit hardest by floods, fires, and storms. Deregulation that makes financial investments cheaper for these firms risks fuelling this cycle: higher returns for investors, shrinking protections for the public.
A dangerous return to securitisation
The attempted revival of securitisation brings further dangers to financial stability. At its core, securitisation means bundling together loans such as mortgages or business loans and selling them to investors. The logic is that, in theory, by spreading risk and moving existing loans off balance sheets, banks could issue more new loans and therefore support the debt-driven economy.
But history tells a different story. In the run-up to the 2008 financial crisis, securitisation was used to package risky loans in ways that looked safer than they were. When borrowers began to default, the system unravelled, with global consequences. Without strict oversight, reviving this practice today could again make markets more fragile, not more resilient.
Why cutting reporting is a mistake
Even the apparently technical issue of reporting obligations is crucial. Reporting forces companies and investors to disclose how they manage risks and impacts, including environmental and social ones.
Cutting these requirements might look like reducing bureaucracy in the short term. But in reality, it reduces transparency. Without transparency, neither regulators nor citizens can see whether investments are flowing into impactful, sustainable activities or simply into speculative markets.
Underpinning the current push is an assumption that once restrictions are lifted, financial markets will naturally channel capital towards socially useful and sustainable activities. That assumption is misplaced.
The financial sector is built to maximise returns. It doesn’t redirect funds to climate-friendly or socially responsible investments out of goodwill. If policymakers want capital to serve the public good, they must design rules that require it.
That means attaching clear conditions to any capital relief. If insurers, banks and other large investors are given greater freedom and profit-making opportunities, they should demonstrate that new investments support real economic activity, rather than short-term shareholder gains. It also means strong monitoring systems so supervisors can track where the capital is going and intervene if it fuels speculation or fossil fuel expansion. Finally, it means aligning financial reforms with Europe’s climate and sustainability goals.
Learning from the “Tragedy of the Horizon”
This year marks ten years since Mark Carney’s famous “Tragedy of the Horizon” speech at Lloyd’s of London. His warning was clear: climate change poses an existential threat to the financial system, because markets fail to bring long-term risks into today’s decisions.
A decade later, that tragedy risks repeating itself. By loosening rules in the name of competitiveness, Europe is once again ignoring the long-term risks, such as climate shocks, inequality and systemic financial instability, all things that could derail its economy far more than any short-term regulatory burden.
Competitiveness cannot be a goal in and of itself. Long-term economic prosperity depends on sustainability, resilient communities and a healthy planet and that requires stronger, not weaker, regulation.
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