Global business in a changing Europe introduction

On one level the European Union is a series of contradictions. A federation built on common rules in a world that increasingly rejects them. A monetary union overlaid on divergent economies.

But it is also a place of confidence and ambition, having emerged from some of the toughest challenges in its history united and resilient. The European Union has weathered multiple economic, social and defence emergencies over a difficult few decades, yet remains a hotbed of innovation and a favourable environment for business.

This year the EU is entering a potentially turbulent period in which the long-term effects of various crises may finally translate to real and lasting change at the political level. In upcoming elections, early predictions have far right, nationalist and Eurosceptic parties picking up nearly a quarter of the seats in the European Parliament. Nine national elections across the continent are also being closely watched for a swing towards anti-EU forces.

Rising support for radical, far left, and far right political movements in Europe is nothing new: the Eurozone crisis, the arrival of large numbers of refugees, the rising cost of living, and varied responses to COVID-19 have pushed voters towards political movements that have historically been on the fringe.

So far, this has not had the destabilising effect on the bloc that many had feared. Far right parties have tended to temper their extreme policies to win votes, and when in coalition governments have not generally been the radical disruptors they claimed to be.

Despite many elections bringing far-right forces into or close to power, the EU has continued to forge ahead as a regulatory innovator and extend its competence over areas as diverse as sustainability, climate policy, data protection, artificial intelligence and employment. But some are predicting that the scale of support for extremist voices means this time may be different.

Against this backdrop we have conducted a study to explore what being in Europe means for global organisations. In compiling the research, we carried out a series of in-depth interviews with business leaders across a range of sectors and would like to thank them for their support. We also surveyed 200 senior executives around the world working for companies with annual revenues over £200 million. The findings from this work are used throughout.

Through their eyes we have built a picture of Europe’s risks and opportunities, and how they deal with European regulations. We have gauged opinion on the EU’s green agenda, heard how businesses are scrambling to harness artificial intelligence, and explored their investment priorities. Our research lifts the lid on the methods they are using to manage risk and seek opportunities, and the areas where those structures are not yet fully mature. We have overlaid this intelligence with insights from our pan-European teams who are helping global organisations set their strategies for the future.

Our study shows that Europe remains a centre of opportunity, offering both global leadership and a stable policy environment for trade and investment. But while this is where Europe is today, it is unclear what tomorrow holds.

The EU’s policy agenda is proposed by its executive branch – the European Commission – and voted on by the European Parliament, which in the 2019-2024 mandate has been dominated by centre right, centre left, and liberal groupings.

Changes to the composition of the Parliament for the next five-year term could bring policy and regulatory upheaval. Many of the issues far right forces have railed against are the very areas where the EU is seen as a global leader.

Protests by farmers against environmental policies have galvanised support in many member states for far-right parties who oppose aspects of the European Green Deal. Similarly, debate over the impact of the EU’s liberal trade policies is expected to define the upcoming vote, along with migration and border controls. Overall, a general tone of Euroscepticism underpins much of the prevailing rhetoric.

What does this mean for EU policy?

How this impacts the direction of the EU will depend on how many seats the nationalist and far-right parties win, and on their ability to overcome their own divisions. Disrupting the EU’s long-standing policy agenda will require lasting coalitions to be formed. Established centrist parties will establish their own alliances in a bid to keep them at bay.

When it comes to defence and energy security, analysts are expecting support – military, financial, logistical – for Ukraine to continue. But an increase in Euroscepticism could result in more economic, fiscal and regulatory freedom for member states rather than greater control from Brussels, with a return of competencies to national governments a key demand of the EU’s critics.

It could also lead to reform of EU asylum policy and tighter immigration and border controls, potentially making it more difficult for businesses to attract talent from outside the bloc in an already competitive global labour market.

Protecting EU industry, jobs, and agriculture are likely to be priorities for many of the forces in the European Parliament moving forward. Protests are growing against policies targeting the agricultural sector, and should parties opposed to climate goals gain significant support in the European Parliament elections, the EU’s Green Deal could come under pressure.

Even before the vote, this changing mood was starting to be felt. The Corporate Sustainability Due Diligence Directive – designed to hold businesses above a certain size to account for identifying and mitigating any detrimental environmental and human rights impacts of their supply chains – reportedly stalled when it was put to a vote among member states. It was eventually approved, but only after the turnover threshold was raised so only businesses with global revenues above EUR450 million were in scope.

What happens with EU environmental rules after the election remains to be seen. But as our survey shows, businesses are forging ahead with the green transition, and there is widespread public support for renewables in the wake of the energy price surge that followed the invasion of Ukraine.

A culturally and geographically diverse continent will always face challenges finding common ground, particularly in such an uncertain and volatile geopolitical environment. Transatlantic trade and defence cooperation could be upended in the event of another Trump presidency; Europe’s supply chains could be further disrupted by the conflict in the Middle East; Russian aggression on the continent could spread further. But the foundations upon which the EU is built have proved to be resilient and will likely continue to be so in a pivotal 2024.

The challenges facing global business

EU institutions continue to use regulation and enforcement to pursue their goals within and outside the bloc, with more than 2,500 “basic acts” (i.e. new pieces of legislation rather than amendments to existing acts) introduced between 2019 and 2023.

Europe’s laws and regulations create a mix of harmonisation and fragmentation across areas of EU competence and those of national governments. Business leaders need a nuanced view on how to navigate them to achieve their goals, and on the opportunities created by the obligations imposed on them by European regulatory frameworks. With potential change on the horizon, it is more important than ever to make strategic decisions with care.

Ultimately, success in Europe depends on the ability to stay ahead of regulatory change, and a deep knowledge of how European regulatory regimes and enforcement priorities interact with national laws, courts and authorities. By taking a balanced view across all these factors, companies can manage Europe’s complexities with confidence.