The European Regulation In Search Of A New Paradigm

by Francesco Capriglione

Abstract: This paper examines the implications of technological innovation and geopolitical transformations for the European Union’s model of economic governance and regulatory constitutionalism. It argues that the growing concentration of technological resources and regulatory power in private actors, together with the weakening of multilateralism and the resurgence of geopolitical competition, challenges the foundations of European integration through legal harmonisation. Against this background, the proliferation of EU regulatory measures reveals an inherent contradiction: while regulation remains the Union’s principal instrument of economic governance, its increasing complexity may undermine competitiveness, constrain innovation and prove insufficient to address emerging forms of economic and technological power. The analysis therefore calls for a reconsideration of the rule of law in light of the structural transformations affecting the European legal order itself. Particular attention is devoted to the risk that economic heterogeneity among Member States, reflected in differences in fiscal capacity, energy systems, industrial structures and technological development, may generate regulatory asymmetries and fragmentation of the single market. The paper identifies new avenues of research aimed at assessing the limitations of uniform regulation and developing a renewed paradigm of European economic governance capable of reconciling legal integration, competitiveness and strategic autonomy.

Summary: 1. Technological innovation and the changing geopolitical order. – 2. The implications for EU Regulation. – 3. The transformation of the foundational principles of the rule of law. – 4. The crisis of regulatory constitutionalism and the need for new avenues of research.

1. Recently, the European Union has become increasingly aware of the profound transformations reshaping the organisational paradigm of the global order: from geopolitical change and the competitiveness deficit to the need for comprehensive adaptation to the digital environment. The European Council has expressly referred to a “challenging geoeconomic context”, strategic autonomy, resilience, technological innovation and the reduction of dependencies. At the same time, it has called for a thorough review of the acquis, aimed at eliminating overlaps, inconsistencies and obsolete provisions.

The institutional arrangements, economic equilibria and regulatory principles that have long underpinned relations between States and guided the development of liberal democracies are now being called into question. The progressive weakening of multilateralism, the revamp of power politics and the growing difficulties faced by supranational institutions in reconciling divergent interests delineate, as I have sought to demonstrate in a recent book, an evolving international landscape in which the shared commitment to common rules is increasingly accompanied, and sometimes displaced, by the assertion of new spheres of influence.

It is against this background that technological innovation produces its effects. It is not merely a driver of scientific and economic progress, but also affects the distribution of power, forms of social organisation and the very capacity of legal systems to govern processes extending beyond the traditional boundaries of State sovereignty. Technological innovation does not, therefore, operate within an institutionally neutral environment. Digitalisation is transferring an increasing share of rule-making power to private actors: digital platforms, Big Tech companies, operators of digital infrastructures, developers of artificial intelligence systems, and entities controlling data and computational resources. We are no longer dealing simply with undertakings subject to regulation, but with actors that, through technological architectures, algorithms and conditions of access, themselves participate in shaping the rules governing markets.

Europe recognises these developments and perceives the need to adapt its regulatory framework accordingly. It has therefore undertaken a number of initiatives reflecting the EU’s new strategic approach to digitalisation, aimed at striking a balance between the protection of rights and the promotion of new forms of economic competitiveness among European undertakings.[1]

In this context, Regulation (EU) 2026/1744 – which entered into force on 27 July 2026 – is particularly relevant for governing artificial intelligence. Rather than replacing previous digital legislation, it introduces an “extraordinary review” intended to simplify the European digital rulebook, reduce compliance and administrative costs for businesses, and adjust deadlines regarded by industry as unrealistic.[2]

2. As known, European integration has developed on the assumption that markets can be governed through the harmonisation of Member States’ regulatory frameworks. This approach is clearly reflected in the EU regulatory order, whose governance structure is administrative, technocratic and multilevel, with the exercise of economic regulatory powers entrusted to certain authorities, notably the European Central Bank and the members of the European System of Financial Supervision, while the market performs an instrumental role.

Consequently, for decades, law has served as the principal unifying force among the diverse national systems. It has provided the framework through which the objectives underlying the development of a common social order have been pursued. Economic freedoms, competition, prudential regulation, consumer protection, the independence of regulatory authorities, proportionality, legal certainty and judicial review have all been promoted with a view to establishing a system of economic governance grounded in the rule of law.

The technological innovation and geopolitical transformations outlined above are now affecting this construction, undermining its systemic foundations. The former challenges the regulatory capacity of States and supranational organisations, contributing to the crisis of liberal-democratic constitutionalism and multilateralism; the latter restricts the space within which law can operate according to the universalistic rationale that has traditionally characterised it.[3]

The transition to the digital economy tends to concentrate information resources, infrastructural capabilities and the power to exert influence in the hands of private actors possessing systemic economic strength. The control exercised by these actors over global platforms, network economies and advanced forms of financialisation now enables them, for the first time in the history of Western capitalism, to command strategic technologies, including information networks, whose transnational reach exceeds that of many States. Economic power no longer merely influences politics; it increasingly tends to become integrated with political power, with the significant objective of shaping political priorities, discourse and leadership. Geopolitical transformation has far-reaching implications for economic security, industrial policy and investment patterns, often resulting in diminished strategic autonomy, heightened energy requirements and increasing demands for military defence capabilities.

An emerging order is thus taking shape in which market efficiency and regulatory neutrality are increasingly subordinated to considerations of security and political power, against a background of growing interdependence between politics and the economy. As has been observed, it may be argued that constitutionalism has entered a new phase, characterised by a shift from the centrality of parliamentary institutions towards the predominance of executive power and deregulated markets.[4]

3. Against this background, it becomes necessary to reconsider the contemporary meaning of the rule of law, a concept to which European Union institutions and regulatory frameworks constantly refer as a fundamental legal and political principle requiring all public authorities to act within the limits established by law.

In this regard, it should be observed that the EU generally confines its intervention, as is also apparent from the 2026 Rule of Law Report, to identifying violations of the rule of law within individual Member States. Its assessment focuses primarily on compliance with the principles governing judicial systems, anti-corruption measures, media pluralism and the institutional system of checks and balances.[5]

This approach is undoubtedly appropriate. Nevertheless, it raises a fundamental question: is it still adequate to conceive of the crisis of the rule of law merely as a departure by certain Member States from the values and standards underpinning the European legal order, or should we instead recognise that this crisis now also affects the capacity of that order itself to govern emerging forms of economic, technological and geopolitical power?

This question is particularly relevant in these circumstances, since we are confronted not only with States departing from the principles of the rule of law, but also with an economic and political environment in which the very conditions under which the rule of law was originally established are undergoing profound transformation. In light of the recent developments, ensuring regulatory stability, judicial independence and legal certainty can no longer be regarded as sufficient in themselves. These remain essential preconditions for the relationship between the rule of law, the single market, investment and competitiveness, which constitute founding elements of the European project and reflect the traditional principles of regulatory constitutionalism. However, the crisis now extends to the capacity of the European legal order itself to govern new forms of economic, technological and geopolitical power.

We are therefore confronted with a problem fundamentally different from that which, in this field, originally required adherence to the principles mentioned above. An examination of the EU’s responses to the transformation of its underlying regulatory paradigm reveals a form of internal contradiction within the European model of regulation.

The Union has, in fact, responded to the ongoing systemic transformations by expanding its regulatory framework through measures such as the AI Act, the Digital Markets Act, the Digital Services Act, MiCA, DORA, data governance legislation and cybersecurity rules.[6] This approach, however, may be interpreted as a form of interventionist inertia, whereby the effects of profound structural change are addressed through an increasingly extensive body of legislation, rather than through the development of new institutional and regulatory approaches capable of responding more effectively to such change.

A further contradiction relates to the accumulation of regulatory requirements ultimately risks undermining competitiveness and constraining innovation. It is worth recalling that Mario Draghi’s report, The Future of European Competitiveness, had already highlighted the tension between excessive regulation and the EU’s declining competitiveness. The report drew attention to the risk that the proliferation of European regulatory requirements may burden businesses rather than protect them.[7] This concern is particularly evident when considering the regulatory divergence between the European Union and the United States, together with the constraints placed on emerging technologies by the proliferation of technology-related legislation and the activities of regulatory authorities.

A paradox thus becomes apparent: the European Union seeks to preserve its institutional model through regulation precisely when technological and geopolitical transformations are calling into question the ability of regulation, acting alone, to remain the principal instrument of economic governance. It follows that Europe need not necessarily abandon its model of regulatory constitutionalism. It must, however, recognise that this model is no longer sufficient unless accompanied by technological capabilities, an effective industrial policy, adequate access to capital, digital infrastructures, economic security and the capacity to act as a geopolitical power.

4. One aspect of the issues under consideration that I believe deserves particular attention concerns the risk that the crisis of regulatory constitutionalism may develop into a crisis of the very method of European integration through regulatory harmonisation. Indeed, so long as integration was pursued primarily through law, regulatory uniformity constituted, in itself, a fundamental instrument for achieving that objective.

Member States differ significantly in their geopolitical exposure, fiscal capacities, energy systems, technological capabilities and political priorities.[8] These differences inevitably create obstacles to the achievement of regulatory integration, particularly where European legislation seeks to govern artificial intelligence, energy, defence, strategic autonomy, industrial policy or economic security.

 It is evident that economic heterogeneity and divergent national interests may make the implementation of uniform regulation increasingly difficult, potentially weakening the single market and generating further obstacles to European integration.

In my view, this dimension of the problem deserves careful and systematic examination. There are compelling reasons for developing a research programme aimed at investigating how differences in industrial structures, fiscal capacities, national energy mixes and technological capabilities operate as sources of friction within the EU legislative process, potentially producing a de facto fragmentation of the single market.[9] Such an inquiry should develop along four principal lines of investigation.

First, it should examine how greater flexibility in State aid rules may amplify competitive disparities between Member States according to the fiscal space available within their respective public budgets. Second, attention should be devoted to the regulatory tensions arising from differences in energy supply conditions and levels of strategic autonomy, particularly in light of Member States’ varying exposure to geopolitical risks.

Third, consideration should be given to the asymmetric and potentially regressive effects of complex regulatory frameworks, such as the AI Act, upon structurally heterogeneous industrial systems, especially those characterised by a predominance of small and medium-sized enterprises. Finally, the inquiry should address the transformation of EU legislative techniques, particularly the extent to which formally uniform regulations may, in practice, conceal considerable margins of flexibility and national differentiation.

The broader theoretical objective of such research would be to demonstrate how a one-size-fits-all regulatory approach, when applied to structurally divergent economies, may paradoxically weaken rather than strengthen the internal market, thereby providing new interpretative categories for the future development of European public economic law.[10] The purpose, therefore, is not simply to add another constitutional analysis of the crisis of the rule of law. Rather, it is to examine how the transformation of economic and technological structures, together with the emergence of a new geopolitical order, is altering the conditions under which the European economic legal order can operate effectively. This, in turn, gives rise to the need to identify an appropriate regulatory paradigm for the European Union.

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[1] See  CRAWFORD, Atlas of AIù, Yale University Press, 2021, work highlighting how the planetary network underpinning AI is fueling a shift toward non-democratic forms of governance and rising inequality, thereby offering an analytical perspective on what is at stake as tech companies deploy artificial intelligence to reshape the world.

[2] See RICCIO, Il Digital Omnibus sull’IA: semplificazione o riscrittura silenziosa dell’AI Act?, on Diritto e giustizia, 2026.

[3] See HABERMAS, Ein neuer Strukturwandel der Öffentlichkeit und die deliberative Politik, Berlin, 2022.

[4] See the President of the Italian Republic, Sergio Mattarella, claiming that the ‘absolutism of the majority,’ was delivered on July 3, 2024, in Trieste, on the occasion of the opening ceremony of the 50th Social Week of Italian Catholics.

[5] See MULLER, What Is Populism?, Philadelphia, 2016, it analyses how contemporary democracies are eroded from within when populist forces exclude pluralism and occupy the institutions of the rule of law; DONATI, Rule of Majority vs. Rule of Law. La crisi dello stato di diritto in Europa, on Il Diritto dell’Unione Europea, Modena, 2019, for a  constitutionalist analyzes the worrying clash between the principle of political majority and the independence of the judiciary (a founding value of the EU), focusing on the harmful systemic reforms implemented in some European legal systems; KRYGIER, Tempering Power: Beyond the Rule of Law, Cambridge University Press, 2026, a very recent text focused on a radical rethinking of the rule of law in the face of the intemperate abuse of political power in the contemporary world.

[6] For a detailed analysis of this issue see MAUGERI, Cripto-attività e abusi di mercato, on Rivista del diritto

commerciale e del diritto generale delle obbligazioni, 2023, 1, p. 33 ss.; LEMMA, Crypto-assets and wealth circulation: the role of supervisors after Micar, in Law and Economics Yearly Review, 2024, p. 32.

[7] See DRAGHI, The Future of European Competitiveness,: European Commission, Brussels, 2024.

[8] See  DRAGHI, The Future of European Competitiveness, cit., where Draghi explicitly demonstrates that the fragmentation of the Single Market constitutes the primary driver behind the European Union’s declining global competitiveness. The landmark report provides an empirical granular analysis of how heterogeneity across national energy mixes, coupled with significant disparities in domestic technological and industrial capacities, subverts the efficacy of uniform regulatory frameworks. This dynamic imposes systemic frictions that fundamentally undermine the cohesion of the internal market.

[9] See EUROPEAN CENTRAL BANK, What is the untapped potential of the EU Single Market? ECB Economic Bulletin, Frankfurt, 2026, where the EBC provides robust econometric and empirical evidence on how persistent non-tariff barriers derive from the inconsistent enforcement of EU directives at the domestic level, frequently exacerbated by national regulatory gold-plating. These findings validate the hypothesis of a ‘de facto fragmentation’ within the markets for goods and services, validating the argument that formal legal convergence does not necessarily prevent practical market disintegration. 

[10] On the structural failure of standard, uniform macroeconomic frameworks and the counterproductive impact of a “one-size-fits-all” regulatory approach applied to structurally divergent member states, see broadly: DE GRAUWE, Economics of Monetary Union, (12th edn, Oxford: Oxford University Press 2018), who  demonstrates how the enforcement of a common monetary policy and a singular regulatory architecture within highly asymmetric economic systems generates asymmetrical shocks, rendering incomplete monetary integrations fragile and accentuating domestic macroeconomic imbalances rather than consolidating internal markets; STIGLITZ, The Euro: How a Common Currency Threatens the Future of Europe, New York 2016), where the Author, arguing that the constitutionalized rigidity of uniform fiscal constraints and standardised rules, absent stabilizing adjustments, operates as a divisive rather than an integrative force, ultimately undermining the economic and political future of the Union.