On March 19, the European Central Bank announced that it will keep its policy setting interest rates unchanged for now. This decision is aimed at walking the ECB’s monetary policy along a fine line between an expected 2.6% euro zone inflation rate for 2026 and an abysmal 0.9% real GDP growth rate.
Inflation on the high side and a standstill economy require the ECB to move its interest rates in opposite directions. Therefore, the central bank’s decision to keep them unchanged was the only logical way forward.
The problem for the ECB is that it is now stuck in a situation where its monetary policy has become irrelevant. As a policy-making outfit, the bank needs outside help to either cut inflation or accelerate GDP growth. Since monetary policy de facto has a monopoly on managing inflation, economic growth is the only variable where the ECB could hope for material help.
Fortunately for Europe, the EU has heeded the call. In a slow-motion process characteristic of a government bureaucracy, Brussels has passed through a few initiatives, including Mario Draghi’s report on how to revive the European economy, and has now arrived at something called “EU, Inc.” It is an initiative to facilitate some aspects of the formation, ownership, and dissolution of businesses in Europe.
Proudly announced by the European Commission on March 18, the EU Inc. initiative is supposed to create “a new single set of corporate rules” for the whole EU. This, the Commission explains,
will make it easier for businesses to start, operate and grow across the EU.
Friends of economic freedom jubilate—right? Well … yes—and no.
On the one hand, it is nice to see that the Eurocracy can actually do something that makes life a little easier for prospective entrepreneurs. The normal way of Brussels politics is to grow, expand, and solidify government powers and control. On the other hand, upon closer examination, the EU Inc. initiative looks more like a government product aimed at improving the government’s image than an initiative born from a genuine desire to actually improve the economic, financial, and regulatory climate for European businesses.
Perhaps the most perplexing part of the EU Inc. is that it is announced now, in March 2026, but is not supposed to go into effect until the first quarter of 2027. In other words, the European economy, which has de facto received a ‘standstill verdict’ by the ECB, is left adrift in the muddy waters of stagnation for a whole other year. The fact that growth forecasts for 2026 and 2027 have been adjusted downward several times in the past six months does not appear to be of any consequence to the European Commission.
If the lethargic rollout of this initiative was its only problem, then perhaps the Commission could be forgiven. After all, it is a government outfit that is not exactly experienced in promoting business-friendly policies. However, once we peel away the shiny wrapping paper, the EU Inc. initiative looks more like a made-for-parade product and less like a real entrepreneurial workshop.
The news site EUbusiness.com has a nice summary of EU Inc.’s main features. First on the list is:
Faster registration: Entrepreneurs, founders, and companies will be able to found an EU. Inc. company within 48 hours, for less than €100 and with no minimum share capital requirements.
It is great to speed up the registration of a company. It is also great that the fee for the registration is low. But what is this thing with “no minimum share capital requirements”? Are you going to be able to incorporate a business in the European Union without the owners putting any money into it?
There are two reasons why the legal incorporation of a business requires a certain amount of capital (a common amount in the United States is $50,000). First and foremost, the commitment of capital shows that the owners ‘have skin in the game,’ to use an American expression. This greatly increases the likelihood that the corporation will be more than a marginal entity, which is important for the second reason why corporations should not be allowed with zero capital: the liability aspect.
Whenever a business gets into a civil legal dispute—which it inevitably does—the liability for a business is placed very differently depending on its association form. For an incorporated business, there are distinct separations between management and ownership, which limits but also clarifies liability exposure in a way that is not possible with less complicated association forms.
With clear boundaries regarding liability, it is also much easier to take risks, both as an incorporated business and as a business partner thereof. The last part is essential: if you enter into a contract with an incorporated business, you know what to expect from a legal standpoint.
However, if the business in question has no capital, the owners run no legal risk beyond losing their ownership. Since the ownership is financially marginal, the price they pay for acts that lead to civil lawsuits is practically non-existent. This promotes financially reckless behavior without adding any legal or financial benefit to the formation and operation of new businesses.
All this becomes a substantial problem when the corporation in question wants to raise capital, in particular when it wishes to enter the stock market—which the EU Inc. initiative is going to help with; it is going to “allow Member States to” open their stock markets to businesses formed under EU Inc.
Every serious stock market has detailed rules that new corporations must adhere to if they want to introduce themselves to shareholders. Among those rules are solvency levels: to introduce a business on the American stock exchange Nasdaq, a business must have at least $5 million in shareholder equity.
By forcing businesses to jump through hoops in order to sell their shares, a stock market provides a certain level of guarantee to the public that the business is a serious operation that can meet reasonable shareholder expectations. With its zero-capital requirement, the EU Inc. initiative is actually counterproductive when it comes to facilitating the stock market introduction for businesses formed under its framework.
Then there is the streamlining of the liquidation processes:
Innovative startups will have access to simplified insolvency procedures to facilitate the winding down of operations. This enables founders to try and test innovative ideas and start again if needed.
This is a good idea in theory, but when coupled with the zero-capital requirement, it opens a can of worms for shell company operations. If a bunch of friends can incorporate a business without putting any money in (beyond the registration fee), obtain the legal protection that comes with incorporation, and then quietly and easily shut it down, then it could be a simple matter for the legally savvy to open a business, run illicit revenue through it, and then shut down the business once the money has been laundered.
Last but not least, EU Inc. also comes with an idea to streamline tax policy. Under a point about improved ways to recruit talent, the initiative explains:
EU Inc. companies will be able to set up EU-wide employee stock option plans. The stock option will only be taxed on the income generated once it is sold. This is a crucial factor in ensuring attractiveness, particularly for innovative startups.
Has the European Commission not been talking to the good folks who govern its member states? Back in February, I reported on the sprawling ambition among tax-hungry politicians to put a tax on so-called ‘unrealized capital gains.’ These ‘unrealized gains’ include business shares.
Suppose I own 100 shares in the company I work for. Each share is worth €1. Over the course of a year we do very well: the share value rises to €2; I now have an unrealized capital gain of €100, which my government wants to tax as income.
A stock-option package is different, but not so much different that it automatically falls outside of the ‘unrealized gains’ realm. A stock-option package is an agreement between, in this case, a business and its employee that the employee can buy a certain amount of shares, at a preset price, at a future point in time. That point in time is the expiration date of the stock option. It can be days, weeks, months, or years into the future.
When a stock option is exercised, i.e., when the employee gets his shares, he will have made a capital gain if the market price of the stock is higher than the preset price at which he was allowed to buy the shares. If he is given the shares for free as part of his compensation package, the capital gain is equal to the market price of the share.
National capital gains taxes apply to the gain upon the expiration of the option. On that point, there is no conflict between national law and what the EU Inc. initiative says. The conflict arises if the national law also applies to the value of the stocks before the option expires, in other words, if the options package is legally defined as unrealized capital gains.
This would be the case if European stock options worked like their American equivalent, which can be exercised at any time up to its expiration date. The European version can only be converted into stocks upon expiration. However, since taxes on unrealized capital gains apply to equity of many different kinds, there is a distinct possibility that they will also cover European-style stock options. If so, the EU will have to usurp jurisdiction over national tax law here.
Once that happens, we have opened a whole different can of worms. It is, namely, in the interest of a business-friendly EU government to harmonize all kinds of taxes across state lines. Taxes on corporate income come into play, as do taxes on dividends and interest—in other words, personal income taxes.
For clarity, the EU Inc. initiative does not express any ambitions in that direction. However, it is important to be aware of the logical implications of the measures that this initiative includes. One of the fundamental rules in politics is that government never gives anything—even facilitation for business startups—without getting something in return (for example, expanded control over national tax law).
