This will in turn make encrypted devices, plausible deniability setups and steganography more pervasive.

The US lost the crypto wars, EU lost the piracy wars once, and they will lose again.

In some countries you can do time for not disclosing passwords. In the UK it is 5 years.

Again, this is where plausible deniability setups kick in.

Of course the EU can go full police state, but at that point I hope the regular citizens pushes back.

The goal is to raise the cost of enforcement.

Problem is that you cannot pretend you can't remember the password. So unless what you hide can give you more time than for not disclosing the password, then yes having things encrypted could help...

You can have different volumes for different passwords.

Plausible deniability.

This can be easily checked.

It is very easy to make unenforceable laws. Actually blocking VPNs would require something akin to the great firewall of China, which I don't see the EU building in the near future.

Criminalizing something means nothing if the laws can't be enforced. Torrenting copyrighted works is a criminal act, and yet torrenting has never been easier after years of efforts to shut it down from all sides.

They do worse - instead of just blocking the internet, they'll first inspect what is being uploaded to it.