The European Union faces challenges that threaten to undermine its long-term economic growth and competitiveness on the global stage. To address this, the European Commission has introduced the Competitiveness Compass, the first major strategic framework of its mandate, aimed at ensuring that Europe becomes a leader in future technologies, services, and clean products. At the same time, the Compass seeks to make Europe the first continent to achieve climate neutrality.
As a reminder, Mario Draghi, former President of the European Central Bank, was tasked by the European Commission with preparing a report on his personal vision for the future of European competitiveness. Published last year, the Draghi Report analyzed the challenges faced by industries and companies within the single market, particularly over the past two decades, during which the EU has struggled to keep pace with other major economies. Importantly, the report identifies three key areas crucial for the EU’s future growth: innovation, decarbonization, and security.
The Competitiveness Compass has been developed based on this report, outlining concrete approaches and measures to drive progress in these three key areas.
Innovation: Revitalizing the European Innovation Engine
To address the first area, the EU must rekindle its innovation engine by creating space for young startups, promoting industrial leadership in high-growth sectors based on deep technologies, and expanding technological adoption across small and medium-sized enterprises (SMEs). To achieve this, the European Commission will propose initiatives such as AI gigafactories and Apply AI, focusing on the development and deployment of artificial intelligence in key sectors.
Decarbonization: Ensuring a Competitive Transition
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Regarding decarbonization, high and volatile energy prices are highlighted as major challenges in the Compass. The upcoming Clean Industrial Deal, an initiative of the European Commission, will outline a competitiveness-based approach to decarbonization, making the EU an attractive location for production, including energy-intensive industries. Additionally, the initiative will promote clean technologies and new circular business models.
The Affordable Energy Action Plan will work to reduce energy prices and costs, while the Industrial Decarbonization Acceleration Act will expedite permitting processes for transitioning sectors. The Competitiveness Compass also envisions specialized action plans for energy-intensive sectors such as steel, metals, and chemicals, which are crucial for the European manufacturing system but are particularly vulnerable in the decarbonization process.
Security: Reducing Dependence and Strengthening Resilience
To enhance security and reduce dependency, the EU will rely on effective partnerships. Currently, the EU boasts the world’s largest network of trade agreements, covering 76 countries. To further strengthen supply chains and boost economic resilience, the Competitiveness Compass introduces new Clean Trade and Investment Partnerships to secure access to raw materials, clean energy, and sustainable fuels.
Furthermore, the EU will revise its public procurement rules to ensure that European companies, especially those in critical sectors and technologies, receive preferential treatment within the single market.
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Horizontal Factors for Competitiveness
Beyond the three key areas, the Competitiveness Compass is built upon five horizontal factors essential for sustaining competitiveness across all sectors.
- Simplification: Reducing Administrative Burdens
The first factor focuses on simplification by reducing administrative obstacles, facilitating easier access to EU funds, and accelerating decision-making processes. The Competitiveness Compass sets a goal of reducing administrative burdens by at least 25 percent for businesses and 35 percent for SMEs.
- Strengthening the Single Market
The second factor addresses barriers within the single market by modernizing governance frameworks, eliminating internal EU barriers, and preventing the emergence of new ones. Additionally, the European Commission aims to make standard-setting faster and more accessible, particularly for SMEs and startups.
- Financing Competitiveness
The third horizontal factor relates to financing, recognizing that the EU lacks an efficient capital market that channels savings into investments. In response, the Commission will introduce an EU savings and investment initiative, designed to create new savings and investment products, promote venture capital, and ensure smooth investment flows. A restructured EU budget will facilitate easier access to funds in alignment with Union priorities.
- Skills and Quality Jobs
The foundation of Europe’s competitiveness is its people. To bridge the gap between skills and labor market demands, the European Commission will launch the Skills Union Initiative. This initiative will focus on investment in education, lifelong learning, and upskilling, ensuring a workforce prepared for the future. Key areas include retaining talent, fair mobility, attracting and integrating skilled workers from abroad, and recognizing diverse forms of training to enable cross-border employment.
- Better Policy Coordination
Finally, improving policy coordination at the EU and national levels will be essential. To achieve this, the European Commission will introduce a Competitiveness Coordination Tool, which will enhance collaboration among EU member states in implementing common policies. This tool will also help identify cross-border projects of European interest and facilitate continued reforms and investments.
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