EC presents EU Compass to regain competitiveness and secure sustainable prosperity

On 29 January 2025, the European Commission presented the Competitiveness Compass. The Compass is intended to provide a strategic and clear framework to steer the Commission's work and sets a path for Europe to become the place where future technologies, services, and clean products are invented, manufactured, and put on the market, while being the first continent to become climate neutral.

The Draghi Report on 'The future of European competitiveness" identified three transformational imperatives to boost competitiveness, and the Compass sets out an approach and a selection of flagship measures to translate each of these imperatives into reality:

• Closing the innovation gap: The EU must reignite its innovation engine. The EC wants to create a habitat for young innovative start-ups, promote industrial leadership in high growth sectors based on deep technologies and promote the diffusion of technologies across established companies and SMEs. In this respect, the Commission will propose ‘AI Gigafactories' and ‘Apply AI' initiatives to drive development and industrial adoption of AI in key sectors. It will table action plans for advanced materials, quantum, biotech, robotics and space technologies. A dedicated EU Start-up and Scale-up Strategy will address the obstacles that are preventing new companies from emerging and scaling up. A proposal for a 28th legal regime will simplify applicable rules, including relevant aspects of corporate law, insolvency, labour and tax law, and reduce the costs of failure. This will make it possible for innovative companies to benefit from one single set of rules wherever they invest and operate in the Single Market.
• A joint roadmap for decarbonisation and competitiveness: The Compass identifies high and volatile energy prices as a key challenge and sets out areas for intervention to facilitate access to clean, affordable energy. The upcoming Clean Industrial Deal will set out a competitiveness-driven approach to decarbonisation, aimed at securing the EU as an attractive location for manufacturing, including for energy intensive industries, and promoting clean tech and new circular business models. An Affordable Energy Action Plan will help bring down energy prices and costs, while an Industrial Decarbonisation Accelerator Act will extend accelerated permitting to sectors in transition. In addition, the Compass foresees tailor-made action plans for energy intensive sectors, such as steel, metals, and chemicals, sectors which are the backbone of the European manufacturing system, but are the most vulnerable in this phase of the transition.
• Reducing excessive dependencies and increasing security. The EU's ability to diversify and reduce dependencies will hinge on effective partnerships. The EU already has the largest and fastest growing network of trade agreements in the world covering 76 countries that account for almost half of the EU's trade. To keep diversifying and strengthening Europe's supply chains, the Compass refers to a new range of Clean Trade and Investment Partnerships to help secure supply of raw materials, clean energy, sustainable transport fuels, and clean tech from across the world. Within the internal market, the review of the Public Procurement rules will allow for the introduction of a European preference in public procurement for critical sectors and technologies.

The three pillars are complemented by five horizontal enablers, which the Commission regards as essential to underpin competitiveness across all sectors:

1. Simplification: This enabler aims at reducing drastically the regulatory and administrative burden. It also involves a systematic effort to make procedures for accessing EU funds and getting EU administrative decisions simpler, faster, and lighter. The upcoming Omnibus proposal will simplify sustainability reporting, due diligence, and taxonomy. Furthermore, the Commission will facilitate doing business for thousands of small mid-cap companies. The Compass sets a target of cutting by at least 25% the administrative burden for firms and by at least 35% for SMEs.
2. Lowering barriers to the Single Market: For 30 years, the Single Market has been Europe's tried and tested engine for competitiveness. To improve its functioning across all industries, a Horizontal Single Market Strategy will modernise the governance framework, removing intra-EU barriers and preventing the creation of new ones. In addition, the Commission will take the opportunity to make standard-setting processes faster and more accessible, in particular for SMEs and start-ups.
3. Financing competitiveness. The EU lacks an efficient capital market that turns savings into investments. The Commission will present a European Savings and Investments Union to create new savings and investment products, provide incentives for risk capital, and ensure investments flow seamlessly across the EU. A refocused EU budget will streamline access to EU funds in line with EU priorities. 
4. Promoting skills and quality jobs. The foundation of Europe's competitiveness is its people. To ensure a good match between skills and labour market demands, the Commission will present an initiative to build a Union of Skills focusing on investment, adult and lifelong learning, future-proof skills creation, skill retention, fair mobility, attracting and integrating qualified talent from abroad and the recognition of different types of training to enable people to work across our Union.
5. Better coordination of policies at EU and national level. The Commission will introduce a Competitiveness Coordination Tool, which will work with Member States to ensure implementation at EU and national level of shared EU policy objectives, identify cross-border projects of European interest, and pursue related reforms and investments. In the next Multiannual Financial Framework, a Competitiveness Fund will replace multiple existing EU financial instruments with similar objectives, providing financial support to the implementation of actions under the Competitiveness Coordination Tool.

To summarise with regard to research and innovation, the following elements of the Competitiveness Compass appear particularly relevant:

• European Competitiveness Fund: according to the Competitiveness Compass, this Fund will replace multiple existing EU financial instruments with similar objectives. It is supposed to fund investments in strategic technologies - ranging from AI to space technologies, and from clean technologies to biotechnology - within the next Multiannual Financial Framework (MFF). The Fund is intended to contribute to mobilising private investment and supporting research and development.
• A new Competitiveness Coordination Tool will be set up in order for the Member States to set joint priorities for competitiveness in selected key areas and projects that are regarded as strategically important and of joint European interest (the Compass refers to the logic of the European Semester and of NextGenerationEU in this context). Some strategic areas are highlighted which require further investment in order to strengthen technological sovereignty and competitiveness (i.a. AI, semiconductors, quantum technologies, advanced materials, biotechnologies, clean energy technologies, robotics, space technologies, interconnected and autonomous mobility).
• Following up on the Draghi Report, the European Innovation Council (EIC) should be inspired by elements of the U.S. DARPA model in future. The EIC and the European Research Council (ERC) should be oriented on the same strategic interests and should collaborate more closely.
• The Compass also mentions the European Research Area Act. Drawing up this Act is part of Commissioner Zaharievas Mission Letter. It should be presented in 2026 and should deal amongst others with strengthening R&I investments, reaching the target of 3% of GDP spent on R&I, a stronger orientation of research funding on strategic priorities, and harmonising the funding priorities of the EU and the Member States.
• A European Innovation Act will also be prepared, building on a Start-up and Scale-up Strategy.
• The topic of Artificial Intelligence will continue to increase in importance. The Commission is planning an 'AI in Science Strategy' as well as an 'Apply AI Strategy', AI Factories and AI Gigafactories.

As a next step, the ECOFIN Council will discuss the Competitiveness Compass on 18 February 2025, and the Council Competitiveness (Single Market and Industry) on 6 March 2025. The European Commission is due to present its Work Programme 2025 and 'The Road to the next Multiannual Financial Framework' on 11 February 2025.

For more information:

EC - press release

A Competitiveness Compass for the EU

Factsheet on the Competitiveness Compass