The EU Competitiveness Compass: A Plan for the Future

The European Union finds itself at a crucial crossroads for its strategic development. In recent years, it has experienced a significant economic and industrial slowdown, highlighting its lag behind the United States and China, the current leaders in technological innovation.

To regain a position of global leadership, the new competitiveness model proposed by the European Commission is based on three fundamental pillars: bridging the innovation gap, combining decarbonization and competitiveness, and reducing strategic dependencies to ensure economic security. The Competitiveness Compass translates the Draghi report into a concrete strategic plan for the future of European citizens, with the goal of making the EU an attractive environment for investment, an advanced production hub, and a model of sustainable development.

Why is it necessary to rethink the European economic model?

The EU has a vast consumer base, a high level of private savings, a wealth of talent and professionals, and a single European market that fosters growth and development. However, after enduring a pandemic crisis and the energy shock triggered by Russia’s invasion of Ukraine, the system has revealed its vulnerabilities and the urgent need to reduce the productivity growth gap compared to other global economic powers.

The lack of innovation negatively impacts the European industrial system, preventing the development of companies capable of shaping the technological and industrial future of the continent. High energy costs, excessive bureaucracy, and dependence on global supply chains make EU member states increasingly reliant on dominant global trade players such as the United States and China.

How can the EU move toward growth and competitiveness?

1. Bridging the innovation gap

One of the main obstacles to European competitiveness is the lag in innovation compared to other global powers. Although the EU has a strong research and development sector, too few innovative ideas are transformed into marketable products. Currently, only one-third of patents registered in European universities find practical applications. Moreover, startups struggle to grow due to regulatory fragmentation and a shortage of venture capital. The EU attracts only five percent of global venture capital funds, compared to fifty-two percent in the United States and forty percent in China.

To address this challenge, the Commission has announced an EU Strategy for Startups and Scale-Ups, aimed at removing obstacles to the growth of emerging businesses and improving access to financing. Additionally, a 28th regulatory regime will be introduced to provide a unified legal framework for innovative companies across the EU, eliminating the need to navigate twenty-seven different legal systems and simplifying tax, corporate, and labor regulations. Finally, through the new TechEU Program, the Commission will invest in key technologies such as artificial intelligence, quantum computing, and biotechnology to strengthen European industry.

2. Combining decarbonization and competitiveness

The green transition presents an opportunity for economic growth but requires strategic alignment between industrial, energy, and trade policies. The EU has committed to achieving climate neutrality by 2050, with an intermediate goal of reducing emissions by ninety percent by 2040. However, high energy costs and dependence on fossil fuel imports threaten the competitiveness of European businesses.

To mitigate these risks, the Commission has developed an Affordable Energy Action Plan, which will help reduce costs by increasing the use of renewable energy and improving the integration of the European energy market. At the same time, the Clean Industrial Deal will support the transformation of energy-intensive industries, such as steel and chemicals, by encouraging the adoption of low-emission technologies. Another key element will be the promotion of the circular economy. Currently, the European reuse market is valued at approximately thirty-one billion euros but could reach one hundred billion euros by 2030, creating over five hundred thousand new jobs. To stimulate this growth, the EU will introduce a Circular Economy Act to increase investment

3. Reducing strategic dependencies and strengthening economic security

In an increasingly unstable geopolitical context, the EU must safeguard its economic security by reducing its reliance on external suppliers for critical raw materials and advanced technologies. Europe is currently vulnerable to supply chain disruptions, particularly in the semiconductor, rare earth, and essential pharmaceutical sectors.

To counter these vulnerabilities, the Commission has launched a Joint Procurement Platform for Critical Raw Materials, which will allow member states to coordinate supply procurement and mitigate the risks of shortages. Additionally, the Critical Medicines Act will strengthen domestic production of essential medicines to reduce dependence on non-EU suppliers. Finally, the defense sector will play a central role in the EU’s economic security strategy. The EU remains fragmented across multiple national defense systems, with insufficient investment in military research and development. To address this issue, a European Defence White Paper will be published, outlining the necessary actions to create a unified defense market and stimulate technological innovation in the military sector.

4. How Was the Initiative Received in the Czech Republic?

The European business community played a significant role in shaping the Competitiveness Compass, with contributions from various organizations, including the Czech Chamber of Commerce.

Among the key demands put forward by the Czech Chamber of Commerce are:

• Improvement of administrative efficiency: Reducing bureaucratic barriers and streamlining authorization procedures to facilitate investments and support business growth.
• Revision of ESG, CBAM, GDPR, and REACH regulations: Optimizing these regulations to lessen the administrative burden on businesses and ensure greater clarity in their implementation.
• Greater integration of the single market: Eliminating regulatory and technical barriers that hinder the free movement of goods and services among member states, thereby enhancing economic cohesion within the EU.
• Facilitation of access to financing and EU instruments: Simplifying the mechanisms for accessing EU funds and optimizing financial support opportunities for businesses.

According to Zdeněk Zajíček, President of the Czech Chamber of Commerce, the strategy outlined by the European Commission represents a positive step forward but also presents certain challenges. He pointed out that the abundance of strategies, action plans, and initiatives could complicate implementation and make it difficult for businesses to track regulatory developments.

Additionally, the Chamber of Commerce highlighted that some of the measures included in the Competitiveness Compass appear to be a reworking of previous strategies rather than a genuine structural transformation. The document includes several legislative acts from the previous mandate that require updates to enhance their effectiveness, such as ESG regulations and the Carbon Border Adjustment Mechanism (CBAM).

Despite these concerns, Alena Mastantuono, the Chamber’s representative at Eurochambres, acknowledged some positive aspects of the strategy, particularly the commitment to simplifying regulations and improving access to EU financing for businesses.

However, the Chamber expressed caution regarding certain proposals, such as the introduction of a 28th regulatory regime, changes to public procurement rules, the preference for European products, and the revision of state aid regulations.

Finally, Mastantuono emphasized that the effects of the new economic policies would not be immediate and would take time to yield tangible results. She compared this process to that of a ship responding with a delay to the movement of the rudder, indicating that discussions within the European Council and Parliament would be crucial in determining the final direction of these policies.

Criticisms Highlighted by the Czech Confederation of Industry

Jan Rafaj, President of the Czech Confederation of Industry, expressed mixed opinions regarding the Competitiveness Compass. On the one hand, he welcomed the fact that Mario Draghi’s analysis on competitiveness has not been overlooked. On the other hand, he pointed out that the European Commission still offers few concrete and immediately actionable measures.

According to Rafaj, many of the proposed measures remain incomplete and, in some cases, appear more as aspirations rather than strategies that can be implemented in the short term. He also voiced disappointment with the overall content of the document, highlighting that European businesses had high expectations. While the Competitiveness Compass introduces some proposals aimed at simplifying the existing regulatory framework, it also adds numerous new regulations, strategies, and legislative acts, which could further complicate the European regulatory environment.

Rafaj also emphasized that these challenges do not stem solely from the current European Commission but reflect a long-standing approach. To truly enhance Europe’s competitiveness, he argued that a completely renewed vision is needed, focusing on a comprehensive overhaul of regulations and a drastic simplification of the legislative framework. Only through a significant reduction in regulatory burdens, he concluded, can a more business-friendly environment be created, allowing for the economic revival of the continent.

Timeline of Key Actions in the EU Competitiveness Compass

Q1 2025

• AI Factories Initiative – Establishment of advanced centers for artificial intelligence development.
• Clean Industrial Deal & Action Plan on Affordable Energy – Policies to promote industrial decarbonization and reduce energy costs.
• White Paper on the Future of European Defence – Strategy to strengthen the European defense sector.
• Preparedness Union Strategy – Initiatives to enhance the EU’s resilience in times of crisis.
• Internal Security Strategy – Internal security policies to protect critical infrastructure.
• Omnibus Simplification & Definition of Small Mid-Caps – Regulatory simplifications to reduce business bureaucracy.
• Union of Skills – Programs for workforce training and reskilling.

Q2 2025

• Start-up and Scale-Up Strategy – Measures to foster startup growth and improve access to financing.
• New State Aid Framework – Revision of state aid rules to support strategic businesses.
• European Savings and Investment Union – Initiative to integrate financial markets and attract investment.

Q3 2025

• Space Act – Legislation to develop the European space industry.
• Sustainable Transport Investment Plan – Funding for sustainable transport infrastructure.

Q4 2025

• Quantum Act – Investments in quantum technologies to strengthen European leadership in the sector.
• Digital Networks Act – Expansion of 5G and 6G networks to accelerate digitalization.
• Industrial Decarbonisation Accelerator Act – Measures to accelerate the energy transition in industry.
• 2025 (No specific quarter assigned)
• Carbon Border Adjustment Mechanism (CBAM) Review – Revision of the carbon tax to protect European industry from international competition.
• Critical Medicines Act – Policies to reduce dependence on essential pharmaceutical imports.
• Multiannual Financial Framework (MFF), including Competitiveness Fund – EU financial planning, including the launch of the Competitiveness Fund to support innovation and strategic investments.

Q4 2026

• Circular Economy Act – Legislation to promote circular economy practices and efficient resource use.

2026 (No specific quarter assigned)

• 28th Regime – Unified regulatory framework to facilitate the growth of innovative businesses across the EU.
• European Research Area Act – Investments in research to achieve the target of 3% of GDP dedicated to R&D.
• Advanced Materials Act – Development of advanced materials for strategic industries.
• Revision of Public Procurement Directives – Measures to improve transparency and simplify procedures to foster competition.
• Revision of Standardization Regulation – Enhancements to regulatory frameworks to support industrial innovation.

Sources: 10017eb1-4722-4333-add2-e0ed18105a34_en; Energia a basso costo e sostegno all’IA: l’Unione Europea ha un piano di salvataggio | e15.cz; La bussola dell’UE per ripristinare la competitività e garantire una prosperità sostenibile – Notizie generali; La Camera di Commercio considera il cambio di rotta europea verso la competitività una buona notizia per gli imprenditori – Camera di Commercio; La bussola per la competitività soddisferà le aspettative delle imprese?.

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