On 29 January, the European Commission presented its first major initiative of the new EU mandate – the “Competitiveness Compass”. This document has been hailed by European Commission President Ursula von der Leyen as the “North Star” of the Commission’s work for the next five years. But why is it needed and what does it entail? This Just the Facts gets a close-up of the Competitiveness Compass.
What is it and what goals does it set out to achieve?
Essentially, the Compass is a “Communication”. A Communication from the European Commission is a planning instrument endorsed by the Council of the EU and the European Parliament (and sometimes other EU institutions) which aims to set the orientation for future policies. It is usually not legislation and is not legally binding. The aim of a Communication is to signal intention and build societal support in a certain policy area.
The Communication on the Competitiveness Compass is 27 pages long and establishes the concept of “competitiveness” as one of the EU’s overarching principles for action. The Compass includes three core areas for action: innovation, decarbonisation and security.
- Innovation
This objective is about closing Europe’s innovation gap through increased productivity. The Compass maintains that this can be done through facilitating the establishment and scaling up of start-ups, deepening the EU’s venture capital market, boosting research, and investing in state-of-the-art infrastructures. Proposals associated with this objective include the ‘AI Gigafactories’ initiative, as well as a 28th legal regime which aims to simplify applicable rules for European business.
- Decarbonisation
High and volatile energy prices are identified as a key challenge, in particular since Russia’s invasion of Ukraine. This means energy prices are much higher in the EU than in competitor regions, and prices for energy can also vary significantly across Member States. The Compass sets out areas to act regarding clean and affordable energy access, especially for energy-intensive industries such as steel, metals, and chemicals. Some upcoming policy frameworks associated with this objective are the Clean Industrial Deal, the Affordable Energy Action Plan and a new State Aid Framework.
- Security
The third objective is security, particularly regarding the EU’s trade relationships in a tense and competitive geopolitical global environment. The Compass identifies some crucial areas where the EU should reduce excessive dependencies in its trade relationships such as in defence industrial capabilities, critical raw materials, medicines, and clean technology. This objective is linked to the concept of Open Strategic Autonomy (see below). Some potential initiatives of note in this area include a planned review of Public Procurement Directives, a joint purchasing platform for critical raw materials, and an Internal Security Strategy.
“Horizontal enablers”
Additionally, in order to reinforce the principle of competitiveness across sectors and achieve the above objectives, the Compass introduces five “horizontal enablers”:
- Simplification
- Removing barriers in the Single Market
- Financing
- Skills and quality jobs
- Better coordination
The enablers are understood as ways to streamline the above objectives, as well as the principle of competitiveness itself, across all EU policies.
On 11 February, the Commission adopted its official 2025 Work Programme with a clear simplification agenda, indicating that the Compass’ “horizontal enablers”, especially the so-called simplification of legislation, are already being integrated into the general plans for the EU for the next five years.
Eleven out of eighteen legislative initiatives from the 2025 Work Programme have a “significant simplification agenda”. Among the most significant upcoming initiatives associated with this simplification agenda are the Omnibus packages, the first of which will focus on sustainability reporting legislation.
What’s the timeline for actions?
How did it come about and why does it matter?
Competitiveness was a buzzword which featured heavily in EU policy reports, debates in the European Parliament, political party conferences, European Commission speeches and even social media in 2024.
The term emerged in October 2023, with the European Council’s Granada Declaration which mentioned working on the EU’s “global long-term competitiveness”. It also featured on the agenda in April 2024, when EU leaders met at a special European Council meeting in Brussels to discuss a “new European competitiveness deal”. Furthermore, in April 2024, former Italian Prime Minister Enrico Letta was tasked with writing a report on the future of the EU’s Single Market. In this report, he called for urgent and increased integration of the financial markets at the EU level – something which he saw as crucial for EU’s future competitiveness.
In September 2024, Mario Draghi, the former President of the European Central Bank (ECB) published a report requested by the European Commission. The 400-page report, titled the “Future of European Competitiveness”, sets out Draghi’s personal vision for how the EU can tackle the challenges faced by industries and companies in the Single Market.
In November 2024, the Member States in the European Council adopted the Budapest Declaration on the “New European Competitiveness Deal”. The Declaration called for competitiveness to be boosted in the EU, and for innovation and productivity gaps with global competitors to be “urgently” closed.
The Competitiveness Compass essentially builds on the above analyses and initiatives and specifically sets out measures to translate “imperatives” from the Draghi report.
But what is competitiveness exactly and why is it being prioritised now?
Competitiveness is linked to another political initiative promoted by the von der Leyen Commission – Open Strategic Autonomy (OSA). This concept includes the ambition for the EU to assume greater responsibility for its own security and reduce one-sided dependencies. Some areas considered for strategic autonomy include health and energy security, semiconductor chips, critical minerals and military security. OSA also refers to the capacity of the region to “pursue strategically important activities free of foreign interference” while still maintaining a certain level of cooperation and partnership on the international level.
In practice, OSA can look like initiatives such as REPower EU, which presented the phaseout of Russian fossil fuels and set the foundation for joint gas purchases in the EU.
While OSA has been viewed as a more overarching concept, subject to interpretation (which can also include the need to be more competitive), competitiveness itself is seen as a primarily economic imperative. However, like OSA, competitiveness is also seen as a complex and multi-faceted concept that can be defined in various ways. In short, both concepts are not necessarily interchangeable, but they are interlinked and are both nuanced.
A competitive economy is an economy whose sustained rate of productivity is able to drive growth and consequently, income and welfare. European industries have feared for some time that they are falling behind the US and China. In his report, Draghi writes that, across different metrics, “a wide gap in GDP has opened up between the EU and the US” driven by a more pronounced slowdown in productivity growth in Europe, largely explained by the tech sector. Additionally, on a per capita basis, Draghi writes that real disposable income has grown almost twice as much in the US as in the EU since 2000.
In the preamble of the Competitiveness Compass, it is written that this exact economic hardship and de-industrialisation were “central in the public debate across Member States before the European elections”. The European Parliament elections took place in June 2024 and saw the far-right increase their presence, winning 27.49% of the seats in the hemicycle.
European companies are confronted with the challenges associated with the large-scale use of industrial subsidies abroad, for example in the electric vehicle industry which is impacted by imports from China. European businesses also say that the EU must reduce “regulatory burden” and cut “red tape” to make it easier to do business in Europe.
In the realm of foreign policy, the global landscape is now seen as one of harsh, geostrategic competition in which maintaining a competitive edge with global partners is seen as imperative. This has been exacerbated by the return of Donald Trump to the US Presidency in January, who advocates protectionist trade policies and who, since taking office, has threatened the EU with sweeping “reciprocal tariffs”.
Is the Competitive Compass incompatible with Green Deal objectives?
President von der Leyen’s Political Guidelines, a document setting out her ambitions for her second mandate, included mentions of the Green Deal, stating, “We must and will stay the course on the goals set out in the European Green Deal”.
In 2024, conversations surrounding the EU’s competitiveness were focused on the financing of the Green Deal and Just Transition policies, including Draghi’s estimated cost for the EU to decarbonise over the next 15 years which was €500 billion.
However, over the last six months the Green Deal, as a flagship initiative, has faded somewhat to the background in political rhetoric with the rise of language surrounding “competitiveness” initiatives. An emerging trend to the right of the political centre over the last year is the position that making the EU more competitive while pursuing Green Deal objectives is a contradiction. Meanwhile, others maintain that if we want to achieve the goals of the Green Deal, we must remain competitive in order to afford the cost of these goals.
Overall, the Competitiveness Compass has broadly been welcomed by businesses in Europe and has raised alarms among other groups. In January, over 270 organisations, ranging from trade unions to environmental groups, sent a letter to the European Commission, stating that the Competitiveness Compass is steering the EU in the wrong direction. The group urged President von der Leyen not to rollback on social, environmental, and human rights standards, as well as demanding clear guarantees that simplification will not lead to deregulation.