EU's Competitiveness Compass: Strategy for Economic Renewal

05/02/25

The European Commission unveiled its ambitious strategy for the coming five years, "A Competitiveness Compass for the EU" aimed at revitalising the European Union's economic landscape. This comprehensive plan addresses the critical need for innovation, productivity, and economic growth while navigating the twin transitions to a digital and green economy.

The Compass builds on the Draghi report and its goal is twofold. The first is identification of policy changes needed for Europe to accelerate economic reform. The second goal is improving the way the EU works together. The speed and quality of decision-making need to be increased, frameworks and rules need to be simplified, all while overcoming fragmentation within the EU.

The second goal is of great importance, since the success of this strategy highly relies on the active participation of Member States as well as other stakeholders such as businesses and citizens. Many key levers, from taxation to labour markets to industrial policies, are largely or partly in the hands of EU governments, coordinated national reforms and investment will be a key component of this overall strategy.

The Compass reveals some of the concrete measures we can expect in the Clean Industrial Deal and the first EU Simplification Omnibus package (“a far-reaching simplification in the fields of sustainable finance reporting, sustainability due diligence and taxonomy“). Both are announced to be published on 26 February 2025.

Three transformational imperatives of the Competitiveness Compass

The Draghi report identified three transformational imperatives to enhance competitiveness and the Competitiveness Compass translates these imperatives into a path to realisation in the coming years.

1. Closing the Innovation Gap

A European Innovation Act aims to promote access to research and technology infrastructures, intellectual assets, and regulatory sandboxes. Additionally, the EU will propose a 28th legal regime, a single set of rules for corporate law, insolvency, labour law, and taxation, under which companies can seamlessly operate in all European Member States, "which will simplify applicable rules and reduce the cost of failure.” Reviving the innovation cycle should lead to a ‘made in Europe’ industry future.

2. A Joint Roadmap for Decarbonisation and Competitiveness

The Clean Industrial Deal initiative aims to secure the EU as an attractive location for manufacturing, promoting clean tech and circular business models. To tackle high energy prices, leveraging market integration and investing in energy transmission and distribution infrastructure the EC will draft an Affordable Energy Action Plan: "some of the cost components of energy prices can be mitigated in the short term, as they are determined by inefficiencies in the design of network tariffs and taxation or a lack of energy market integration."

3. Reducing Excessive Dependencies and Increasing Security

The Competitiveness Compass outlines measures to ensure the resilience of supply chains, particularly for critical raw materials and advanced technologies. The EU will also enhance its trade relationships, concluding and implementing ambitious trade agreements and Clean Trade and Investment Partnerships.

Enablers for achieving these imperatives

These cardinal points are complemented by action on horizontal enablers, which are necessary to underpin competitiveness across all sectors.

Simplifying the Regulatory Environment

The EU aims to cut red tape and streamline administrative procedures. The Decarbonisation Accelerator Act will extend accelerated permitting to more sectors, and the Multiannual Financial Framework (MFF) proposal will further simplify access to EU funding instruments.

The Single Market Strategy

The Single Market Strategy aims to exploit the benefits of scale and modernize the governance framework, removing intra-EU barriers and fostering collaboration with Member States. The EU will also engage in global standard-setting processes to maintain competitive positions in key technology markets.

Financing Competitiveness

The Strategy on a Savings and Investments Union aims to mobilize private investment and promote low-cost saving and investment products at the EU level. The EU will also act to remove barriers to market-driven consolidation of financial markets infrastructure.

Promoting Skills and Quality Jobs

The Union of Skills initiative will focus on investment in adult and lifelong learning, future-proof skills creation, and attracting qualified talents from third countries. The Quality Jobs Roadmap will address fair working conditions, decent wages, and work-life balance.

Better coordinating policies at EU and national level

This relates to the needed active participation of Member States to make this strategy a success. Many aspects of the plans are largely or partly in the hands of EU governments.

Tax impact and state aid

The EC also looks at Member States' tax systems and wants to ensure "that the elements of their tax systems which impact private investment incentives, such as depreciation rules and tax credits, are conducive for a clean production business case." And to strengthen financing competitiveness, the EC aims to "remove taxation barriers to cross-border investment."

In the second quarter of 2025 we can expect a New State Aid Framework, PwC-specialist Allard Knook wrote a (Dutch) blog on this: De Competitiveness Compass: de voornaamste wetsvoorstellen om de concurrentiekracht van de Europese Unie te versterken.

Topics in the Clean Industrial Deal

The Clean Industrial Deal is a comprehensive initiative aimed at transforming the industrial sector to achieve significant reductions in greenhouse gas emissions while maintaining economic growth and competitiveness. This deal is part of broader efforts to meet international climate targets, such as those outlined in the Paris Agreement, and to transition towards a more sustainable and resilient economy. For the Clean Industrial Deal, six topics are announced.

Energy security and prices (reduction)
Financing
Recycling and critical raw materials
Labour and skills
Lead markets
Global action

Timelines

The Compass contains a non-exhaustive overview of planned initiatives with a planned period of submission. Below we include the most relevant.

Q1 2025: Omnibus simplification and definition of small mid-caps, Clean Industrial Deal and an Action Plan on Affordable Energy, Industrial Action Plan, Start-up and Scale-up Strategy, Savings and Investments Union, Union of Skills
Q2 2025: Single Market Strategy, New State Aid Framework
Q3 2025: Sustainable Transport Investment Plan
Q4 2025: Industrial Decarbonisation Accelerator Act, Chemicals Industry Package, Digital Networks Act, 28th regime, European Innovation Act, EU Cloud and AI Development Act
2026: European Research Area Act, Advanced Materials Act, European Biotech Act and Bioeconomy Strategy
Q1 2026: Electrification Action Plan and European Grids Package,
Q4 2026: Circular Economy Act
Review of the Horizontal Merger Control Guidelines (no timeline yet)

Conclusion

The Competitiveness Compass is a bold and comprehensive strategy designed to reignite economic dynamism in Europe. By focusing on innovation, decarbonisation, and security, and supported by horizontal enablers, the EU aims to create a competitive, resilient, and sustainable economy.

As the European Commission embarks on this ambitious journey, the active participation of all stakeholders, including businesses, governments, and citizens, will be crucial to achieving these goals.