What is the EU's Competitiveness Compass and what is it designed to achieve?
European Commission President Ursula von der Leyen announcing the Competitiveness Compass at Davos.
Image: REUTERS/Yves Herman
- At Davos 2025, European Commission President Ursula von der Leyen announced a new roadmap for the EU.
- The Competitiveness Compass, based on recommendations from the economist Mario Draghi, identifies the actions needed to boost the EU’s competitive standing on the global stage.
- The Compass focuses on three core areas: innovation, decarbonization and security.
“Europe is open for business.”
This was the overriding message of European Commission President Ursula von der Leyen’s Special Address in Davos last week – a week in which Donald Trump returned to power in the US and announced new trade policies.
“The world is changing,” she said. “So must we.”
With that in mind, von der Leyen announced a new roadmap called the Competitiveness Compass, to generate growth opportunities in the EU over the next five years.
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What is the Competitiveness Compass?
Based on a series of recommendations from Mario Draghi, the economist and former Prime Minister of Italy, the Competitiveness Compass identifies the actions needed to boost the EU’s competitive standing on the global stage. “It is a strategy to make growth faster, cleaner and more equitable, by ensuring that all Europeans can benefit from technological change,” said von der Leyen. It homes in on three core areas:
1. Innovation
The EU aims to close the innovation gap by investing in sectors like artificial intelligence (AI), biotechnology and space technology. Specifically, it plans an EU Start-up and Scale-up Strategy to encourage new companies to emerge and flourish.
2. Decarbonization and competitiveness
“Getting back to low and stable energy prices” is von der Leyen’s aim. To achieve that, the Commission is introducing an Affordable Energy Action Plan, which will take a competitiveness-driven approach to decarbonization via its forthcoming Clean Industrial Deal. Energy-intensive sectors like steel, metals and chemicals will also be a focus.
3. Increased security and resilience
For the past 25 years, Europe has relied on global trade to drive its growth, and outsourced its own security, said von der Leyen. But the global scene has radically shifted, and the EU will now reduce its dependencies – for instance on fossil fuel from Russia – while building new trade partnerships to “secure a supply of raw materials, clean energy, sustainable transport fuels and clean tech from across the world”. The EU has already forged new partnerships with Switzerland, Mercosur and Mexico.
How will the European Commission achieve these goals?
The Compass identifies five key actions to achieve these aims:
1. Reducing red tape
Simplifying the administrative burden on small- and medium-sized enterprises (SMEs) in particular is a priority for the Commission, with von der Leyen acknowledging that “many firms hold back investment in Europe because of unnecessary red tape”. This is set to change, with sustainable finance and due diligence rules lined up for an overhaul; administrative and reporting obligations will be reduced by at least 25% and 35%, respectively, for SMEs.
2. Lowering barriers to the Single Market
Creating a single set of rules across the European single market “will help bring down the most common barriers to scaling up” for SMEs across the continent, said von der Leyen. Known as the ‘28th regime’, the new legislation will incorporate taxation, labour and corporate law, as well as insolvency in “one single and simple framework”.
What do we mean by ‘competitiveness’?
3. Financing competitiveness
“We do not lack capital,” said von der Leyen, pointing out that $312 billion of European families’ savings are invested abroad every year. “We lack an efficient capital market that turns savings into investments, particularly for early-stage technologies that have game-changing potential”. The solution is a “deep and liquid capital market”, she said, announcing the new European Savings and Investments Union, which “aims to create a genuine single market for financing in the EU, with no internal national borders”.
4. Promoting skills
To bridge the skills and labour gap, there are plans for a Union of Skills, and a focus on both retaining talent – von der Leyen pointed out that “too much of our top talent is leaving the European Union because it is easier to grow their companies elsewhere” – and promoting skills and quality jobs.
5. Coordinating policies
To ensure smoother coordination of policies at both EU and national levels, a Competitiveness Coordination Tool will be introduced.
Balancing progress with climate neutrality
While Europe generated more electricity from wind and solar last year than from all fossil fuels combined, balancing technological progress and shifting geopolitics with climate neutrality is an ongoing challenge.
Von der Leyen is clear that “we will have to invest in next-generation clean energy technologies, like fusion, enhanced geothermal and solid-state batteries” to meet climate goals.
She is also clear that “defensive trade measures” mustn’t stop the EU from engaging constructively with other countries.
“Our values do not change. But to defend these values in a changing world, we must change the way we act.”
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