Competitiveness Compass: the EU’s strategy to revive economic growth and elevate its global standing

The EU’s Competitiveness Compass outlines bold reforms to boost innovation, secure energy and enhance economic growth. Amid intensifying global competition, Ursula von der Leyen’s plan calls for closer coordination between Member States, simplified regulations and a balance between business growth and climate commitments.?

European Commission President, Ursula von der Leyen, has unveiled the EU’s Competitiveness Compass, a sweeping strategy designed to tackle the EU’s lacklustre economic growth in an increasingly multipolar world in which competition with actors such as China and the United States is escalating. The Compass lays out plans to implement structural reforms and adopt a more “business-friendly” approach to foster the EU’s economic and strategic competitiveness.??

The EU’s drive for competitiveness is mirrored by the UK Government’s prioritisation of economic growth, regarding which the Chancellor outlined plans to support infrastructure projects such as the construction of roads and a third runway at Heathrow, as well as reiterating work to streamline regulation and consolidate pension funds.??

The Compass is a sobering reflection on Europe’s economic setup which has been reliant on low-cost labour,?outsourced security and, until recently, cheap Russian energy. The paper sets out a path to boost innovation, accelerate decarbonisation and secure reliable energy sources all while seeking – perhaps impossibly according to critics – to uphold the EU’s long-term climate goals. Notably, the Compass maintains alignment with the EU’s target to cut emissions by 90% by 2040.?

A key challenge to the initiative is that many of the key reforms needed such as changes to taxation, labour policies and industrial strategies, are in the hands of national governments. To overcome this, the Commission is pushing for better coordination between Member States, calling for a Competitiveness Coordination Tool that will encourage joint efforts to strengthen Europe’s economic resilience. However, the success of this strategy will largely depend on political cooperation, which is increasingly difficult to achieve between EU capitals, and the speed at which these reforms can be rolled out.?

von der Leyen has also sought to address concerns from businesses about “excessive bureaucracy”, committing to simplify regulations and speed up administrative processes. This will involve striking a balance between reducing red tape and maintaining the EU’s ambitious environmental targets under the European Green Deal. How well this balance is achieved will be a major test for the initiative.?

The Commission is also urging Member States to boost investment in energy infrastructure through the development of power grids and renewable energy sources, as high energy costs remain a significant challenge for European industries. Sector-specific support will also be provided to energy-intensive industries, such as steel and chemicals production, including to support them transition to cleaner production methods.?

However, in practice, financial constraints could limit the impact of the Competitiveness Compass. Many EU Member States, including the largest economies of Germany and France, are grappling with significant national debt and sluggish growth. To ease this, the Commission plans to reallocate unspent regional funds and encourage institutions such as the European Investment Bank to direct investments towards key projects. Additionally, a new Competitiveness Fund and the EU Savings and Investment Union aims to mobilise private capital for infrastructure projects.?

The strategy also draws from Mario Draghi’s competitiveness report, which called out Europe’s fragmented approach to industrial and economic policy. More broadly, the Competitiveness Compass also looks to tackle broader societal issues such as improving access to the labour market as Europe’s population ages.??

Delivery of the wide-ranging ambitions of the Competitiveness Compass will inevitably be highly challenging, and its success will hinge on the cooperation between EU institutions and national governments to implement these changes effectively and secure the necessary funding. As Europe navigates an increasingly complex global economic environment, the challenge will be turning policy ambitions into substantial economic growth, all while accounting for the possibility of a “tariff war” with the US stemming from Trump’s zero-sum approach to international trade.??

The Compass’s overarching goal to streamline and integrate regulation will shape EU policymaking for years to come, with far-reaching impacts across various sectors. A case in point is the French government’s request to indefinitely suspend the “burdensome” Corporate Sustainability Due Diligence Directive, which mandates that large companies address human rights and environmental violations in their global supply chains. This pattern is expected to persist, making it crucial for businesses operating in the EU to stay ahead of evolving regulatory trends.?

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