The EC calls for a greater cutting of red tape than ever before to encourage investment and innovation to restore the bloc’s competitiveness with China and the US
The EC has set out the pillars and tools of its new Competitiveness Compass, aiming to boost investment and growth across the EU
On 29 January 2025, the EC published its Competitiveness Compass, outlining its plans to regain the EU’s competitiveness with other major economies, principally China and the US, and secure sustainable prosperity for the bloc. Ursula Von Der Leyen (President, EC) stated that the Compass – the first significant initiative of the new Commission – “transforms the excellent recommendations of the Draghi Report into a roadmap”, giving Europe a clear plan of action. The Draghi Report identified three transformational pillars for boosting EU competitiveness: innovation, decarbonisation and security. The EC has incorporated these pillars into the Compass, which will be complemented by five ‘horizontal enablers’ of competition:
Regulatory simplification;
Lowering barriers to the single market;
Financing competitiveness;
Promoting skills and quality jobs; and
Better coordination of policies at the EU and national levels.
The EU is set to embrace digitalisation and growth in new sectors through a number of new laws that aim to encourage investment and close the innovation gap
The EC’s goal to close the innovation gap in the EU plans to rely heavily on stimulating widespread digitalisation and AI adoption across the economy and in public services through the AI Continent Strategy as well as the much-anticipated EU Cloud and AI Development Act (set to land in Q4 2025 or Q1 2026), which will help to establish AI Gigafactories specialised in training of very large AI models. The Compass also underlines the need for investment into state-of-the-art digital infrastructure (e.g. fibre, satellite and 5G/6G) and into cloud computing capabilities to drive innovation. However, according to the EC, Europe is behind on its 2030 Digital Decade targets. To correct course, the Compass signals that the Digital Networks Act (DNA), which is expected in Q4 2025, will support market incentives to deploy infrastructure, reduce compliance costs and improve connectivity for end users. The EC also identifies the space sector as a potential new growth engine to spur innovation. An EU Space Act is expected in Q2 2025 to safeguard and improve the functioning of the European market for space activities through a set of measures that harmonise requirements at the EU level, removing any fragmentation that may arise from national legislation.
European policymakers are aligned on the need to rapidly decarbonise industries and to improve the resilience of critical infrastructure
In terms of the decarbonisation pillar, the EU is aiming to reach net zero by 2050 and the EC believes that the frameworks in place for this can drive competition if policies are well aligned. One good example of this alignment already taking place is the report from the Body of European Regulators for Electronic Communications (BEREC) on how sharing telecoms infrastructure can reduce the sector’s carbon footprint while also creating a fair, competitive playing field for operators. The EC’s third pillar focuses on increasing security and resilience. The Compass suggests that Member States must be better prepared for future severe weather events as a result of climate change, stating that they should significantly raise their investment into developing more resilient critical infrastructure, such as key fixed and mobile telecoms networks.
Regulation and standards will be made lighter, faster and simpler to encourage a more competitive environment
The EC’s Compass discusses the need for simplified, lighter and faster regulation and standard-setting in order to encourage competition. This enabler ultimately aims at drastically reducing the regulatory and administrative burden, which the EC argues has become a brake on Europe’s competitiveness. More specifically, the EC considers that regulation often acts as an obstacle to investment for businesses in Europe due to the complexity and variety of its administrative procedures. The Compass states that “restoring Europe’s competitiveness requires going much further than before in cutting red tape”. A similar approach is suggested in regards to the standard-setting processes as the EC argues that the current European standardisation system lacks responsiveness to the faster innovation cycles emerging from new technologies. The Compass therefore calls for a quickening of standard setting but also for engagement in global standard-setting processes in order to help competitiveness in key industries and technology markets.
