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The Competitiveness Compass: The Commission’s Bet on More Green Policies

Environment - February 4, 2025

Ursula von der Leyen, President of the European Commission, reinforced Europe’s commitment to fostering a dynamic business environment during her recent speech at Davos. She introduced the “Competitiveness Compass,” a f roadmap designed to bolster the European Union’s (EU) competitiveness over the next five years. Developed with input from former Italian Prime Minister Mario Draghi, the strategy aims to accelerate innovation, promote decarbonisation, and enhance economic resilience amid evolving geopolitical and economic challenges.

The Competitiveness Compass is built on three key pillars: innovation, decarbonisation, and security. With climate change and environmental sustainability at the forefront of global priorities, the EU has set ambitious goals through its Clean Industrial Pact. This initiative seeks to support high-energy-consuming industries, such as steel, cement, and chemicals, in meeting stricter environmental standards without sacrificing competitiveness.

A central objective of this pact is to lower energy costs while encouraging the adoption of clean technologies, thereby enabling European industries to maintain a leadership position in sustainable production.

The second core focus of the Competitiveness Compass is innovation. Europe has long been recognised for its high standards in research and development, but there is growing pressure to convert this expertise into market-leading technologies and services.

The EU aims to enhance its innovation ecosystems, particularly by supporting start-ups and small and medium-sized enterprises (SMEs), which often face barriers related to funding, scalability, and regulatory complexity. By fostering innovation across industries, the EU hopes to compete more effectively with global technology powerhouses.

The third pillar—security and resilience—has gained urgency in light of recent events such as the COVID-19 pandemic and the ongoing war in Ukraine. These crises have underscored Europe’s over-dependence on external sources for critical resources like energy, raw materials, and advanced technology.

To reduce this vulnerability, the EU is pursuing diversified supply chains by forging partnerships with countries including Switzerland, Mercosur members, and Mexico. These alliances will focus on sustainable trade and access to vital resources, helping Europe secure its energy and technological autonomy.

To achieve the objectives outlined in the Competitiveness Compass, the European Commission has identified five key actions, with three in particular standing out for their significance:

The first action involves reducing bureaucracy, a long-standing obstacle for businesses, especially SMEs. These enterprises often struggle under the weight of excessive administrative requirements, which stifle growth and competitiveness. In response, the Commission aims to cut 25% of existing regulatory obligations, streamlining processes and enabling SMEs to focus on innovation and expansion.

The second major initiative focuses on eliminating internal market barriers. The introduction of the “Regime 28” framework will harmonise tax, labour, and insolvency regulations across EU member states. By simplifying cross-border business operations, the EU seeks to create a more integrated and competitive single market.

Finally, the fifth action prioritises enhanced policy coordination. Recognising that fragmented efforts hinder progress, the Commission will introduce new coordination tools to foster collaboration between member states. These tools will support the development and implementation of transnational projects of European interest, facilitating large-scale investments and innovations that benefit the entire region.

However, the Competitiveness Compass faces criticism, particularly from environmental advocacy groups. Critics argue that reducing bureaucracy and simplifying regulations could weaken other important EU policies, particularly those related to environmental protection and the energy transition. These groups have expressed concerns that prioritising economic growth and innovation may come at the expense of sustainability.

In response to these concerns, von der Leyen has reaffirmed that the EU will not compromise its environmental commitments. She emphasised that the European Green Deal remains a cornerstone of the Commission’s agenda and that the proposed reforms are designed to complement, rather than undermine, the EU’s climate neutrality goals. The integration of sustainability into the Competitiveness Compass reflects Europe’s belief that economic growth and environmental protection can, and must, go hand in hand.

This comprehensive strategy positions the EU to lead the global race for competitiveness through innovation, decarbonisation, and security. By fostering a business-friendly environment and promoting investment, Europe seeks to strengthen its economic foundations and build resilience against external shocks. Enhanced cooperation through trade agreements and sustainable partnerships will further bolster the EU’s capacity to thrive in a rapidly changing global landscape.