Imagine a Europe where businesses thrive, investments flow freely, and innovation drives sustainable economic growth. That’s the promise behind the European Commission’s Competitiveness Compass—a roadmap designed to strengthen the EU’s economy, cut red tape, and boost industrial resilience. But will it actually deliver? Or is it just another well-intentioned strategy that will get lost in political inertia?
A bold vision with unanswered questions
The Competitiveness Compass lays out three core priorities: fostering innovation, accelerating decarbonization, and securing Europe’s economic future. In principle, these are the right priorities. However, turning this vision into reality requires more than just policy statements – it demands bold action, clear funding mechanisms, and regulatory reforms that support rather than stifle businesses.
Take innovation, for example. The Commission aims to bridge Europe’s innovation gap by investing in artificial intelligence, biotechnology, and space technology. But here’s the problem: Draghi recommended €800 billion in annual investments, which may lack a solid financial strategy in the Compass. It is no secret that some European Member States are reluctant to support joint EU borrowing, raising questions about how these ambitious goals will be funded. Without a clear plan, the EU risks falling behind in the global innovation race while bureaucratic hurdles keep startups from scaling.
Europe’s industry: Playing it safe or falling behind?
European businesses are hesitant to invest. Many industries are operating at just 60% capacity, and companies are reluctant to commit to long-term projects in an environment of economic uncertainty. The transition to green energy is a prime example. The EU’s pledge to cut emissions by 90% by 2040 is laudable, but industries are struggling with high energy costs, unclear hydrogen regulations, and unpredictable clean energy prices.
For the green transition to succeed, the EU must acknowledge that different industries will decarbonize at different speeds. A one-size-fits-all policy risks pushing manufacturers to relocate to more business-friendly regions. Europe must support all forms of clean energy, remove bureaucratic barriers to renewable projects, and ensure long-term energy contracts provide price stability. Without these measures, companies will continue their ‘wait and see’ approach, which only delays the progress Europe desperately needs.
Regulatory overload vs. Business competitiveness
The EU wants to reduce red tape – on paper, a welcome move. But regulatory simplification must be meaningful. Cutting administrative burdens by 25% across all businesses sounds good, but how these reductions are implemented matters. Take Environmental, Social, and Governance (ESG) reporting. While ESG frameworks promote responsible business practices, excessive reporting requirements impose disproportionate burdens, particularly on SMEs. The EU must ensure that ESG regulations are simplified, harmonized with global standards, and don’t create unnecessary economic barriers.
Beyond ESG, Europe’s trade policies also raise concerns. The EU has introduced regulatory measures like the Carbon Border Adjustment Mechanism (CBAM), deforestation laws, and corporate sustainability rules that impose European standards on global partners. While these policies aim to promote sustainability, they risk alienating trading partners and fuelling trade tensions. The real question is: can the EU’s economy withstand the unintended consequences of its own regulatory framework?
Strategic autonomy or protectionism?
The EU’s push for strategic autonomy seeks to reduce dependency on external actors and build resilience in key industries. But if the approach leans too far into protectionism, it risks backfiring. CBAM is a prime example – it aims to prevent companies from outsourcing emissions to countries with weaker environmental laws. However, its implementation remains unclear. To be effective, CBAM must align with the EU’s Emissions Trading System (ETS) free allowances, cover a broad range of industries and products, and simplify emissions reporting.
Beyond CBAM, Europe’s industrial competitiveness depends on ensuring affordable energy prices. If the cost of doing business in Europe remains uncompetitive, companies will simply relocate. Trade policies must be aligned with industrial strategy, with diversified partnerships that prevent overreliance on a few major players. The EU also needs stronger financing tools to support strategic investments and trade defence measures that prevent unfair competition from non-EU markets.
Strategic autonomy should not mean shutting out competition – it should mean making Europe stronger and better connected to global markets. Policymakers must find the right balance between resilience and openness to avoid self-inflicted economic harm.
The single market: a work in progress
The Single Market should be one of the EU’s biggest assets, yet businesses still struggle with fragmented regulations across Member States. Different national requirements make it harder for companies to operate seamlessly. Instead of continuously introducing new policies, the EU should focus on enforcing existing ones, preventing gold-plating (where some Member States add unnecessary national requirements), and harmonizing cross-border trade rules.
A more integrated Single Market would create a level playing field for businesses and help Europe compete with economic powerhouses like the U.S. and China. However, this will require political will and a shift away from national protectionism that hampers free movement.
Europe’s big decision
The Competitiveness Compass offers a roadmap for Europe’s future, which is welcome, but needs to bring real change. Businesses are waiting for clear policies, firm commitments, and pragmatic solutions. Without decisive action, Europe will keep falling further behind in the global race for economic leadership.
For the EU to remain competitive, it must move beyond rhetoric. It needs practical regulations, targeted investments in innovation, energy, and infrastructure, and a coherent industrial strategy that prioritizes growth.
The Competitiveness Compass provides a good framework – now it’s time to deliver.