COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE EUROPEAN COUNCIL, THE COUNCIL, THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE AND THE COMMITTEE OF THE REGIONS A Competitiveness Compass for the EU
Date: 2025-01-29
Institutions: European Commission, Secretariat-General
Subjects: EU strategy, European industrial area, competitiveness, economic reform, economic situation, innovation, investment, productivity, reduction of gas emissions, technology

EN 

  EN 

   EUROPEAN COMMISSION  Brussels, 29.1.2025  COM(2025) 30 final  COMMUNICATION FROM THE COMMISSION  TO THE EUROPEAN PARLIAMENT, THE EUROPEAN COUNCIL, THE COUNCIL, THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE AND THE COMMITTEE OF THE REGIONS A Competitiveness Compass for the EU  
 
 
A Competitiveness Compass for the EU 

Europe has many economic strengths, but must act now to regain its competitiveness 
and secure its prosperity.  The EU  has all the assets to  lead in  the global  economy of 
tomorrow. It has unrivalled talents and a skilful workforce, a large pool of private capital, 
a continental size Single Market, a stable and predictable legal environment, rule of law 
and  a  unique  social  market  economy.  In  recent  years,  Europe  has  shown  a  remarkable 
ability to respond to a succession of crises. It has withstood the pandemic and the energy 
shock provoked by Russia’s energy blackmail. It has made tangible progress on its twin 
digital and green transition and introduced new policies and new funding instruments to 
sustain recovery and increase economic growth.  

The EU must urgently tackle longstanding barriers and structural weaknesses that 
hold  it  back.  For  over  two  decades,  Europe  has  not  kept  pace  with  other  major 
economies, due to a persistent gap in productivity growth. The EU has fallen behind 
the  US  in  advanced  technologies,  while  China  has  caught  up  in  many  sectors,  and  is 
winning the race for leadership in certain new growth areas. The root cause is a lack of 
innovation. Europe is failing to translate its ideas into new, marketable technologies, and 
failing to integrate those technologies into its industrial base. At the same time, domestic 
constraints are hampering the ability of European companies to fight back. They are being 
squeezed  by  high  energy  prices  and  a  high  regulatory  burden.  They  also  face  an 
increasingly unlevel global playing field, characterised by the large-scale use of industrial 
subsidies  abroad.  Europe  is  also  increasingly  dependent  on  strategic  inputs  and  highly 
concentrated supply chains. 

To safeguard the EU’s future as an economic powerhouse, an investment destination 
and a manufacturing centre, a resolute European response is urgently needed. 

What is at stake for Europe is not just economic growth, but the future of its model. 
If Europe does not increase its productivity, it risks to be stuck on a low-growth path, with 
less income for the employed, less welfare for the disadvantaged and less opportunities for 
all. Europe faces a world of great power rivalry, competition for technological supremacy, 
and a scramble for  control  over  resources.  In this world,  Europe’s competitiveness  and 
what Europe stands for are inseparable.  

Our freedom, security and autonomy will depend more than ever on our ability to innovate, 
compete  and  grow.  These  will  be  the  keys  to  fund  the  EU’s  technological  and  energy 
transitions.  They will ensure that our  distinctive  social model  remains sustainable. And 
they will provide the resources for Europe to guarantee its security and play a global role 
in  foreign  affairs.  It  is  vital  to  create  the  conditions  for  businesses  to  thrive  and  where 
everyone has an equal chance of success. Increasing competitiveness and productivity will 
go hand in hand with empowering people. The clean economy is a powerful driver for a 
more  competitive  Europe.  The  EU  must  ensure  its  sustainable  prosperity  and 
competitiveness,  while  preserving  its  unique  social  market  economy,  succeeding  in  the 
twin transition, and safeguarding its sovereignty, economic security and global influence. 
As Mario Draghi has warned, if Europe accepts a managed and gradual economic decline, 
it is condemning itself to a ‘slow agony’. 

In  February  2024,  European  business  and  trade  union  representatives  endorsed  the 
Antwerp Declaration calling for an Industrial Deal. The Letta Report  (1) has warned that 
Europe  must  leverage  much  more  its  Single  Market  or  lose  relevance  in  a  world 

(1)  https://www.consilium.europa.eu/media/ny3j24sm/much-more-than-a-market-report-by-enrico-

letta.pdf 

1 

 
 
 
characterised by big powers’ competition. The risk of de-industrialisation and economic 
hardship  were  central  in  the  public  debate  across  Member  States  before  the  European 
elections. Building on the European Council’s Strategic Agenda, EU Leaders adopted the 
Budapest Declaration calling for a Competitiveness Deal for Europe. 
The Draghi Report (2), prepared at the request of Commission President von der Leyen, 
has provided a sharp analysis of Europe’s predicament. The Report  warns that Europe will 
no longer be able to rely on many of the factors that have supported growth in the past: 
strong  external  demand  driven  by  an  open  global  trade  system,  access  to  cheap  and 
abundant  fossil  fuel  energy,  and  the  ‘peace  dividend’  provided  by  a  period  of  relative 
geopolitical stability, which allowed EU governments to spend on other priorities. Europe 
is losing its growth engines at the very moment when it faces massive investment needs 
for modernising its economy, financing the green and digital transition, and ensuring its 
security.  The  Draghi  Report  lays  out  a  clear  diagnosis  and  provides  concrete 
recommendations to put Europe onto a different trajectory.  It is time to turn to action.  

The  new  Commission  has  an  ambitious  political  mandate,  based  on  the  President’s 
Political Guidelines, to be a growth and investment Commission. Competitiveness is front 
and centre of this mandate. This Communication sets out a compass that will guide the 
work  in  the  coming  five  years  and  lists  priority  actions  to  reignite  economic 
dynamism in Europe. 

A new competitiveness model based on innovation-led productivity  

The Draghi report shows that innovation must be at the heart of European renewal, 
while removing other constraints holding back growth.  Europe’s industrial structure 
has  become  static,  dominated  by  traditional  sectors  that  spend  less  on  research  and 
innovation  than tech-led sectors in the US, and with few start-ups reaching critical mass 
with new breakthrough technologies (3). With its population set to decline, Europe cannot 
count on rising labour inputs to drive future growth. Productivity must therefore be revived 
by moving towards the innovation frontier and investing in skills, not by restraining wages.  

At the same time, Europe must confront other potential brakes on its competitiveness. The 
transition  to  a  decarbonised  economy  must  be  competitiveness-friendly  and  technology 
neutral, while the shift to cleaner sources of energy must reduce energy costs and price 
volatility. EU regulation must be proportionate. The EU must also guarantee its industrial 
presence  in  key  technological  sectors  and  mitigate  risks  for  its  security  and  resilience 
emanating from dependencies – otherwise geopolitical uncertainty will cloud the outlook 
for our companies and weigh on investment.  

The Compass’ goal is to nurture Europe’s innate strengths, harness its resources and 
remove the barriers at European and national level.  

Europe  must  be  the  place  where  tomorrow’s  technologies,  services,  and  clean 
products are invented, manufactured and marketed, as we stay the course to climate 
neutrality. A Europe that remains home to cutting-edge scientific and research innovation. 
That retains and attracts the world’s best talents and provides quality jobs for all. Where 

(2)  https://commission.europa.eu/topics/strengthening-european-competitiveness/eu-competitiveness-

looking-ahead_en  

(3)   European Commission (2025), Annual Single Market and Competitiveness Report. This accounts for 

around two thirds of the gap in per capita GDP between the EU and the US. 

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upwards convergence between regions strengthens our global position and our unity. That 
shines as a leading global investment destination and rewards risk and entrepreneurship. 

A Competitiveness Compass 

The Competitiveness Compass establishes competitiveness as one of the EU’s overarching 
principles for action.  

The Compass  pursues  two broad goals.  First,  to identify the policy  changes needed for 
Europe to shift to a higher gear. In some areas, existing policies will need to be upgraded; 
in others, a step-change is required to adapt to new realities. The second goal is to develop 
new  ways  of  working  together  to  increase  the  speed  and  quality  of  decision-making, 
simplify our frameworks and rules, and overcome fragmentation. Europe can only match 
its continent-sized competitors if EU and national  policies are aligned  around the same 
objectives and reinforce each other. As many key levers, from taxation to labour markets 
to industrial policies, are largely or partly in the hands of EU governments, coordinated 
national reforms and investment will be a key component of this overall strategy. 

The  Draghi  Report 
to  boost 
competitiveness,  and  the  Compass  sets  out  an  approach  and  a  selection  of  flagship 
measures to translate each of these imperatives into reality in the coming years: 

transformational 

imperatives 

identified 

three 

•  Closing the innovation gap  

•  A joint roadmap for decarbonisation and competitiveness 

•  Reducing excessive dependencies and increasing security 

These  cardinal  points  are  complemented  by  action  on  horizontal  enablers,  which  are 
necessary to underpin competitiveness across all sectors:  

•  simplifying  the  regulatory  environment,  reducing  burden  and  favouring  speed  and 

flexibility; 

•  fully exploiting benefits of scale offered by the Single Market by removing barriers; 

•  financing through a Savings and Investments Union and a refocused EU budget; 

•  promoting skills and quality jobs while ensuring social fairness.  

•  better coordinating policies at EU and national level.  

A timeline and non-exhaustive list of planned initiatives is set out at the end of each section. 

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Figure 1: the Competitiveness Compass 

1 . The three transformational imperatives to strengthen competitiveness 

1.1. Closing the innovation gap  

Europe’s share of global patents is comparable to US and China. Yet, only one of third of 
patents  registered  by  EU  universities (4)  are  commercially  exploited.  For  European 
researchers and entrepreneurs, the route from discovery and patenting to market is littered 
with barriers. 

The  EU  must  restart  a  virtuous  innovation  cycle.  The  Draghi  report  shows  that 
productivity  growth  is  the  result  of  a  combination  of  two  forces:  disruptive  innovation 
brought about by new, dynamic start-ups challenging incumbents; and efficiency gains in 
mature traditional industries applying  these  innovations.  If these two forces  are weak  – 
which is the case in Europe – the economy becomes trapped in sectors with diminishing 
scope for radical innovation, and private sector R&D spending stalls (5). If we want the 
future of industry to be ‘made in Europe’, the EU must revive the innovation  cycle.  

Starting  and  scaling  up  companies  in  Europe  is  currently  hindered  by  market 
fragmentation, risk capital constraints and insufficient innovation support. European 
start-ups  have  a  hard  time  expanding  within  the  Single  Market  because  of  persisting 
regulatory barriers. They also have less access to venture capital and other forms of risk 
capital than their US peers: the share of global venture capital funds raised in the EU is 
only 5%, compared to 52% in the US and 40% in China (6). These two factors reinforce 

(4)  European Commission (2025), Annual Single Market and Competitiveness Report 

(5)   IMF,  2024,  Regional  Economic  Outlook  Note  Europe:  Europe's  Declining  Productivity  Growth: 

Diagnoses and Remedies, November 13, 2024 

(6)   EIB, ‘The scale-up gap: Financial markets constraints holding back innovative firms in the European 

Union’, 2024 

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each other: lower growth prospects for EU start-ups and higher costs of failure weaken 
their attractiveness in the eyes of investors. As a result, many seek funding in the US and 
relocate there to benefit from a larger market and customer base.  

A dedicated EU Start-up and Scale-up Strategy will address the obstacles that are 
preventing new companies from emerging and scaling up. It will start by improving 
relations between universities and business and creating better prospects for patents to be 
commercialised.  It  will  remove  barriers  created  by  lack  of  access  to  risk  capital,  a 
fragmented  Single  Market  and  limited  availability  and  mobility  of  talent  and  skilled 
workers, as well as insufficiently targeted innovation support. The European Innovation 
Act will promote the access of innovative companies to European research and technology 
infrastructures, intellectual assets generated by publicly funded R&I in view of increasing 
patenting, and regulatory sandboxes allowing innovators to develop and test new ideas.  

Making it possible for innovative companies to benefit from a single, harmonised set of 
EU-wide rules wherever they invest and operate in the Single Market, instead of facing 27 
distinct legal regimes, would represent a real game changer. The  Commission will thus 
propose a 28th legal regime, which will simplify applicable rules and reduce the cost of 
failure, including any relevant aspects of corporate law, insolvency, labour and tax law.  

As innovative companies grow in Europe, the EU will do everything possible to ensure 
they have the funding they need. Europe does not lack capital, but it is made available 
predominantly through bank financing rather than equity or other forms of risk capital. To 
create a more suitable financing environment for start-ups and scale-ups, the forthcoming 
initiatives  under  the  Savings  and  Investments  Union  will  present  measures  to  boost 
European venture capital (see section 2.3). 

Furthermore,  the  Commission  will  work  with  the  EIB  Group  and  private  investors  to 
deploy  a  TechEU  investment  programme  to  help  bridge  the  financing  gap  to  support 
disruptive  innovation,  strengthen  Europe’s  industrial  capacity  and  scale-up  companies 
which  invest  in  innovative  technologies  such  as  AI,  clean  tech,  critical  raw  materials, 
energy storage, quantum computing, semiconductors, life sciences, and neurotechnology.  

As  the  vision  for  the  future  of  agriculture  and  food  systems  will  develop,  farming 
entrepreneurship should also be supported as a driver for innovative and more sustainable 
farming practices.  

Europe will also support the innovation pipeline with a new focus on raising R&D 
spending  and  coordinating  it  on  high-impact  projects.  To  improve  the  overall 
environment generating innovation, the Commission will present a European Research 
Area  Act  to  strengthen  R&D  investment  and  bring  it  up  to  the  3%  GDP  target,  focus 
research  support  more  on  strategic  priorities,  reinforce  alignment  between  the  EU  and 
Member  States’  funding  priorities,  and  foster  the  circulation  of  knowledge  and  talent 
across  Europe.  As  suggested  by  the  Draghi  Report,  the  work  begun  by  the  European 
Innovation  Council  to  support  scale-up  by  high-risk  companies  should  continue  with 
increased risk-taking, inspired by elements of the DARPA model (7).  

Excelling in the technologies for tomorrow’s economy 

As barriers  to scaling up fall, Europe needs to ensure the conditions for advanced 
technologies to thrive. Europe needs to be at the forefront of innovation in tech sectors 
that  will  matter  in  tomorrow’s  economy  –  such  as  Artificial  Intelligence  (AI), 

(7)  Draghi Report ‘ The future of European competitiveness  – In-depth analysis and recommendations’, 

page 248  

5 

 
 
semiconductor  and  quantum  technologies,  advanced  materials,  biotechnologies,  clean 
energy  technologies,  robotics,  space  technologies,  connected  and  autonomous  mobility, 
and others – to enhance technological sovereignty and competitiveness.  

Europe  has  led  the  way  in  providing  a  stable  and  secure  framework  for  companies 
developing and operating digital technologies in the Single Market, with measures such as 
the Data  and Data Governance Acts, the Cyber Resilience Act and the AI Act, and sectoral 
initiatives  like  the  Net  Zero  Industry  Act  and  the  new  European  Health  Dataspace. 
European standards have influenced the evolution of the global regulatory framework. The 
focus  must  now  be  on  enabling  our  tech  talent  and  nurturing  world-class  industrial 
development in the EU to reap the productivity gains from technology.  

Europe  needs  the  computing,  cloud  and  data  infrastructures  that  AI  leadership 
requires. As part of the  AI Continent strategy, the AI factories initiative will aim to 
leverage all the benefits from aggregation and network effects at European level. Building 
on  Europe’s  existing  world-class  network  of  EuroHPC  supercomputers,  the  initiative 
establishes ‘AI factories’ to boost Europe’s computing power and makes it accessible for 
start-ups,  researchers  and  industry  to  train,  develop  and  improve  their  AI  models.  In 
parallel, through an EU Cloud and AI Development Act the Commission will mobilise 
public and private initiative  to  establish  new AI  Gigafactories specialised in  training of 
very large AI models enabling key AI ecosystems throughout the EU. The Act will also 
set minimum criteria for cloud services offered in Europe. This will complement support 
for  chip  design  and  manufacturing  in  Europe,  including  further  actions  in  relation  to 
cutting-edge  AI  chips.  As  the  availability  of  large  and  high-quality  data  is  an  essential 
component  of  developing  AI,  the  Commission  will  propose  a  Data  Union  Strategy  to 
improve  and  facilitate  secure  private  and  public  data  sharing,  simplify  the  regulatory 
regime and its application, and accelerate the development of new systems or applications. 

Europe  must  also  maintain  a  leading  position  in  quantum  technologies,  which  can 
revolutionise  digital  encryption  systems  underpinning  today’s  security  and  defence 
communication, health via scanning and drug discovery, as well as business transactions. 
A Quantum Strategy and a Quantum Act will build on the existing Chips Act to address 
regulatory fragmentation, align EU and national programmes and support investment in 
pan-European quantum computing, communication and sensing infrastructure. 

Investing in the new growth engines 

Life  sciences  are  driving  innovation  in  biotechnology,  and  hold  great  potential  for 
competitiveness across sectors, from pharma to agriculture to energy to food and feed. The 
EU  Bioeconomy  Strategy  will  position  the  EU  in  the  rapidly  expanding  bioeconomy 
market  with  a  significant  growth  potential  in  bio-based  materials,  biomanufacturing, 
biochemicals, and agri-biotech sectors, reduce our reliance on fossil fuels and improve the 
economic perspectives of our rural areas. A new European Biotech Act will provide a 
forward-looking  framework  conducive  to  innovation  in  areas  like  health  technology 
assessment  and  clinical  trials  and  more  generally  to  leverage  the  potential  that 
biotechnologies can bring to our economy. 

Demand  for  innovative  advanced  materials  will  increase  exponentially  in  the  coming 
years, attracting investments and reshaping global supply chains. The Commission will put 
forward an Advanced Materials Act to provide the framework conditions to support the 
whole lifecycle, from research and innovation to start-up creation until manufacturing and 
deployment. 

6 

 
In the same vein, space is a high-technology sector expected to grow nine times by 2030. 
The  competitiveness  of  the  European  space  sector  must  be  preserved  through  greater 
coordination of public spending, supporting the investments of European innovative start-
ups and scale-ups, and reinforcing the resilience of the space supply chain. A proposal for 
a Space Act will safeguard and improve the functioning of the internal market for space 
activities through a set of measures that harmonise requirements for the safety, resilience 
and sustainability of space activities at Union level and remove fragmentation arising from 
national legislation.  

Competition policy is also an important lever to strengthen Europe’s competitiveness. 
Rigorous  and  effective  antitrust  and  merger  enforcement  in  accordance  with  clear  and 
predictable  rules  protects  fair  competition  and  incentivises  companies  to  innovate  and 
become more efficient. At the same time, in the global race to develop deep technologies 
and breakthrough innovations, competition policy must keep pace with evolving markets 
and  tech  innovation.  This  needs  a  fresh  approach,  better  geared  to  common  goals  and 
allowing companies to scale up in global markets – while always ensuring a level playing 
field in the Single Market.  

This should be reflected in revised guidelines for assessing mergers so that innovation, 
resilience and the investment intensity of competition in certain strategic sectors are given 
adequate weight in light of the European economy’s acute needs. More generally, the new 
approach  to  EU  competition  policy  requires  us  not  only  to  simplify  and  speed  up 
enforcement, but also to strengthen and better target enforcement. It will ensure a coherent 
approach conducive to overall EU objectives, in particular to closing the innovation gap, 
addressing the need for efficient scale where relevant, and supporting the decarbonisation 
of  EU  industry.  For  example,  the  Commission  will  review  the  Technology  Transfer 
framework (8) to ensure that companies have clear, simple and up-to-date rules for pro-
competitive 
technology 
dissemination, incentivising initial R&D, and promoting innovation. The enforcement of 
the Digital Markets Act will open up closed ecosystems and enable innovative businesses 
to propose new digital services to customers. Finally, the Commission will promote a wider 
use of Important Projects of Common European Interest (IPCEIs), in conjunction with the 
Competitiveness Coordination Tool (see section 2.5).  

licensing  agreements, 

technology 

facilitating 

thereby 

Diffusing innovation across the whole economy 

Digitalisation and diffusion of advanced technologies across the European economy 
are the second necessary ingredient to lift Europe’s productivity growth. Overall, 70% 
of  the  new  value  created  in  the  global  economy  in  the  next  10  years  will  be  digitally 
enabled (9). 

Integrating AI into strategic sectors where Europe has traditionally been strong will 
be critical  to maintaining  their  competitive  edge. Today, only  a limited share of EU 
businesses adopts digital technologies – for instance only 13% for AI (10). The Apply AI 
Strategy will aim to boost new industrial uses of AI in sectors, such as manufacturing, 
automotive, energy, robotics, pharmaceutical and aeronautics, financial services, as well 
as to improve public services, for example in healthcare and justice.  

(8)   Technology Transfer Block Exemption Regulation and Technology Transfer Guidelines 

(9)   World  Economic  Forum,  ‘For  inclusive  growth,  leaders  must  embrace  a global  and open  economic 

future’, January 2025 

(10)  Eurostat, EU survey on ICT usage and e-commerce in enterprises (January 2025). While this represents 
significant year-on-year growth, the potential for much broader AI use remains under-exploited. 

7 

 
 
The digitalisation of public services and the integration of AI in the public sector will 
enhance competitiveness. Better EU-wide coordination and support of these AI vertical 
use  cases  and  AI  for  science  could  be  ensured  via  a  ‘CERN  for  AI’.  Working  in  this 
direction, the European Research Council and the European Innovation Council need 
to operate in their respective domains along the same strategic interests and cooperate more 
closely to achieve results.  

Leading  manufacturing  companies  must  also  increase  their  R&D  intensity  while 
accelerating the diffusion of innovation. Strategic partnerships with start-ups could foster 
the development of new products and systems. Future EU research funding will provide 
targeted support to industrial competitiveness with a more strategic and less bureaucratic 
approach to supporting the transition from applied research to the scale-up phase. 

Closing  the  innovation  gap  will  require  investment  in  state-of-the-art  digital 
infrastructure,  including  modern  fibre  networks,  wireless  and  satellite  solutions, 
investments  in  6G  and  cloud  computing  capabilities.  Yet,  Europe  is  far  behind  its  own 
2030 Digital  Decade targets  for infrastructure connections. To correct  course, a  Digital 
Networks  Act  will  propose  solutions  to  improve  market  incentives  to  build  the  digital 
networks  of  the  future,  reduce  burden  and  compliance  costs,  and  improve  digital 
connectivity for end-users, by creating an integrated Single market for connectivity and a 
more coordinated EU spectrum policy.  

Flagship Actions Pillar 1 

•  Start-up and Scale-up Strategy [Q2 2025] 

•  28th regime [Q4 2025 – Q1 2026] 

•  European Innovation Act [Q4 2025 – Q1 2026] 

•  European Research Area Act [2026] 

•  AI Factories Initiative [Q1 2025], Apply AI, AI in Science, and Data Union Strategies 

[Q3 2025] 

•  EU Cloud and AI Development Act [Q4 2025 – Q1 2026] 

•  EU Quantum Strategy [Q2 2025] and a Quantum Act [Q4 2025] 

•  European Biotech Act and Bioeconomy Strategy [2025-2026]   

•  Life Sciences Strategy [Q2 2025] 

•  Advanced Materials Act [2026] 

•  Space Act [Q2 2025] 

•  Review of the Horizontal Merger Control Guidelines  

•  Digital Networks Act [Q4 2025] 

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1.2. A joint roadmap for decarbonisation and competitiveness  

Europe has set out an ambitious framework to become a decarbonised economy by 
2050. It will stay the course, including through the intermediate 2040 target of 90% (11). 
This framework can drive competitiveness if objectives and policies are well aligned, as it 
gives  certainty  and  predictability  to  companies  and  investors  alike.  Moreover,  as  the 
Draghi Report shows, decarbonisation policies are a powerful driver of growth when they 
are  well  integrated  with  industrial,  competition,  economic  and  trade  policies.  This 
conviction will inspire the Clean Industrial Deal initiative, aimed at securing the EU as 
an  attractive  location  for  manufacturing,  including  for  energy  intensive  industries,  and 
promoting  clean  tech  and  new  circular  business  models,  in  order  to  meet  its  agreed 
decarbonisation objectives.  

Affordable energy 

The EU needs to tackle upfront the issue of high and volatile energy prices for European 
companies and households. Energy prices are much higher than in competitor regions and 
vary significantly across the EU. Some of the drivers of high energy prices in Europe are 
structural. Europe relies on fossil fuel imports for almost two thirds of its energy. Russia’s 
manipulation of this dependency in the context of its war of aggression against Ukraine is 
the major driver of the most recent price spikes. This dependence can only be reduced over 
time, as a greater share of energy is produced from decarbonised generation in Europe. 
The EU must thus accelerate the clean energy transition and promote electrification. But 
some of the cost components of energy prices can be mitigated in the short term, as they 
are determined by inefficiencies in the design of network tariffs and taxation or a lack of 
energy market integration.  

These issues will be addressed by the Affordable Energy Action Plan, through a range 
of measures to ensure that households and industrial customers have a wider direct access 
to low-cost energy. The plan will help leverage the energy cost reduction benefits coming 
from  further  market  integration,  expand  the  use  of  guarantees  and  risk  reduction 
instruments to facilitate conclusion of long-term power purchase agreements, incentivise 
industrial customers to provide demand flexibility services, and encourage a fair allocation 
of energy system costs through better designed tariffs.   

An indispensable element in this plan is investing in Europe’s grids, to accompany the 
progress  towards  a  net  zero  energy  system,  reduce  risks  of  curtailment  for  renewable 
energy and leverage the benefits of its Single Energy Market. Europe must invest more in 
modernising  and  expanding  its  network  of  energy  transmission  and  distribution 
infrastructure,  accelerating  investment  in  electricity,  hydrogen  and  carbon  dioxide 
transport networks as well as storage systems.  

A business case for clean production  

To  shift  the  economy  towards  clean  production  and  circularity,  the  EU  needs  to 
develop lead markets and policies to reward early movers. The strongest driver in this 
process is harnessing the power of the EU’s domestic market.This can be done through 
new  measures 
as 
benchmarking/labelling,  mandates  or  preference  in  public  procurement  or  financial 

low-carbon  products, 

encourage  demand 

such 

for 

to 

(11)   Cf.Europe’s Choice: Political Guidelines for the next European Commission 2024−2029. 

9 

 
 
incentives  through  contracts  for  difference.  Coordinating  between  the  EU  and  Member 
States,  the  Commission  will  promote  aggregation  of  demand  and  coordinate  action 
between Member States, including through a wider and easier use of ‘auction-as-a-service’ 
schemes (12).  

Alongside demand incentives, producers of clean technologies need help to translate 
innovative  activity  into  manufacturing  leadership.  Better  accompanying  companies, 
especially energy intensive ones, in their efforts to switch to clean technologies requires a 
flexible  and  supportive  state  aid  framework.  In  the  Clean  Industrial  Deal,  the 
Commission  will  set  out  how  well  targeted,  simplified  aid  can  further  encourage 
investment for decarbonisation, while avoiding market distortions. In the same spirit, the 
Commission  will invite Member States  to  ensure that the elements  of their tax systems 
which impact private investment incentives, such as depreciation rules and tax credits, are 
conducive for a clean production business case. 

Energy  intensive  sectors,  such  as  steel,  metals,  and  chemicals  are  among  the  most 
vulnerable  in  this  phase  of  the  transition.  These  industries  are  the  backbone  of  the 
European  manufacturing  system,  as  they  produce  certain  inputs  vital  for  whole  value 
chains. To accompany their transition, tailor-made action plans for some of them will be 
presented following the Clean Industrial Deal, based on close dialogue and consultation 
with the stakeholders. For instance, in Spring 2025, the Steel and Metals Action Plan 
will  propose  concrete  measures  to  address  investment  needs,  access  to  primary  and 
secondary materials, use of trade defence instruments, and will define a long-term solution 
to  replace  current  safeguard  measures  in  light  of  global  non-market  overcapacity.  The 
Chemicals industry package at the end of 2025 will be of key importance to ensure the 
competitiveness of industry as well as the protection of human health and the environment, 
looking also at supply of critical chemicals. 

Mobility and technology neutrality is key for competitiveness. The Commission has 
launched the strategic dialogue with the automotive sector to urgently address the current 
challenges and design concrete strategies and solutions to ensure this key industry has a 
solid  future  in  Europe.  The  dialogue  will  address  challenges  around  innovation  and 
leadership in future technologies, clean transition and decarbonisation, access to globally 
competitive  inputs  and  security  of  supply,  labour  and  skills,  global  fair  trade  and 
competition,  regulatory  streamlining  and  implementation  and  boosting  of  demand,  by 
investing in recharging infrastructure and promoting uptake of electric vehicles. The CO2 
standards provide long-term certainty to channel the necessary investments. As part of the 
dialogue, we will identify immediate solutions to safeguard industry’s capacity to invest, 
by looking at possible flexibilities to make sure our industry remains competitive, without 
lowering the overall ambition of the 2025 targets. Moreover, reaching the 2035 climate 
neutrality target for cars will require a technology-neutral approach, in which e-fuels have 
a role to play through a targeted amendment of the regulation as part of the foreseen review. 
The  dialogue  will  feed  into  an  EU  industrial  action  plan  for  the  automotive  sector, 
including ambitious supply- and demand-side initiatives, such as a proposal on greening 
corporate fleets.  

In parallel, the Commission will put forward a Sustainable Transport Investment Plan 
with  additional  measures  to  de-risk  investment  needed  to  swiftly  ramp  up  charging 

(12)  ‘Auction  as  a  service’  has  been  pioneered  under  the  EU  Innovation  Fund  for  the  Hydrogen  Bank, 
allowing Member States to support qualifying projects for which EU funding was insufficient. 

10 

 
 
infrastructure and the production and distribution of renewable and low-carbon transport 
fuels. A new strategy will highlight the role that European ports and maritime industry 
will  play  in  the  future  EU  economy,  while  additional  efforts  will  also  be  deployed  to 
strengthen EU cross-border rail connectivity, including a plan for an ambitious European 
high-speed rail network.   

Europe  needs  to  combat  carbon  leakage  of  its  industries.  The  situation  of  energy 
intensive industries  included in  the European  Emissions Trading System (ETS)  and the 
need to minimise cases of circumvention and unintended consequences on value chains 
will inform the forthcoming review of the Carbon Border Adjustment Mechanism (13). In 
order  to  reinforce  the  Mechanism’s  effectiveness  this  review  will  analyse  the  possible  
extension of scope to further sectors and downstream products as well as possible measures 
to address impacts on exports of relevant goods. This will reinforce the goal of preventing 
‘carbon leakage’ and ensuring a greater impact in terms of promoting global carbon pricing 
and, as a consequence, an international level playing field.  

To protect and promote clean tech and decarbonised manufacturing in the EU, the Clean 
Industrial  Deal  and  its  deliverables  will  mobilise  in  a  coordinated  way  different  policy 
levers, from permitting and authorisation facilitations, to industrial policy incentives, from 
reformed  public  procurement  rules  to  trade  defence  instruments,  from  targeted  Global 
Gateway  investments  and  international  partnerships  to  expanded  market  access.  Policy 
intervention  will  be  based  on  assessment  of  needs  and  market  outlook,  focusing  on 
technologies  key  for  decarbonisation  and  economic  resilience,  emerging  sectors,  or  on 
technologies  where  current  EU  domestic  production  risks  being  put  under  pressure  by 
international  competitors  benefiting  from  an  uneven  playing  field,  subsidies  or  support 
polices leading to non-market overcapacity. Energy-efficient technologies are to a large 
extent made in Europe, thus providing a competitive edge for the EU economy. Achieving 
climate neutrality will require negative emissions. Incentives will be developed, e.g. in the 
context of the review of the ETS Directive in 2026, to build a business case for permanent 
carbon removals to compensate for residual emissions from hard to abate sectors. 

Finally, the vision for EU agriculture and food production will set out how to ensure 
long-term  competitiveness  and  sustainability  within  the  planetary  boundaries  for  the 
agricultural and food sectors, ensuring thriving rural areas, food security and resilience. 
The  European  Oceans  Pact  will  allow  Europe  to  leverage  its  vast  maritime  area  and 
coastline to boost innovation through new blue technologies, clean energy production and 
food security.  

Tapping the potential of the circular economy 

Resource  efficiency  and  boosting  circular  use  of  materials  helps  decarbonisation, 
competitiveness  and  economic  security.  The  European  remanufacturing  market’s 
circular potential is projected to grow from its current value of EUR 31 billion to EUR 100 
billion by 2030, creating 500,000 new jobs (14). Europe must aim to create a single market 
for waste, secondary and reusable materials, to increase efficiency and expand recycling. 
A Circular Economy Act proposal will serve to catalyse investment in recycling capacity 
and  encourage  EU  industry  to  effectively  substitute  virgin  materials  and  to  reduce  the 

(13)   This review is independent of current preparations to simplify certain aspects of the mechanism in the 

short term. See section 2.1 below. 

(14)  World Bank, 2022 

11 

 
 
landfilling and incineration of used raw materials. This will be accompanied by the roll-
out of Eco-design requirements on important product groups.  

Flagship Actions Pillar 2 

•  Clean Industrial Deal and an Action Plan on Affordable Energy [Q1 2025] 

•  Industrial Decarbonisation Accelerator Act [Q4 2025] 

•  Electrification Action Plan and European Grids Package [Q1 2026] 

•  New State Aid Framework [Q2 2025] 

•  Steel and metals action plan [2025] 

•  Chemicals industry package [Q4 2025] 

•  Strategic  dialogue  on  the  future  of  the  European  automotive  industry  and  Industrial 

Action Plan [Q1 2025].  

•  Sustainable Transport Investment Plan [Q3 2025] 

•  European Port Strategy and Industrial Maritime Strategy [2025] 

•  High Speed Rail Plan [2025] 

•  Carbon Border Adjustment Mechanism Review [2025] 

•  Circular Economy Act [Q4 2026] 

•  Vision for Agriculture and Food [Q1 2025] 

•  Oceans Pact [Q2 2025]  

•  Amendment of the Climate Law [2025] 

1.3.  Reducing excessive dependencies and increasing security  

The global connections the EU has created around the world support both economic 
growth and security. The EU is highly open to trade which creates deep interconnections, 
supporting diverse supply chains and tight alliances with key partners. Trade will be key 
to the EU’s future growth.  

In a global economic system fractured by geopolitical competition and trade tensions, the 
EU must integrate more tightly security and open strategic autonomy considerations in its 
economic policies.  The  security environment  is  a precondition  for  EU  firms’  economic 
success  and  competitiveness.  Companies  will  not  make  long-term  investments  in  areas 
where  they  face  uncertainty  about  the  security  environment  or  threats  to  critical 
infrastructure; where they fear that their supply chains will be disrupted and choked as a 
result of international tensions; or where their investments risk being wiped out by unfair 
competition resulting from a global uneven playing field. At the same time, security and 
resilience can become a driver for competitiveness and innovation.  

12 

 
 
Trade and economic security 

Trade with third countries is a key driver for Europe’s prosperity. Today, external 
trade in goods and services accounts already for a major share of the EU’s GDP. In 2023, 
transatlantic trade between the EU and the US exceeded EUR 1.5 trillion; together the EU 
and the US represent almost 30% of global trade. Looking ahead, 90% of global economic 
growth is projected to take place outside Europe’s borders. A high degree of trade openness 
is therefore crucial, not only for sustaining Europe’s prosperity, but also for enhancing its 
resilience.  

The  EU’s  ability  to  diversify  and  reduce  dependencies  will  hinge  on  effective 
partnerships.  The  EU  already  has  the  largest  and  fastest  growing  network  of  trade 
agreements in the world covering 76 countries that account for almost half of the EU’s 
trade. We are the number one trading partner for 72 countries that represent 38% of world 
GDP. We are also mobilising Global Gateway investment packages across the globe in key 
areas intertwining Europe’s economic interests with those of its partners. 

The conclusion of negotiations of the EU-Mercosur Agreement and the modernisation of 
the EU-Mexico Global Agreement show how mutually beneficial trade can go hand in 
hand with creating a level playing field and reciprocity and increasing economic security. 
For  example,  starting  from  the  baseline  of  EUR  84  billion  in  EU  annual  exports,  the 
removal of high Mercosur tariffs will enable EU exporters to save over 4 billion euros in 
customs  duties  per  year   (15)  and  provide  a  first-mover  advantage.  Access  to  public 
procurement, exclusive preferential access to some critical raw materials and green goods, 
and protection of more than 350 EU Geographical Indications for traditional food products 
represent major opportunities to increase trade. At the same time, safeguards are provided 
for sensitive sectors  (16). The EU will  continue to work closely with partners to continue 
expanding its vast network of trade agreements, opening up market access for European 
companies,  securing  greater  reciprocity,  while  promoting  open  rules-based  global  trade 
governed by a modernised WTO.  

The  EU  needs  to  continue  adapting  its  offer    and  seeking  new  ways  of  deepening 
partnerships  and  creating  benefits  for  our  businesses,  from  Digital  Trade  Agreements 
(where negotiations are under way with Korea and finalised with Singapore) and Mutual 
Recognition Agreements (in place and under development with several partners including 
Australia, Canada, Japan, New Zealand, Switzerland and the U.S., reducing the costs of 
conformity procedures) to Sustainable Investment Facilitation Agreements (the first of 
which was finalised, while others are being developed). To this end, our new Clean Trade 
and  Investment  Partnerships  will  bring  together  targeted  trade  and  investment  rules, 
Global  Gateway  investments,  and  regulatory  cooperation,  into  a  single  whole-of-
government  partnership.  They  will  offer  opportunities  to  help  secure  supply  of  raw 
materials, clean energy, sustainable transport fuels, and clean tech from across the world, 
while scaling up European sustainable investments that are beneficial to partner counties 
and helping to achieve the global energy targets championed by President von der Leyen. 
Under the new Pact for the Mediterranean, an ambitious Trans-Mediterranean Energy 

(15)  The average import duty in Mercosur is higher than in many other regions, at 13,5%. In contrast, the 
average tariff applied by the EU across all imported goods is 1,8%. Therefore, the gains from tariff 
liberalisation with Mercosur are high for the EU. 

(16)  Additional  protective  mechanisms,  such  as  safeguard  clauses,  allow  the  EU  to  respond  if  Mercosur 
imports, like beef within a TRQ, are found to cause significant harm to EU markets. Beyond safeguard 
clauses, the Commission will mobilise additional support by setting up a reserve worth at least EUR 1 
billion in the unlikely event that market disruptions occur following the agreement’s implementation. 

13 

 
 
and  Clean  Tech  Cooperation  initiative  will  stimulate  large  scale  public  and  private 
investments in renewable energy. 

At  the  same  time  the  EU’s  trade  relationships  can  sometimes  create  risks.  In  an 
increasingly  fraught  environment,  excessive  dependencies  can  be  exploited  and  even 
weaponised. Industrial policies of certain third countries may intentionally seek to create 
overcapacities and strategic dependencies. This requires an understanding of the risks and 
to act on them accordingly in a targeted and proportionate way.   

When the European market relies only on one or a handful of suppliers of key goods, 
services or other inputs, the EU needs policies and investments to ensure its economic 
security,  minimising  the  potential  for  the  weaponisation  of  dependencies  or  economic 
coercion. The Draghi report charts how Europe needs to ensure the resilience of its supply 
chains, notably for critical raw materials, or imports of essential advanced clean or digital 
technologies, such as semiconductors. Another example are current supply dependencies 
for  active  ingredients  for  critical  medicines,  essential  for  public  health  in  general  and 
certain patients in particular, or fertilisers, which underpin food security.  

Europe must continue to  pursue policies to  reduce  its  dependencies on single or highly 
concentrated  suppliers  across  key  strategic  sectors  through  recycling,  innovation  and 
research,  targeted  financial  support  for  the  establishment  or  promotion  of  domestic 
processing or manufacturing capacities and the creation of back-ups and stockpiles, as well 
as  the  bilateral  and  multilateral  partnerships  for  diversification  mentioned  above.  In 
addition,  against  the  background  of  Russian  energy  blackmail  linked  to  its  war  of 
aggression, the Commission will present a Roadmap on lawful measures towards ending 
Russian energy imports.  
As  part  of  its  Economic  Security  Strategy (17),  the  EU  defined  four  risk  areas  and  ten 
critical technologies. Building on the ongoing in-depth risk assessments, proportionate and 
targeted mitigation measures to protect, promote and partner will be taken to respond to 
identified  risks  and  increase  resilience.  These  include  measures  such  as  screening  of 
foreign  direct  investment,  export  controls  and  outward  investment  monitoring.  The 
Commission will develop economic security standards for key supply chains with our G7 
and other like-minded partners.  

Unfair competition and levelling the playing field 

Where unfair competition threatens our Single Market, we should also use the protective 
tools  at  our  disposal,  such  as  the  trade  defence  instruments,  and  rigorously  enforce  the 
Foreign Subsidies Regulation.  The appropriate mix of these elements will vary from sector 
to sector. The EU will also continue to press for a modernised WTO rulebook. 

More  intense  coordination  among  Member  States  and  forms  of  demand  aggregation  or 
joint purchase at EU level can increase leverage towards foreign suppliers. For example, it 
is vital for EU competitiveness to ensure a reliable, diversified supply of raw materials, as 
they are crucial inputs for the energy, food production and industrial sectors. Building on 
the Critical Raw Materials Act implementation, a policy combining promotion of domestic 
production,  stockpiling  and  diversification  must  be  pursued.  Following  the  recent 
experience  with  AggregateEU,  the  Commission  will  create  a  platform  for  the  joint 
purchase  of  critical  raw  materials  to  identify  the  needs  of  EU  industries,  aggregate 
demand, and coordinate joint purchases. Similarly, the Critical Medicines Act will aim to 

(17)  Joint communication “European Economic Security Strategy”, JOIN (2023) 20 

14 

 
 
strenghten supply of critical medicines and their ingredients, address market failures and 
reduce dependency.  

The EU needs to address the challenge posed by unfair competition and global output 
overcapacities. These are often driven by systematic, state-induced over-investments and 
subsidies  concentrated  along  supply  chains  in  critical  and  strategic  industrial  sectors. 
Structural  non-market  overcapacities  translate  into  aggressive  market  export  strategies 
which increase pressure on European producers on an already unlevel playing field. The 
loss of European-based production capacities and know-how in critical sectors could leave 
the EU  overly dependent on imports in key segments of the economy.  

The  public  sector  has  a  central  role  to  play.  In  a  context  where  other  major  players 
impose access  restrictions to  their markets  and seek to  boost manufacturing capacity in 
critical  technologies,  Europe  must  safeguard  its  own  capacities.  The  Commission  will 
propose the introduction of a European preference in public procurement for strategic 
sectors  and  technologies.  Public  procurement  accounts  for  approximately  14%  of  EU 
GDP (18). The planned review of the Public Procurement Directives aims at reinforcing 
technological security and domestic supply chains, as well as simplifying and modernising 
rules, in particular for start-ups and innovative companies.  

Defence industry, security and preparedness  

The EU defence industry is an important driver of competitiveness, but it lacks scale 
and is falling short of its potential. While EU firms in the defence sector are globally 
competitive,  they  suffer  from  a  combination  of  structural  weaknesses  and  decades  of 
underinvestment. The sector is fragmented and characterised by mainly national players, 
many  operating  in  relatively  small  domestic  markets,  which  reduces  supply  capacity. 
Investment in defence R&D is significantly lower than in the U.S.. As a result, the EU is 
highly dependent on non-EU suppliers. There is a material risk that the EU falls behind in 
defence  innovation  and  the  development  of  new  advanced  weapons’  systems,  with 
negative spillovers to dual-use technologies. The European defence industry must be able 
to deliver on the full spectrum of capabilities and be a driver of innovation for the entire 
economy.   

We need to enhance and support the Member States’ efforts to  invest more, better, 
together, and European  (19). Deeper coordination is key to finance, develop, produce, 
and sustain all the necessary defence capabilities and infrastructure (including dual-use) in 
Europe.    Europe  must  substantially  increase  the  level  of  defence  cooperation  between 
Member  States,  by  aggregating  demand  through  increased  recourse  to  joint  defence 
procurement,  promoting  rapid  industrial  ramp-up  as  well  as  cooperation  on  joint  R&D 
concentrated on common European initiatives, pooling resources through Defence Projects 
of Common European Interest, integrating EU industrial capacity and establishing a Single 
Market for defence and improving access to finance for SMEs with the aim to increase 
scale, reduce inefficiencies and promote interoperability. The Commission and the High 
Representative will present a White Paper on the Future of European Defence to set out 
the actions necessary to achieve these objectives.  

Experience has taught Europe the added value of preparedness. Concrete action is 
now necessary.  The EU and Member States need to  adopt  a whole-of-government and 
whole-of-society  approach  to  shield  the  economy  and  protect  citizens,  including 

(18)  European Commission (2025), Annual Single Market and Competitiveness Report 

(19)  Joint Communication “A new European Defence Industrial Strategy: Achieving EU readiness through 

a responsive and resilient European Defence Industry”, JOIN (2024) 10 final. 

15 

 
 
comprehensive  public-private  cooperation  and  a  new  preparedness-by-design  principle. 
For example, in cases of limited industrial and production capacities, the coordination of 
procurement or stockpiling of crisis-relevant goods can be done jointly at EU level. Based 
on  the  Niinistö  report,  the  Commission  and  the  High  Representative  will  present  a 
Preparedness  Union  Strategy  outlining  a  common  approach  to  existing  and  potential 
threats.  

Increasing hybrid threats require a closer alignment between the public and private 
sectors. The digital age is accelerating the speed of cyberthreats and cyberattacks. Entire 
economic  sectors  and  essential  services (20)  depend  on  the  resilience  of  our  digital, 
transport and space infrastructure, energy grids, technological hardware. Undersea cables 
are a prominent recent example of an area of intensifying security risks. Europe must factor 
in risks for the security of critical infrastructure, whether digital or physical, at all stages – 
from  construction  and  technology  choice  to  operations  and  recovery  capabilities.  An 
Internal  Security  Strategy  will  set  out  a  comprehensive  EU  response  to  face  security 
threats, whether online or offline, and to ensure that security is integrated in EU legislation 
and policies by design.  

A  changing  climate  and  extreme  weather  events  increasingly  threaten  European 
economic security. The EU and Member States must therefore improve their resilience 
and step up their preparedness, regularly updating climate risk assessments and improving 
critical infrastructure resilience by design. Integrating climate resilience in urban planning, 
deploying nature-based solutions, developing nature credits and adaptation in agriculture 
while preserving food security, are also among the options to protect the EU economy and 
society from the worst of natural calamities such as floods, droughts, wildfires and storms 
that compromise supply chains and production sites. A European Climate Adaptation 
Plan will be presented to this end. 

More generally, Member States need to address growing water scarcity by improving water 
management  practices  and  infrastructures,  increasing  water  efficiency  and  promoting 
sustainable  water  use.  At  EU  level,  the  Commission  will  present  a  European  Water 
Resilience Strategy.  

Flagship Actions Pillar 3 

•  Conclude  and  implement  ambitious  trade  agreements,  Clean  Trade  and  Investment 

Partnerships 

•  Trans-Mediterranean Energy and Clean Tech Cooperation initiative [Q4 2025] 

•  Joint purchasing platform for Critical Raw Minerals [Q2-3 2025]  

•  Revision of directives on Public Procurement [2026]  

•  White Paper on the Future of European Defence [Q1 2025] 

•  Preparedness Union Strategy [Q1 2025]  

•  Internal Security Strategy [Q1 2025] 

(20)  Cf. the recent European action plan on the cybersecurity of hospitals and healthcare providers, COM 

(2025) 10 final 

16 

 
 
 
•  Critical Medicines Act [Q1 2025] 

•  European Climate Adaptation Plan [2026] 

•  Water Resilience Strategy [Q2 2025] 

2. Horizontal enablers of competitiveness  

2.1. Simpler, lighter, faster: ensuring that EU regulation is fit for competitiveness 

Regulatory burden has become a brake on Europe’s competitiveness. Despite the EU’s 
advanced better regulation policy, for two out of three companies this burden is the key 
obstacle  to  long-term  investment (21).  Many  signal  that  the  complexity,  variety,  and 
duration of permitting and administrative procedures make Europe a less attractive location 
for investment, compared to other regions. Restoring Europe’s competitiveness requires 
going  much  further  than  before  in  cutting  red  tape.  Regulation  must  be  proportionate, 
stable, coherent and technology neutral. 

All  the  EU,  national,  and  local  institutions  must  make  a  major  effort  to  produce 
simpler  rules  and  to  accelerate  the  speed  of  administrative  procedures.  Accessing 
funds or obtaining administrative decisions must become faster and cheaper for companies 
and  citizens.  For  instance,  building  on  the  renewable  energy  permitting  and  Net  Zero 
Industry  Act,  the  planned  Decarbonisation  Accelerator  Act  will  extend  accelerated 
permitting to more (e.g. energy intensive) sectors in transition. The procedures for IPCEIs 
as well as for the energy infrastructure Projects of Common Interest will be made simpler 
and faster. The Multiannual Financial Framework (MFF) proposal will be the opportunity 
to further streamline access to and simplify EU funding instruments – currently fragmented 
over too many programmes – across the board.  

The  change  will  start  with  the  Commission.  The  first-ever  Commissioner  for 
Implementation and Simplification is coordinating the Commission’s work in this area and 
steering a screening of the EU acquis to identify ways to simplify, consolidate and codify 
legislation as needed. Each Commissioner will hold regular implementation dialogues with 
stakeholders, twice a year, to understand implementation issues, hear business concerns 
and identify opportunities for simplification and burden reduction. Reality checks held by 
Commission services with stakeholders will further feed the stress testing of EU regulation. 
Simplification must be informed by an understanding of the practical operation of value 
chains  and  with  a  regulatory  system  based  on  trust  and  incentives  rather  than  detailed 
control in mind. The Commission will put forward its overall approach next month. 

This Commission will deliver an unprecedented simplification effort. This will aim to 
achieve the agreed policy objectives in the simplest, most targeted, most effective and least 
burdensome way.  To ensure sustained and measurable efforts over the years ahead, the 
Commission has  set  ambitious quantified  targets for reducing  reporting  burden:  at  least 
25% for all companies and at least 35% for SMEs. Reporting burdens are a subset of all 
administrative burdens. Thus, to further increase our ambition, the 25% and 35% burden 
reduction targets should in the future refer to the costs of all administrative burdens, and 
not only reporting requirements. This results in a goal of reducing around EUR 37.5 billion 

(21)   EIB, EIB Investment Survey 2023 

17 

 
 
of recurring costs until the end of the mandate (22). Dedicated measures for SMEs will aim 
to meet the 35% target. 

This will start next month with the first of a series of Simplification Omnibus packages. 
The first Omnibus will, among others, cover a far-reaching simplification in the fields of 
sustainable finance reporting, sustainability due diligence and taxonomy. In line with the 
objectives  of  the  sustainable  finance  framework  to  mobilise  investment  in  the  clean 
transition, the Commission will ensure better alignment of the requirements with the needs 
of investors, proportionate timelines, financial metrics that do not discourage investments 
in smaller companies in transition, and obligations proportionate to the scale of activities 
of different companies. It will notably address the trickle-down effect to prevent smaller 
companies along the supply chains from being subjected in practice to excessive reporting 
requests that were never intended by the legislators. 

To ensure proportionate regulation adapted to companies’ size, a new definition of small 
mid-caps will soon be proposed. By creating such a new category of company, bigger than 
SMEs but smaller than large companies, thousands of companies in the EU will benefit 
from tailored regulatory simplification in the same spirit as SMEs. The Commission is also 
preparing a simplification of the Carbon Border Adjustment mechanism for smaller 
market players.  

In the course of the year and throughout the mandate, the Commission will continue to 
present simplification measures, based on dialogue with stakeholders.The revision of the 
REACH  Regulation  will  cover  the  existing  acquis  and  new  initiatives  on  chemicals, 
bringing  a  real  simplification  on  the  ground  and  ensuring  faster  decision-making  on 
important  hazards,  as  well  as  sustainability,  competitiveness,  security  and  safety. 
Following  the  proposed  overhaul  of  the  EU’s  pharmaceutical  framework  to  accelerate 
authorisations  and  streamline  regulatory  processes,  the  Commission  is  preparing  short-
term implementing measures to reduce burden and simplify in the field of medical devices. 
Furthermore, a substantial simplification package will be put  forward this year to  bring 
concrete on-farm burden reduction and relief to farmers.  

A new SME and competitiveness check in impact assessments will become a stronger 
filter for new initiatives, also assessing the expected effects on cost differentials compared 
to  international  competitors.  Greater  attention  will  be  paid  to  assessing  the  costs  of 
proposed delegated and implementing acts, when relevant. 

Digitalisation will go hand in hand with simplification to reduce the reporting burden. 
Companies  and  public  authorities  must  be  better  accompanied  when  it  comes  to 
implementing EU legislation through stepped up support, capacity building and technical 
assistance. Use of digital tools and AI to power simplification efforts at governmental level 
must  be  facilitated,  with  full  cross-border  interoperability  among  public  sector  bodies’ 
solutions  such  as  e-invoicing,  e-signature,  e-submissions  and  digital  product  passport. 
Wherever  possible,  reporting  must  move  to  digital  formats  based  on  standardised  data. 
Building  on  the  EU  e-IDAS  framework,  the  European  business  wallet  will  be  the 
cornerstone  of  doing  business  simply  and  digitally  in  the  EU,  providing  a  seamless 
environment for companies to interact with all public administrations.   

To ensure a level playing field across the Single Market, as well as fight fragmentation and 
gold plating, the Commission will pursue a forceful approach to full harmonisation and 
enforcement. In addition to work on simplifying record-keeping under the General Data 

(22)  Using  data  available  at  the  EU  and  national  level,  and  taking  into  account  the  estimation  of  the 
administrative  burden  made  by  the  Stoiber  high-level  group,  EUROSTAT  has  approximated  the 
baseline of overall recurring (annual) administrative costs up to EUR 150 billion in the EU.   

18 

 
 
Protection  Regulation,  the  Commission  will  continue  work  on  its  more  harmonised 
implementation and enforcement. 

All  EU  institutions  need  to  work  together  to  avoid  a  ‘regulatory  ratchet’.  The 
commitment  to  better  regulation  must  be  shared  by  all  institutions  throughout  the 
legislative process, in compliance with the principles of subsidiarity and proportionality. 
the  Council,  a  revised 
the  European  Parliament  and 
Working 
interinstitutional  agreement  will  ensure  that  the  simplification  commitment  and 
implementation focus hold from start to finish in the legislative process.  

together  with 

2.2. Making the most of Europe’s Single Market  

The Single Market is critical to build continental size in a world of giants. For 30 years, 
the Single Market has been Europe’s tried and tested engine for competitiveness (23). It is 
today the home market for 23 million companies, providing goods and services to almost 
450 million Europeans. Companies benefit from free movement and predictable business 
conditions underpinned by guarantees for the respect of the rule of law. Consumers benefit 
from wide choices and high protection. However, the Single Market is far from complete. 
Despite recurrent efforts to remove barriers to the free flow of goods, services, capital and 
people, certain barriers stubbornly persist, and new obstacles and sources of fragmentation 
continue to appear.  

The  Annual  Single  Market  and  Competitiveness  Report  2025  shows  the  costs  of 
inaction: over the past years, market integration has lost momentum. Indeed, the share 
of EU GDP represented by trade between Member States decreased both for goods (23.8%) 
and services (7.6%) in 2023 (24). Within the Single Market, trade in cross-border services 
is less than a third of that in goods and, differently from goods, not higher than services 
trade  with  non-EU  countries.  The  Letta  Report  has  mapped  out  persistent  barriers  and 
highlighted  the  benefits  that  would  come  from  speeding  up  integration  in  electronic 
communications, energy, financial markets and from building a Single Market for defence. 

Removing  remaining  barriers  and  expanding  the  Single  Market  will  help 
competitiveness  in  all  its  dimensions,  by  providing  bigger  markets,  lowering  energy 
prices and enhancing access (25). To improve the functioning of the Single Market across 
all  industries,  a  Horizontal  Single  Market  Strategy  will  modernise  the  governance 
framework, removing intra-EU barriers and preventing the creation of new ones, fostering 
collaboration with Member States, and proposing a new approach to implementation. A 
reinforced Single Market Enforcement Taskforce (SMET) will ensure transposition that 
avoids  unnecessary  burdens,  as  well  as  overall  implementation  and  enforcement  of  EU 
legislation.  Further  harmonisation  measures  will be  launched  to  reduce  remaining  legal 
fragmentation, in the twin interests of deepening the Single Market and simplification. The 
early and gradual integration of candidate countries into parts of the Single Market will 
allow  companies  to  integrate  in  European  value  chains,  facilitating  the  convergence 
process and enhancing investment, trade and competitiveness. 

(23)  Mario Monti,  A new strategy for the single market at the  service  of Europe's economy  and society, 

Report to the President of the European Commission, 9 May 2010 

(24)   European Commission (2025), Annual Single Market and Competitiveness Report 

(25)   The IMF estimates that the ad-valorem equivalent of the remaining barriers constraining intra-EU trade 
can be compared to a tax of around 45 percent for the manufacturing sector, and of 110 percent for the 
services sector. ‘The direct impact of reducing estimated intra-EU sectoral barriers to the level observed 
among  US  states  could  potentially  increase  productivity  by  6.7  percent.’  IMF,  Europe’s  Declining 
Productivity Growth: Diagnoses and Remedies - Regional Economic Outlook, November 2024 

19 

 
 
A modernised Cohesion policy is crucial for strengthening growth, reducing disparities, 
and  fostering  competitiveness  across  the  Single  Market,  while  supporting  regions  and 
communities in their long-term development and their just transition. 

The  Commission  will  take  the  opportunity  for  making  standard-setting  processes 
faster and more accessible, in particular for SMEs and startups. The current European 
standardisation  system  lacks  responsiveness  to  faster  innovation  cycles  in  emerging 
technologies.  Engaging  systematically  in  global  standard  setting  processes  is  very 
important to influence outcomes aligned with EU interests, helping industry to maintain 
competitive positions in key technology markets, such as 5G and 6G telecommunications, 
AI, renewable energy technologies, electric vehicle charging infrastructure, accessibility 
and the  Internet  of Things. Alternative options  must be sought to  give  businesses legal 
security on compliance with the EU rules, in situations where harmonised standards do not 
exist, are not available or there is an urgent need. 

2.3. Financing competitiveness and a Savings and Investments Union  

The  EU  faces  massive  financing  needs  to  deliver  on  its  already-agreed  objectives. 
Innovation, the clean transition, digital and tech diffusion across economic sectors imply 
very high capital costs, including for the necessary massive scale-up of common goods 
such as infrastructure across the continent. Member States have committed to quantified 
targets for renewable energy, to increase R&D spending to 3% of GDP, to raise defence 
spending to at least 2% of GDP (for NATO members), and to upgrade the EU’s digital 
infrastructure.  The  Draghi  report  assesses  the  combined  additional  investment  needs  in 
Europe at EUR 750-800 billion per year by 2030, meaning that the EU’s total investment-
to-GDP rate will need to rise by around 5 percentage points of EU GDP per year, to reach 
levels last seen in the 1960s and 1970s. Ensuring sufficient public and private investment 
is critical to boost productivity growth and achieve the EU goals on innovation, climate 
neutrality and defence.  

Such a large-scale effort requires that the EU and its Member States become much better 
at mobilising private investment, including by institutional investors, and at using public 
funding  in  a  more  focused  and  targeted  way.  While  many  companies  require  venture 
capital  and  equity  investment  to  thrive,  the  EU  is  excessively  reliant  on  bank  debt 
financing (26).   
The EU’s household saving rates was 65% larger than in the US in 2022 (27). Yet, the EU’s 
financial  sector  does  not  channel  them  efficiently  to  productive  investment  or  allocate 
sufficient capital to innovation in the EU economy. As a result, citizens do not get adequate 
returns on their savings and every year EUR 300 billion of savings from Europeans are 
invested in markets outside the EU. 

The  EU  must  integrate  and  have  deeper  and  more  liquid  capital  markets  as  a 
necessary step to mobilise private sector resources and direct them towards future-
oriented growth sectors. It is also necessary to stimulate greater appetite for risk-taking 
by private investors, using public money as an anchor.  

Longstanding hesitations must be overcome, and the Commission will present in 2025 a 
Strategy on a Savings and Investments Union, followed by a set of specific proposals, 

(26)   EU firms rely much less on market sources of financing, with less than 30% of their funding coming 
from tradable equity and debt, compared to nearly 70% for US firms. See IMF, 2023, ‘IMF Background 
Note on CMU for Eurogroup’, 15 June 2023 

(27)  Autumn 2024 Economic Forecast: A gradual rebound in an adverse environment, November 2024 

20 

 
 
to enable wealth creation for EU citizens and mobilise capital for projects made in Europe. 
This  calls  for  promoting  low-cost  saving  and  investment  products  at  EU  level  –  while 
encouraging  retail  investors  to  avail  of  them.  The  Commission  will  also  work  on  the 
potential of private and occupational pensions to help EU citizens plan for their retirement 
and channel their savings into the economy. In parallel, the Commission will act to remove 
barriers to market-driven consolidation of financial markets infrastructure.  

Finally, the Commission will present measures to promote the EU’s securitisation market 
to  create  additional  financing  capacities  for  banks  (which  should  benefit  especially 
corporate  and  SME  lending),  and  measures  for  much  more  unified  supervision;  it  will 
pursue the reform and harmonisation of insolvency frameworks EU-wide, currently still 
very fragmented, including the ranking of claims and insolvency triggers or the rules for 
financial  collateral  and  settlement;  and  will  remove  taxation  barriers  to  cross-border 
investment. 

Better economic coordination  

In addition to direct public investment, public support will be required to de-risk and 
unlock  private investment in the volumes needed. Given the size of  Member States’ 
national  budgets  (around 50% of EU GDP), the capacity of the EU to finance strategic 
public  investment,  including  European  public  goods,  will  hinge  on  prioritisation  and 
coordination of national macroeconomic and fiscal policies towards this goal.  

The  EU’s  revised  Economic  Governance  Framework  supports  this  goal  by 
reinforcing the integration of sustainable fiscal and growth-enhancing policies – via 
more  gradual  adjustment  paths  that  allow  more  fiscal  space  for  priority  reforms  and 
investments, compared to the previous regulatory framework (28). In the first assessment 
under  the  new  framework,  for  five  Member  States  the  adjustment  period  was  extended 
from four to seven years, underpinned by a set of reform and investment commitments. 
Going  forward,  strengthening  debt  sustainability  through  gradual  fiscal  consolidation 
should  increasingly  go  hand  in  hand  with  safeguarding  public  investment  and  securing 
greater national ownership and better enforcement.  

A refocussed EU budget 

With  the  Strategic  Technologies  for  Europe  Platform  (STEP)  Regulation,  the  EU  has 
begun  redirecting  funding  from  11  different  financing  programmes  towards  industrial 
projects across three critical technologies: digital technologies and deep-tech innovation; 
clean and resource-efficient technologies; and biotechnologies. With the help of a single 
STEP  Portal,  this  has  made  it  easier  and  simpler  for  project  promoters,  managing 
authorities  and  investors  to  access  EU  funding.  The  STEP  experience  so  far  shows  the 
added value of refocusing the EU budget support around clear and shared competitiveness 
priorities.  

The next Multi-annual Financial Framework will be an opportunity to go further and 
rethink the structure and allocation of the EU budget in support of competitiveness 
priorities. The EU budget spending is currently fragmented over too many programmes – 
often with limited coordinated strategic steer and high complexity for the  beneficiaries. 
Focusing on EU competitiveness requires a set of commonly agreed funding priorities in 
the form of EU public goods and multi-country investment projects, to be defined through 
a  strengthened  policy  steering  mechanism  (see  section  2.5).  In  the  next  MFF,  a  new 
European  Competitiveness  Fund  should  respond  to  these  needs  in  a  more  integrated 

(28)  ECB Blog, ‘Mind the gap: Europe’s strategic investment needs and how to support them’, 2024  

21 

 
 
fashion.  The  Fund  will  establish  an  investment  capacity  that  will  support  strategic 
technologies  and  manufacturing  (from  AI  to  space,  from  clean  tech  to  bio-tech  sectors 
etc.), which are critical to European competitiveness, including research and innovation,  
and IPCEIs. It will help to leverage and de-risk private investments.  

Public funding is not sufficient: private capital must also be tapped at scale. The EIB 
Group’s potential must be fully leveraged to crowd in private investment and bridge 
Europe’s  investment  gap  in  all  priority  areas,  from  decarbonisation  to  defence.  The 
network of European promotional banks as well as other international financial institutions 
can also help to further leverage public investment. De-risking financial instruments and 
budgetary guarantees have proven to be powerful tools, with an average multiplier effect 
above 15 times so far. Building on the successful implementation of InvestEU, with EUR 
218  billion  of  investment  already  mobilised (29),  of  which  65%  from  private  sources, 
broader use of de-risking EU-funded schemes will be proposed to support higher-risk and 
more  scale-up  investments  in  key  economic  sectors.  The  EIB  Group’s  own  resources 
should  also  be  further  mobilised.  This,  together  with  EU  resources,  should  allow  to 
increase  the  use  of  guarantees,  loans,  blending  instruments  as  well  as  other  types  of 
financial instruments (including equity) across the policy priorities supported by the EU 
budget. It also entails expanding the scope of existing financing programmes, starting from 
InvestEU, making the EIB Group’s and other partners’ mandates broader, simpler, faster, 
and  more  flexible.  The  open  architecture  of  such  tools  represents  an  opportunity  for 
increased cooperation and synergies with and between national promotional banks. 

2.4. Promoting skills and quality jobs while ensuring social fairness 

The foundation of Europe’s competitiveness is its people. The EU is home to some of 
the world’s best scientists and researchers and  vibrant creative and cultural industries. It 
has a large pool of skilled workers, strong education and training systems, inclusive labour 
markets, non-discrimination  laws and a robust welfare state. However,  Europe’s labour 
market is going through a profound transformation. While employment in the EU rose to 
216.5  million  people,  bringing  the  employment  rate  to  a  new  record  of  75.3%,  and  the 
unemployment rate to a historical low (6.1%) in  2023, skills gaps and labour shortages 
persist.  For  example,  nearly  four  in  five  small  and  medium  sized  businesses  in  the  EU 
report difficulties in finding workers with the right skillset (30).  

Effective social policies built around the European Pillar of Social Rights are central 
to shaping a competitive Europe. A more competitive economy with high productivity 
will ensure that our social model is financially sustainable in the long term and that citizens 
see  clear  pathways  to  their  own  economic  success.  All  Europeans  must  be  able  to 
contribute to and benefit from greater competitiveness improvements. 

To ensure a good match between skills and labour market demands, the Commission 
will present an initiative to build a Union of Skills, focusing on investment, adult and 
lifelong learning, future-proof skills creation, skill retention, fair mobility, attracting and 
integrating qualified talents from third countries and the recognition of different types of 
training to enable people to work across our Union. Up- and re-skilling Europe’s existing 
workforce is essential to allow the transition between jobs and occupations. The Union of 
Skills will include a STEM Education Strategic Plan, a Basic Skills Action Plan focusing 

(29)  InvestEU  is  providing  broad-based  investment  support  through  the  four  windows:  Sustainable 

infrastructure; Research, innovation and digitalisation; SMEs; Social investment and skills 

(30)   Eurobarometer European Year of Skills (2023) - Skills shortages, recruitment and retention strategies 

in small and medium-sized enterprises 

22 

 
 
on school education, and a European Strategy for Vocational Education and Training, and 
will strengthen the European Universities Alliances. Equally, labour market relevance of 
skills  and  occupations  requires  a  strong  dialogue  with  the  social  partners,  facilitating 
recognition and validation of skills, and building evidence on current and future skills and 
labour market trends. Work in this area will include a Skills Portability Initiative aimed to 
facilitate that skills acquired are recognised in case of mobility. In addition to this, Europe 
must also  be  a more  accessible and  attractive destination for skilled professionals  from 
third countries, for whom we are in competition with other jurisdictions, building on the 
existing Talent Partnerships with partner countries and the future EU Talent Pool. 

Furthermore, as Europe is confronted with a shrinking working age population, it is 
necessary to increase labour market participation (31). There are many factors limiting 
access  to  work  for  women,  young  people  and  older  citizens  who  want  to  remain 
economically active. Labour market access is also difficult for the low-skilled, people with 
disabilities  and  other  under-represented  groups.  Increasing  labour  participation  and 
productivity largely depend on fair working conditions, decent wages, work-life balance, 
and  on  having  access  to  affordable  and  quality  childcare  and  long-term  care.  To  tackle 
these and other dimensions impacting on labour market participation, the Commission will 
engage  with  social  partners  to  present  a  Quality  Jobs  Roadmap.  The  Commission  will 
furthermore put forward an Affordable Housing Plan.  

Lastly, the world of work is changing and while new fast-growing economic sectors 
develop, workers require pathways to adapt to retain and find jobs, while also having a 
safety net during transitions. Through the European Semester, a strong focus will be placed 
on encouraging Member States to modernise social protection systems, to ensure access to 
adequate,  efficient,  and  effective  protection  for  all  workers.  Pension  reforms  should  be 
coupled  with  initiatives  that  promote  longer  working  lives,  support  active  and  healthy 
ageing and create more inclusive labour markets.  

2.5. Joining forces to maximise impact: a Competitiveness Coordination Tool 

The EU will not succeed on delivering its goals unless national and EU policies can be 
coordinated more effectively. Europe is falling short of what it could achieve by acting 
together because its industrial and research policies are fragmented between the EU and 
Member States and across multiple, uncoordinated objectives. Within the Single Market, 
each  Member  State  deploys  its  own  industrial  and  support  policies  to  boost  national 
competitiveness, with little consideration of what happens in other Member States or even 
to their detriment. This reduces the effectiveness of those policies and resources, limiting 
overall benefits from an EU-wide perspective (32). 

The  Commission  will  propose  a  new  Competitiveness  Coordination  Tool  to  act 
together with Member States on common competitiveness priorities in selected key 
areas and projects deemed of strategic importance and of common European interest.  The 
European  Semester  and  NextGenerationEU  have  introduced  a  successful  logic  of 
combining reforms and investments in order to implement EU priorities at national level. 

(31)  Cf. European Commission, Demographic change in Europe: a toolbox for action, COM (2023) 577 

(32)   IMF  Working  Paper  24/249, Industrial  Policy  in  Europe: A  Single  Market  Perspective  Prepared  by 
Andrew  Hodge, Roberto Piazza, Fuad Hasanov, Xun Li, Maryam Vaziri,  Atticus Weller, Yu Ching 
Wong, December 2024 

23 

 
 
This  approach  should  be  complemented  with  coordinated  cross-border  and  EU-wide  
actions. 

The  Competitiveness  Coordination  Tool  will  aim  to  align  industrial  and  research 
policies and investments at the EU and the national levels. It will help to deliver new 
major  initiatives  and/or cross-border  projects  with  European  added  value,  for  structural 
economic transformation, productivity, long-term growth and quality jobs, and benefiting 
the Single Market. Actions on joint competitiveness priorities in a given sector, necessary 
enabling  reforms  and 
investments  and  concrete  projects  requiring  cross-border 
coordination, will be identified in close collaboration with Member States and other key 
stakeholders. The Coordination tool will work in conjunction with a streamlined European 
Semester focused on  reforms and investments  for competitiveness  at  the national  level. 
Both  will  form  part  of  a  coherent  and  lean  steering  mechanism  to  inform  decisions  for 
investment and reforms at EU and national level. This new steering mechanism will link 
EU  priorities  with  the  EU  budget,  because  for  the  Investments  Union  to  happen,  it  is 
necessary to align Union, public and private spending with EU competitiveness priorities. 

In an initial phase, the Commission  will propose to coordinate EU and Member States’ 
policies  in  a  few  selected  areas  with  clear  added  value  to  EU  competitiveness,  as  pilot 
cases. These areas could be energy and transport infrastructure (e.g. electricity grids and 
storage and sustainable fuels and charging), digital infrastructure and AI vertical use cases, 
biotechnology, as well as other key manufacturing capacities (e.g. for critical medicines).  

Public funding for the implementation of such pilots will need to leverage to the maximum 
private  capital,  considering  the  large  investment  needs.  The  Commission  will  monitor 
progress towards effective alignment, in close cooperation with Member States. Based on 
this experience, the Commission will develop with Member States a steering mechanism 
for investments. The Commission envisages to work together on a methodology to identify 
and  define  other  strategic  infrastructure  networks,  sectors  or  activities,  suitable  for 
investment and policy coordination under the Competitiveness Coordination Tool, taking 
into account their potential for innovation, decarbonisation and economic security (33). 

Under the current MFF, financial incentives for the implementation of coordinated 
investments could build on the successful experience with the STEP, under which over 
EUR 6 billion have already been redirected from Member States’ and regions’ Cohesion 
Policy  Funds  to  support  strategic  objectives  and  EUR  8.7  billion  across  the  five 
programmes directly managed by the Commission. In addition to further reprogramming 
of Cohesion Policy Funds, financial incentives to implement the action plans could come 
from the EIB Group, national promotional banks and other implementing partners, based 
on  an  enhanced  InvestEU  guarantee.  This  would  include  a  reprogramming  of  Member 
States’ NextGenerationEU funds towards their national compartments under InvestEU and 
targeted amendments of the InvestEU rules to increase its risk-bearing capacity. 

(33)  The Draghi Report provides (at page 41) a useful – though necessarily schematic and non-exhaustive – 
starting point, distinguishing four different broad cases for which the respective policy toolbox would 
differ: (i) industries where Europe’s cost disadvantage is too large to be a serious competitor, where 
diversification  is  key  to  limit  dependencies;  (ii)  industries  where  the  EU  interest  is  focused  on  the 
location of production (and related employment) in Europe, rather than the origin of technologies; (iii) 
industries where European companies need to retain relevant know-how and manufacturing capacity, 
allowing production ramp-up in the event of geopolitical tensions; and (iv) ‘infant industries’ where the 
EU has an innovative edge and sees high future growth potential.  

24 

 
 
Under the next MFF, the implementation of the Competitiveness Coordination tool 
will be supported by a new Competitiveness Fund. The Fund will address the problem 
that our spending is spread over too many overlapping programmes, many of which fund 
the  same  thing  but  with  different  requirements  and  difficulties  in  combining  funding 
effectively. The Fund’s comprehensive architecture will allow it to accompany European 
projects along the entire investment journey, from research, through scale-up, industrial 
deployment, to manufacturing. It will be able to flexibly mobilise all our financial toolbox: 
grants,  loans,  equity  and  procurement.  In  addition,  to  ensure  coherence  and  maximise 
firepower, funding linked to future national plans combining key reforms and investments 
could  provide  financial  incentives  and  support  for  the  measures  identified  through  the 
coordination tool. 

Flagship Actions enablers 

Omnibus simplification and definition of small mid-caps [26/2/2025]  

•  European Business Wallet [2025]  

•  Single Market Strategy [Q2 2025]  

•  Revision of the Standardisation Regulation [2026] 

•  Savings and Investments Union [Q1 2025]  

•  Next MFF, including Competitiveness Fund and a Competitiveness Coordination Tool 

[2025] 

•  Union of Skills [Q1 2025]  

•  Quality jobs roadmap [Q4 2025] 

•  Skills Portability Initiative [2026] 

3. Conclusion  

innovation-based  productivity  growth 

The next years’ North Star must be the renewal of Europe’s competitive strength. 
Europe has all the assets necessary to be competitive in tomorrow’s global economy but a 
change of gear is  urgent. It must play to its strengths and quickly harness its own pathway 
to 
towards  a  climate-neutral  future.  The 
Competitiveness  Compass  points  towards  an  EU  where  innovators  can  quickly  bring 
products to market and companies can easily access funding thanks to an integrated and 
efficient EU-wide private capital market. Where a start-up company can locate and expand 
its activities – be they goods or services – in any part of the Single Market. Where a fair 
share of top global players in deep-tech sectors is European, and manufacturing sectors 
and farmers successfully combine competitiveness with their transition to low-carbon and 
sustainable  production.  Where  workers  can  flourish  in  quality  jobs  and rely  on  durable 
social protection and safety nets. Where all customers can access affordable, clean energy 
and products whenever and wherever they need them, thanks to one of the world’s largest 
continental markets and network infrastructure. Where the EU and the Member States use 
their collective weight to act together and reduce excessive dependencies.  

25 

 
 
The Compass proposes a new approach to competitiveness that combines industrial 
policies, investment and reforms, united around a common vision. Each component 
reinforces  the  other.  Reforms  to  deepen  the  Single  Market  are  necessary  for  industrial 
policies  and  investment  to  produce  their  full  effect,  expanding  market  size,  facilitating 
companies’  scale-up,  and  maintaining  healthy  competitive  pressure  to  the  benefit  of 
companies  and  workers.  A  large-scale  simplification  effort  and  a  new  governance 
framework to  coordinate actions at EU level  and at Member States’ level underpin this 
approach.  

Competitiveness is not a responsibility for the EU level alone.  EU institutions, national 
governments, regional authorities and also companies, must step up to meet the challenge, 
working together in a joint endeavour and taking commitment and cooperation to a new 
level.  The  Competitiveness  Coordination  Tool  will  be  a  key  vehicle  to  deliver  on  the 
strategic  priorities.  In  carrying  out  this  agenda,  the  Commission  will  engage  with 
stakeholders in close and regular consultation, to identify priority areas of concern and find 
solutions to ease business conditions. Social dialogue will continue to be a foundation. 

The  Compass  will  frame  the  work  of  the  Commission  for  this  entire  mandate. 
Boosting  competitiveness  is  not  a  quick  fix.  Some  of  the  Compass’  measures  will  be 
presented quickly and can rapidly provide tangible effects. But many will deliver over the 
medium term and will require a steady course. Progress on the Competitiveness Compass 
will  be  annually  monitored  and  reported  through  the  Annual  Single  Market  and 
Competitiveness Report.  

The window of opportunity is narrow. The EU must choose to act in unison for a future 
of sustainable prosperity for all or accept division and economic decline. 

The Commission invites the European Parliament, the Council, and the European Council 
and social partners to endorse the Competitiveness Compass and to actively contribute to 
delivering on the initiatives it contains. 

26