The EU Competitiveness Compass has just been launched by the Commission. As always, it is a dull-looking, dense and technical policy document, full of regulatory references, quantitative targets and strategic roadmaps. But don’t be fooled by the bureaucratic appearance: if read carefully, crucial issues for Europe’s economic future emerge.

Here on L’Europeista we try to distil its essence in a clear and incisive way.

We certainly like the focus on productivity, innovation, resilience and competitiveness. And above all, we were struck by a particularly ambitious announcement: the European Commission wants to propose as early as 2025 a ’28th regime’ for a new pan-European legal entity. A huge project, involving dozens of states, stakeholders, interest groups and regulators. And they want to do it this year. By the standards of politics, this is impressive speed. Will they pull it off? Good luck, because we really need it. But let’s go in order.

1. Europe in decline? The Competitiveness Compass diagnosis

The main message of the Competitiveness Compass is clear: Europe is losing ground in global competition. Over the past two decades, the EU’s productivity growth rate has been lower than that of the US and China. This gap with the US and China is widening on several fronts, starting with technological innovation and business financing.

• The venture capital available to European start-ups is only 5 per cent of global venture capital, compared to 52 per cent in the US and 40 per cent in China.
• Only one third of the patents registered by European universities are successfully commercialised, a sign ofstalled innovation struggling to be translated into marketable products and services.
• The EU suffers from a structural R&D (research and development) deficit compared to the most dynamic areas of the world: European companies invest less than US and Asian tech sectors.

These factors are compounded by internal regulatory barriers and the increasing fragmentation of the single market. Trade between Member States fell to 23.8% of GDP for goods and 7.6% for services, a sign that, despite the Customs Union, there are still significant barriers to integration. Moreover, start-ups find it difficult to ‘scale up’ at European level, while EU financial markets remain too bank-dependent and underdeveloped on the venture capital side.

On the energy front, one of the crucial nodes, European industry pays the most expensive energy in the world, with significantly higher costs than global competitors such as the USA. This exacerbates the risks of deindustrialisation for energy-intensive sectors (steel, metals, chemicals, automotive) and reduces their competitiveness in international markets.

As Mario Draghi warned in his recent report, if Europe does not change course it risks finding itself on a path of slow and inexorable economic decline. This is precisely why the Competitiveness Compass proposes three major strategic directions.

2. The solutions: innovation, energy and economic security

The Competitiveness Compass indicates three major strategies to boost European competitiveness:

1. Bridging the innovation gap – Creating an ecosystem that fosters the growth of start-ups and access to venture capital.
2. Combining decarbonisation and competitiveness – Make the ecological transition an engine for growth by lowering energy costs and rewarding those who invest in clean technologies.
3. Reducing dependencies and strengthening economic security – Diversifying supply chains to avoid the vulnerability of European industry to global crises.

Alongside these three macro-strategies are more specific proposals. One of these is the creation of a new 28th regime: a pan-European legal entity that would allow companies to operate under asingle set of regulations, bypassing the complexity of 27 national legislations. In theory, this would be a real bureaucratic revolution, as it would drastically reduce costs and regulatory compliance time for innovative companies.

However, the fragmentation of financial markets and the diversity of regulatory frameworks remain difficult obstacles to overcome. The Commission’s roadmap envisages formalising the proposal by the end of 2025 or the beginning of 2026: a test of whether Europe is really able to act quickly and effectively.

The document also addresses the chapter of industrial policy and economic security. After the pandemic and with geopolitical tensions on the rise, the Commission warns of the risk of ‘weaponisation ‘ of strategic dependencies, such as the supply of semiconductors, pharmaceuticals and fertilisers. For this reason, it proposes to strengthen trade defence mechanisms, also reviewing the Carbon Border Adjustment Mechanism (CBAM) to prevent dumping and protect European industries.

The 28th regime: bureaucratic revolution or utopia?

One of the most ambitious steps of the Competitiveness Compass remains the creation of a 28th regime for a pan-European legal entity. The idea is simple and revolutionary: to give innovative companies the opportunity to operate throughout the EU under a single set of rules, without having to wade through 27 national legislations.

In theory, this could be a game changer for start-ups and growing companies, facilitating investment and reducing bureaucratic costs. But will the Commission be able to convince all Member States to adopt a system parallel to their national laws? The roadmap calls for the proposal to be formalised by the end of 2025 or the beginning of 2026. A crucial test of whether Europe can still act quickly and effectively.

4. Energy: the Achilles heel of European industry

As mentioned above, energy costs have a decisive impact on the competitiveness of European industry. The Competitiveness Compass announces an Affordable Energy Action Plan that aims to reduce prices and invest in more efficient networks, proposing:

• Accelerating the integration of the European energy market by reducing barriers between member countries.
• Incentivising the electrification of industry with targeted fiscal policies.
• Invest in grids and storage batteries to stabilise production from renewables.
• Reducing dependence on fossil fuels, focusing on nuclear energy and green hydrogen.

Today, 65 per cent of European energy still comes from fossil sources, exposing Europe to geopolitical shocks and price volatility. The paper emphasises the need to increase investment in energy infrastructure such assmart electricity grids, storage systems and innovative technologies (e.g. green hydrogen). But it is also aware that these interventions will only yield results in the medium to long term, while European companies need immediate solutions to stem the risk of deindustrialisation.

In particular, energy-intensive sectors (steel, metals, chemicals, automotive) are the most affected. The Competitiveness Compass mentions the need for a specific strategic dialogue with the automotive industry, which is faced with the electric transition, the battery challenge and future competition on semiconductors.

5. Global competition and the role of Europe

The document also insists on the need to strengthen the EU’s economic security. The measures include:

• New trade agreements with strategic partners (Mercosur, Mexico, USA, Japan).
• Strengthen domestic production of critical raw materials, reducing dependence on China through recycling, innovation and new investments in mines and refining processes.
• Defending European industry against unfair competition with stronger trade defence mechanisms.
• Investing in security and defence, with a proposed White Paper on the Future of European Defence to promote domestic production and research on dual-use technologies.

The relationship with China remains a sensitive issue. The EU accuses Beijing of over-subsidisingits high-tech industry and aggressively conquering global markets. In response, Brussels suggests tighter controls on foreign investments and a targeted use of anti-dumping duties, hoping to avoid a dangerous strategic dependence.

6. Labour Market and Training Reforms

Another significant chapter of the Competitiveness Compass is dedicated to labour market reforms and the need for a workforce adapted to technological challenges. The document points out that 79% of European SMEs reportdifficulties in finding workers with appropriate skills. The shortage of skilled labour slows down the growth of companies and prevents them from taking full advantage of the opportunities of the digital and green transition.

The Commission therefore proposes a ‘Skills Union’ to increase investment in training, boost STEM pathways and encourage the entry of talent from abroad. In a continent marked by demographic decline and an ageing population, it is crucial to improve the inclusion of young people, women and older workers, and to promote selective, skills-oriented migration policies.

7. Financing and investment: an 800 billion a year challenge

In order to realise the various actions outlined in the Competitiveness Compass, substantial resources will be needed. The Draghi report estimates that EUR 750-800 billion are needed annually until 2030 to modernise the European economy and support its double transition (green and digital).

• Private capital is needed, to be attracted by more integrated and dynamic financial markets.
• Access to existing EU funds must be increased and the spending capacity of Member States improved.
• The creation of a new ‘Competitiveness Fund ‘, a European fund to support strategic investments in technology, infrastructure and research, is under consideration.

The aim is to close the financing gap that currently limits the green and digital transition, while maintaining the sustainability of public budgets. A balance not easy to find, but crucial in order not to lose further ground to other major economic powers.

8. Will Europe be able to change gear?

The Competitiveness Compass is full of good ideas, but the real problem remains implementation capacity. The Commission recognises that the European decision-making process is too slow and promises to simplify regulation to speed up investment.

The case of the 28th regime will be the first test case: if the EU succeeds in creating this new legal entity in 2025, it will be proof that it can still innovate and compete. If not, we will remain mired in the usual compromises and bureaucracies.

It also remains to be seen whether Member States will be willing to cede further shares of sovereignty on sensitive issues such as taxation, company law, contracts and access to capital. The risk is that the project will founder amid diverging national visions and internal pressures.

The final message, however, is clear: Europe still has a chance to play a leading role in the global economy, but it must prove that it can act quickly and effectively. Otherwise, the Competitiveness Compass risks remaining yet another list of good intentions. And economic decline, which now seems a possibility, could become an increasingly concrete reality.