Inside the EU's New Path to Boost Competitiveness

The European Commission has identified a critical issue that has impeded Europe's economic growth compared to other major global economies throughout the last two decades—a consistent shortfall in productivity growth.

Addressing this challenge, the European Commission has launched the Competitiveness Compass. This initiative is designed to provide a clear and strategic framework to help reverse the trend of lagging productivity.

The Compass is structured around three key areas of action: innovation, decarbonisation and security. These focus areas are pivotal in shoring up and expanding Europe’s economic capabilities on the global stage.

Ursula von der Leyen, President of the European Commission, underscores the necessity of this new framework: “Europe has everything it needs to succeed in the race to the top. But, at the same time, we must fix our weaknesses to regain competitiveness.”

She firmly believes that through the Competitiveness Compass, which incorporates the recommendations from the Draghi Report into a cohesive action plan, Europe can effectively address these long-standing economic issues.

The urgency of the situation is clear as Ursula emphasises the importance of speed and unity: “The world is not waiting for us. All member states agree on this. So, let's turn this consensus into action.”

The foundations of the competitiveness compass

The basis of the Competitiveness Compass is the Draghi Report, authored in 2024 by Mario Draghi, the former President of the European Central Bank.

The report brings to light significant challenges and opportunities for the future of European competitiveness, suggesting that Europe is entering a period where demographic growth will not fuel economic expansion as it did in the past.

Draghi’s findings are stark: without a surge in productivity, Europe faces tough choices about its global role and technological leadership. His report has been pivotal in shaping the three strategic areas of the Competitiveness Compass aimed to convert insights into action.

In addition to these areas, the Compass introduces five 'enablers' that are designed to support competitiveness across various sectors, including:

• Simplification: Focusing on reducing the regulatory and administrative overhead
• Lowering barriers to the single market: Implementing a Horizontal Single Market Strategy to modernise governance frameworks and eliminate barriers
• Financing competitiveness: Creating a European Savings and Investments Union for new savings and investment products
• Promoting skills and quality jobs: Investing in skills development through a Union of Skills that supports lifelong learning and attracts global talent
• Better coordination of policies at EU and national levels: By using a new Competitiveness Coordination Tool and a revamped Competitiveness Fund.

Stéphane Séjourné, Executive Vice-President for Prosperity and Industrial Strategy at the European Commission, believes that these measures indicate a shift in Europe’s economic direction: “The Compass must signal a change of mindset for Europe and Europeans.

"It makes Europe more predictable while maintaining the course of our European model—decarbonised, social and respectful of our values.”

Impact on sustainability and competitiveness

The Competitiveness Compass, with decarbonisation as a foundational element, will also significantly impact Europe’s sustainability landscape.

According to Christina Deligianni, EU Climate Pact Ambassador, the Compass is a welcome advancement that ties industrial, economic and trade policies together to enhance Europe’s climate actions.

Meanwhile, experts like Andreas Rasche, Professor and Associate Dean at Copenhagen Business School, appreciate the proactive measures included in the Compass that promote clean technologies and low-carbon products, reinforcing the EU’s competitive edge while adhering to sustainability goals.

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