EU Industrial Policies: Navigating with the Competitiveness Compass
The European Union has entered a decisive new phase in its economic strategy with the launch of the Competitiveness Compass, unveiled in January 2025. Building on Mario Draghi’s 2024 report, which warned that Europe faced a “slow agony” without structural reform, the Compass provides a roadmap to reinvigorate the EU’s industrial base, enhance productivity, and reassert Europe’s position against global competitors such as the United States and China.
At its core, the Competitiveness Compass sets out three guiding pillars. The first is innovation, where the EU aims to close its persistent gap with global leaders by stimulating startup growth, supporting scale-ups, and investing in breakthrough technologies such as artificial intelligence, biotech, and quantum computing. Among the more ambitious proposals are EU-wide legal regimes to simplify cross-border business and the creation of AI Gigafactories to boost digital sovereignty.
The second pillar is decarbonisation. Recognising that competitiveness must be reconciled with climate targets, the Compass highlights measures to deliver affordable clean energy for both households and energy-intensive industries. This includes the forthcoming Clean Industrial Deal, a new Affordable Energy Action Plan, and reforms to the State Aid Framework designed to channel resources into green technologies while ensuring a level playing field within the single market.
The third pillar is security, framed around the concept of “open strategic autonomy.” This reflects the EU’s determination to reduce reliance on external suppliers for critical raw materials, medicines, clean technologies, and defence infrastructure. By doing so, Europe seeks to protect its industrial resilience in an increasingly volatile geopolitical environment.
The Compass also promises sweeping regulatory simplification. According to the European Commission, administrative costs will be cut by 25 percent for large firms and 35 percent for SMEs through streamlined reporting and reduced compliance requirements. High-profile directives such as the Corporate Sustainability Reporting Directive and the Corporate Due Diligence Directive are earmarked for simplification, with the Commission estimating €37.5 billion in savings over the next five years. While business groups have welcomed this as overdue relief, environmental organisations have warned that treating regulation primarily as a barrier risks undermining Europe’s sustainability ambitions.
The financial dimension of the strategy is equally significant. As Reuters reported, the Compass sets out investment pathways into high-tech sectors while reserving preferential treatment in public procurement for European firms. Energy infrastructure and defence coordination will receive particular focus, alongside efforts to harmonise fragmented national markets.
The initiative has already drawn sharp debate. Industry associations emphasise the urgency of catching up with the US and China, particularly in artificial intelligence and digital infrastructure, while environmental groups caution that competitiveness should not be pursued at the expense of ecological protections. The Guardian highlighted concerns from the Climate Action Network that the simplification narrative could amount to a rollback of vital environmental safeguards.
Ultimately, the Competitiveness Compass represents the EU’s most ambitious attempt in decades to reset its industrial policies. Its success will depend on whether Brussels can balance competitiveness with sustainability, implement reforms without fragmenting the single market, and mobilise both public and private capital at the necessary scale. If delivered effectively, it could mark a turning point for European industry; if not, Europe risks falling further behind in the global race for innovation and industrial leadership.