The European Commission has presented its new economic strategy for the coming years. Simplification features prominently in a package of proposals that is sorely lacking in novelty.
The Commission’s Competitiveness Compass presented on Wednesday is designed to provide a strategy to boost an EU economy caught between a China that bases its growth on cheap labour and an American economy boosted by low-cost energy.
“Over the last 20 to 25 years, our business model has basically relied on cheap labour from China, presumably cheap energy from Russia and partially outsourcing security and security enforcement. This time has passed,” Commission President Ursula von der Leyen said before presenting the so-called “competitiveness compass”.
On top of several simplification omnibus proposals, 12 new Acts will be in the pipeline for the next few years, several strategies and plans in the fields of innovation, decarbonation, investments and economic security.
Cutting red tape: Is the Commission reversing the Green Deal?
The Commission’s announcement of “an unprecedented simplification effort” appeared designed to mollify calls from the European right and employers’ groups, and this section featured prominently in early drafts of the Compass. In the final version it appeared relegated to a secondary position after sectoral policies, perhaps reflecting vehement opposition to any mooted environmental row backs.
It remained to the fore during the press conference of von der Leyen and Commission vice-president Stéphane Séjourné presenting the Compass, however, who described the paper as “a shock to the system”.
“We have a very clear signal from the European business sector, that there is too much complexity and the duration of permitting is too long, that the administrative procedures are too cumbersome. We have to cut red tape,” von der Leyen said, adding: “By the end of the mandate we will have made proposals that could save companies over 37 billion euros per year.”
The Commission plans to move quickly, as a first Simplification Omnibus proposal, due to be presented next month, will target “sustainable finance reporting, sustainability due diligence and taxonomy”.
The strategy presented Wednesday also includes the creation of mid-caps companies, “to ensure proportionate regulation adapted to companies’ size”, which will be “bigger than SMEs but smaller than large companies.” The simplification effort aims to result in 25% fewer reporting obligations for companies and 35% fewer for SMEs.
The Carbon Border Adjustment Mechanism (CBAM), due to take effect from next year, is also up for simplification to the benefit of smaller companies. The CBAM applies a levy on imports of iron and steel, cement, fertilizers, aluminium, hydrogen and electricity and is intended to protect domestic producers who have to buy costly allowances for their CO2 emissions. An already scheduled review will also look at extending the levy to a wider range of goods.
A revision of REACH, the EU’s core chemicals regulation, will speed up the process and lead to “a real easing of the burden on the ground” according to the Commission, though in practice that seems to mean little more than that a long overdue date for revision will be brought forward.
The level of intended deregulation remains unclear, and any proposals to water down environmental laws – on which, in many cases, the ink has not yet dried – will be subject to modification by MEPs and governments in the EU Council. The Commission states in the Compass paper that Europe will “stay the course” on emissions reduction towards its 2050 target of net-zero. A 2040 target is also expected from the EU executive, but the communication does not clarify when this will be tabled.
‘Joint roadmap’ for decarbonisation and competitiveness.
Energy prices are at the core of industrial competitiveness, and the EU – like China, unlike the US – relies heavily on imports of oil and gas to power its industry and transport. With wind and, especially solar, already cheaper in most cases, the paper nods at a pre-announced Affordable Energy Action plan due next month, and the need to bolster Europe’s electricity grids.
The Clean Industrial Deal is the flagship policy agenda of Ursula von der Leyen’s second Commission, as the EU Green Deal was of the first, and is also due next month in line with her promise to deliver it within 100 days. Together with the energy plan, it will constitute a “joint roadmap for decarbonisation and competitiveness”, according to the executive.
AI factories becoming reality
On AI, the competitiveness plan builds on ideas that were already mentioned in the mission letter of EU Technology Commissioner Henna Virkkunen in November.
It puts much store in the creation of a network of AI factories, described as “ecosystems that foster innovation, collaboration, and development” and bringing together “computer power, data, and talent”.
The fact that only one in seven businesses is currently using AI “must change”, Von der Leyen said in the press conference, adding: “We will launch a broad AI strategy to increase the industrial adoption of AI.”
Companies such as the French scale-up Mistral AI which created a European competitor to OpenAI’s ChatGPT, warned last year about the lack of training capacity in Europe.
The Commission began planning seven of those factories in 2024, with the aim to launch the first early this year.
Draghi warned in his report on the future of EU competitiveness last September that artificial intelligence still offers Europe an opportunity to capitalise on “future waves of digital innovation.”
An EU Cloud and AI Development Act is foreseen for the last quarter of this year.
A ‘Buy European’ plan
The Compass also includes a “Buy European” programme “for strategic sectors and technologies”.
Faced with protectionism on the part of its international competitors and fears of subsidised overcapacity being dumped on the European continent by countries such as China, the Commission will introduce a “European preference” in public procurement through a review of the Public Procurement Directive.
The French have been calling for this for a long time, particularly since the introduction of US Inflation Reduction Act, which favours green enterprises located on the American soil through tax cuts.
A savings and investment Union to unlock much-needed capital
To stay competitive against global players like the US and China, the bloc must invest €700–800 billion annually over the next decade in modernizing its economy, ensuring security, and advancing the green and digital transitions.
“We do not lack capital,” von der Leyen stated on Wednesday, noting that European households save €1.4 trillion per year compared to €800 billion in the US.
“What we lack is an efficient capital market that turns these savings into the investment and venture capital that is so much needed,” the Commission president emphasized.
As a result, the Commission pointed out that €300 billion of Europeans’ savings flow into markets outside the EU every year.
To address this, the Commission will introduce a European Savings and Investment Union later in 2025 to incentivize risk capital and encourage seamless capital flows across the EU. Additionally, the next long-term budget will be reoriented to prioritize competitiveness.
“If we had a deep and liquid capital market today, figures from the ECB show we would have €470 billion more in investment,” von der Leyen claimed.
