Analysis & trends

Competitiveness, the European Union’s new priority and “compass”? 

Analysis & trends

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Several external shocks have made Europeans aware of their lagging competitiveness, which is reflected in a series of both economic and strategic weaknesses.  

In 2020-2021, the COVID-19 health crisis illustrated the EU’s dependence on China for a very wide range of industrial products and of strategic raw materials. The Russo-Ukrainian war then highlighted Europe’s lack of autonomy in defence matters. The re-election of Donald Trump in November 2024 undermines the rules of international trade, a source of prosperity for a majority of European Member States. 

Just after the European elections in June 2024, the publication of Mario Draghi’s report made its mark, highlighting the issues faced by the Union in terms of productivity, GDP growth and growth in disposable income per capita (twice as low in Europe as in the United States since 2000).  

The gap is particularly glaring in the technology and digital sector: in 2024, among the world’s 50 largest technology companies, only 4 are European.  

In order to close this gap, the Draghi report lists a number of urgent political choices aimed at ensuring that Europe adopts a genuine European industrial strategy: completing the internal market, redirecting major European policies towards industrial growth and competitiveness (sectoral regulations, competition, trade policy, etc), unifying the European capital market and channeling household savings towards investment in European businesses, increasing the coordination of EU/Member State actions in favour of productivity, reducing the burden of regulation on European businesses (“simplification”). 

Whether competitiveness is a new ‘compass’ for the European Union, calls in our view for three observations.  

Firstly, from a historical point of view, and despite the communication efforts undertaken by the Commission, this is not really a novelty. Indeed, the Lisbon Strategy, launched in 2000 by the EU Heads of State and Government and the President of the Commission, already aimed to make the European Union “the most competitive knowledge-based economy in the world“, at a time however when the Union was arguably experiencing strong GDP growth. Undeniably, when comparing 2025 to 2000 in all the key areas of the Lisbon Strategy, Europe’s failure is obvious: be it annual growth, productivity, leadership in digital technology, scientific and technological excellence compared with the rest of the world, or growth in venture capital. 

That said, from a political point of view, the European institutions seem to have agreed to make this new European competitiveness strategy the focus of their action. 

The new Von der Leyen Commission was explicit about the priority given to competitiveness for its 2024-2029 mandate: “Prosperity and competitiveness will be our top priority.” (Ursula Von der Leyen’s speech to the first plenary session of the new European Parliament, 18 July 2024). “Europe’s objectives … all depend on the beginning of a new era of productivity, innovation and competitiveness” (Mission letter to Executive Vice-President Stéphane Séjourné). “Europe has many economic assets, but it must act now to regain them and its competitiveness to ensure its prosperity” (Communication from the Commission on the “Competitiveness Compass”, 29 January 2025).  

Since the beginning of 2025, the new Commission has produced a succession of communications, action plans and legislative proposals, largely centered on the “new” competitiveness strategy inspired by the Draghi report, with the following proposals in particular: 

As for the European Council, Europe’s highest political body, it periodically reaffirms the absolute priority given to competitiveness. Thus, in its conclusions of 20 March 2025, the European Council stated that it was “necessary and urgent to strengthen Europe’s competitiveness“, adding that it wished to “close the innovation and productivity gaps both vis-à-vis the EU’s global competitors and within the EU“.  

In the European Parliament, the beginning of the legislature was marked by the presentation of the Draghi report by its author in plenary session, followed by a debate in which many MEPs agreed with the analysis that the European economy needed to change course as a matter of urgency. 

Finally, from an economic and legal point of view, the effective implementation of the European competitiveness strategy faces a number of significant obstacles. 

Legally speaking, it consists in completing a “simplification” agenda, a derogatory term which according to some hides in reality a “deregulation” agenda. The Commission (systematically) emphasizes the compatibility of this new priority with the achievement of the objectives of the European Green Deal; but the numerous proposals made since von der Leyen Commission’s start in office sometimes conflict with the regulatory state-of-play which originated… from the previous Commission chaired by the same Ursula von der Leyen.  

On the economic front, the reality facing the Member States highlights the many difficulties that will slow down the implementation of the European competitiveness strategy.  

A few key examples illustrate these challenges: the need for a European energy strategy aimed at reducing the cost of European energy, a crucial issue for industry, is coming up against persistent differences in the energy priorities of Member States, including regarding France and Germany.  

The effective completion of the internal market continues to struggle against Member States’ inclination to retain national rules and to protect domestic companies already already established on the market. This became obvious in financial services, for example, during the Council debates on the Retail Investment Strategy (RIS). Few Member States seem to be making the Capital Markets Union a genuine political priority, probably also due to the profound changes it would imply on sensitive topics, including savings taxation and financial supervision.  

Similarly, attempts to partially harmonise labour law, bankruptcy law and company law, in a way that is more favourable for the growth of innovative companies, are encountering strong resistance among Member States. In this respect, the Commission’s forthcoming proposal for a 28thregime will be a test of the EU’s ability to implement the strategy advocated by the Draghi report. 

The Commission’s flagship initiatives (SAFE, EDIP, EDIS, “Rearm Europe” etc.) aimed at developing the European defence industry, a consensual objective in Europe given the rise in strategic threats, still face different approaches among Member States with respect to the institutional setup (including the role of the European Defence Agency vis-à-vis the Commission), as well as the European capacity to intervene in the priorities of national defence industries, the means to be used to encourage the pooling of production capacities and the European standardisation of equipment, European competences in the re-export of defence equipment, and the potential (in)eligibility of non-European suppliers of military equipment. 

The debate on the budgetary resources to be mobilised to finance the major investments needed to restore Europe’s competitiveness also reveals differences of opinion on the role of EU funds, the possible use of a common European debt, and the role to be left to private funding (bringing us back to the debate on the Capital Markets Union / Savings and Investment Union). 

 

If the new European competitiveness strategy for 2024-2025 is to avoid suffering the disastrous fate of the 2000 Lisbon Strategy, these difficulties will need to be overcome quickly, starting with the forthcoming EU “competitiveness” budget – a litmus test to determine whether the Union is giving itself the means to achieve its “new” ambition.