Another Compass – Can We Agree to Get Going?

The European Commission recently announced a new plan — a ‘competitiveness compass’ — to boost economic success.

Grounded in the key role of productivity in financing the EU’s competitiveness ambitions, the compass is about simplifying legislation, pooling private and public investment in key technologies and mitigating foreign dependencies to unleash EU innovation.

The Main Problem – Europe lags behind!

Europe lags behind other regions in creating new technologies and businesses. While the Commission recognizes this, it hasn’t fully addressed why: complex rules across different countries, a business culture that avoids risks, and too much paperwork make creating new companies and products more challenging.

The Money Question – Will We Invest in Our Future?

The plan calls for €800 billion in new investment each year but doesn’t clearly explain where this money will come from. Countries are already struggling with tight budgets. While the plan suggests pooling money for advanced technology projects like quantum computing and space research, similar efforts have struggled in the past when countries needed to work together.

Three Pillars, Shaky Foundations

The strategy’s three imperatives reveal both ambition and blind spots:

• Innovation-First Growth: While improving venture capital access is crucial, the plan says little about reforming bankruptcy laws or creating a true pan-European startup ecosystem. Success requires more than just money – it needs a cultural shift in how Europe views failure and risk-taking.
• Green Manufacturing Leadership: The commitment to climate goals while maintaining industrial competitiveness is admirable, but the compass offers few concrete solutions for the energy price differential with other regions. Without addressing this fundamental challenge, we risk accelerating industrial relocation.
• Strategic Autonomy: The focus on reducing dependencies in semiconductors and raw materials is necessary, but the proposed joint purchasing mechanisms seem insufficient. We need deeper collaboration in research and development, not just procurement.

Attracting Skilled Workers

The proposed “union of skills” hints at the right direction but misses crucial opportunities. While recent political shifts in the US have created an opening to attract displaced talent, especially in climate science and emerging technologies, Europe lacks a coherent strategy to capitalize on this. We need:

• A unified, streamlined visa system for highly skilled workers that processes applications within weeks, not months, and provides clear paths to permanent residency. This should include special provisions for startup founders and scale-up employees, recognizing their unique contribution to Europe’s innovation ecosystem.
• Recognition of foreign qualifications within weeks through a centralized European agency, eliminating the current fragmented system where each member state has its own lengthy validation process. This should apply to both academic and professional qualifications, with provisional recognition possible while full assessment is pending.
• Competitive tax schemes for researchers and innovators that allow Europe to compete with other global innovation hubs, while ensuring these benefits can be maintained when moving between EU countries. This should include special provisions for equity compensation and R&D activities.
• Comprehensive support systems for families relocating to Europe, including guaranteed international school places, spouse employment assistance, and housing support. This should be coordinated at the EU level to ensure consistent quality of service across all innovation hubs.
• English as an accepted administrative language for all innovation-related matters, from company registration to tax filing, ensuring that language barriers don’t prevent top talent from contributing to Europe’s future. This should be implemented alongside, not replacing, national languages.

For Real Success, Europe Needs Now

The Commission’s framework lacks ambition and barely touches the practical necessities to achieve success.

• Why not require English as an accepted administrative language in all matters?
• How quickly can the EU make offers for people from countries outside of the EU?

The plan overlooks several important areas:

1. Better integration with EU candidate countries in the Balkans and Ukraine, allowing them to participate in key initiatives before full membership to accelerate innovation and economic convergence, including simplified work permits and mobility schemes to tap into their talented workforce.
2. An ‘EU Inc.’ structure (as proposed by the eu-inc.org initiative) – a true pan-European company form that allows businesses to operate seamlessly across all member states with a single registration, unified tax treatment, and standardized compliance requirements. This initiative shows how concrete solutions already exist and await political implementation. If implemented, a unified company structure that works the same way in all European countries.
3. Financial System: Europe needs a more unified banking and investment system to help companies get funding more easily. The glaring absence of a genuine European financial union hampers our competitiveness. Without integrated capital markets, harmonized banking regulations, and a completed Banking Union with a common deposit insurance scheme, European companies will struggle to access the deep, liquid financing markets needed to compete globally.
4. Data Sharing: There’s no clear plan for helping companies and researchers share information safely, which is crucial for developing artificial intelligence and other new technologies without a comprehensive strategy for sharing data across companies, universities, and research institutions. Without a unified approach to data pooling and access, Europe misses crucial opportunities for collaborative innovation.
5. Government Spending: The plan doesn’t address how government purchases could support innovative companies, especially across countries. There is no concrete plans to use Europe’s massive public spending power to drive innovation, nor proposals to remove the political red tape that often prioritizes national champions over the most innovative solutions. Without addressing the political interference in procurement decisions and streamlining cross-border tender processes, we continue to fragment our market and limit opportunities for innovative companies.

A Compass Whows The Way, But Will We Be Willing to Make Changes

While this plan is a start, Europe needs to think bigger and move faster. The rest of the world isn’t waiting, and technology keeps advancing rapidly.

While the Commission plans to introduce 47 new initiatives by 2026, getting all countries to agree on and implement them will be challenging. The real test is whether countries will give up some control to work together effectively.

This article was written with the help of generated text by Claude.ai to summarise the EPRS analysis of the European Commission’s new economic plan, Competitiveness Compass, which was announced on January 2 5. The analysis by the EPRS was made ahead of the February plenary, during which EP Members are expected to debate this initiative following the Commission’s statement.