As Europe Day reminds us, integration is not only a political project but also an economic one, and the success of the European Union as both an economic and political project may hinge on its ability to remain competitive in the global economy and sustain or improve its position on the world stage. The current competitiveness agenda will play a decisive role in shaping Europe’s ability to sustain prosperity, strategic autonomy, and social cohesion in the years ahead. In last year’s Draghi report, the European Union confronted a central concern: how to remain economically competitive in a world of slowing growth, technological disruption, and geopolitical uncertainty.
In the year that followed geopolitical uncertainty has only increased with the possibility of an escalating trade war between the United States and China putting a damper on global growth. In the first article of this series we analysed the root causes of Europe’s productivity and competitiveness challenges which underlined the need for comprehensive, long term and innovative solutions as part of a new industrial strategy for the Single Market. This second piece in our series will explore how these solutions and the Commission’s vision is being translated into practice through new policy actions, the mobilisation of capital and institutional restructuring.
The Plan for Implementation
The centrepiece of the EU’s follow-up effort is the Competitiveness Compass, a new governance tool designed to guide action across Member States. Rather than dispersing attention across disconnected objectives, the Compass offers a focused set of priorities: innovation, decarbonisation and competitiveness, and security and resilience.
These priorities are being embedded into annual Competitiveness Action Plans and monitored through a proposed Competitiveness Observatory, aimed at improving transparency and attempting to guarantee the implementation of these actions by the various EU-level and national institutions. This reflects a shift from guidance-based frameworks like the European Semester toward more concrete, structured and results-oriented coordination.
Innovation and Productivity
The Commission has identified innovation as the most important drive of European competitiveness and the most effective instrument to increasing productivity growth in the long-term. Recognising the EU’s anaemic growth, particularly when compared to the United States and China, a new emphasis has been placed on the tangible manners in which innovation can be boosted at an institutional level, particularly through regulatory reform and targeted initiatives. A central pillar of this agenda is the EU Start-Up and Scale-Up Initiative, which aims to close the scale-up gap by facilitating access to venture capital and improving conditions for high-growth firms. This is being supported by the Strategic Technologies for Europe Platform (STEP), designed to direct investment towards deep tech, semiconductors, AI, biotechnologies and clean technologies.
Progress is also being made on capital mobilisation. Reinvigorating the Capital Markets Union (CMU) remains a core objective, with efforts underway to harmonise insolvency rules, simplify listing requirements, and promote cross-border investment. These reforms are crucial to unlocking Europe’s large pool of household savings for productive, innovation-led investment, an issue of critical importance, as highlighted in our previous article, given the innovation funding gap between the EU and better performing economies like the US.
To address talent shortages, the Union Talent Pool and Union Skills Initiative are being rolled out to improve labour mobility and mutual recognition of qualifications. These tools are expected to help firms, particularly in high-tech sectors, access the skills they need to grow. Complementing this, EU programmes such as Horizon Europe and the EIC Accelerator continue to channel public investment into frontier research and early-stage innovation.
Decarbonisation and Competitiveness
The implementation of Europe’s decarbonisation goals is increasingly being tied to its economic and industrial strategy. Rather than treating climate policy as a parallel agenda, the EU is working toward a joint roadmap that aligns its green transition with competitiveness and trade priorities. This approach is also being mirrored by other countries such as the UK, which is also tying its industrial policy to decarbonisation strategies, attempting to exploit the opportunity of being early-movers and adopters in potential global growth sectors.
This integrated approach is reflected in the Net-Zero Industry Act (NZIA), which is now being implemented to support clean technology manufacturing within the EU, covering sectors such as solar, wind, batteries, and heat pumps. The Act introduces provisions to simplify permitting, direct public procurement toward net-zero technologies, and promote investment in strategic projects.
On the energy front, the Critical Raw Materials Act and expanded efforts under REPowerEU are addressing supply-side vulnerabilities and aiming to stabilise access to affordable energy. These are vital steps, particularly for energy-intensive industries that have been disproportionately affected by recent price volatility. Measures to reform electricity market design and promote long-term contracts, such as Power Purchase Agreements (PPAs) and two-way Contracts for Difference (CfDs)—are being implemented to reduce exposure to market fluctuations. This approach also ties into the security and resilience priority discussed below.
The Commission is also promoting circular business models, particularly in manufacturing, through funding under the Innovation Fund and regulatory changes tied to the Circular Economy Action Plan. These reforms are intended not only to support sustainability goals but to improve cost efficiency and reduce resource dependencies, thus contributing to two key EU priorities; sustainability and competitiveness.
Importantly, clean technology competitiveness is a growing focus. The EU is increasing support for domestic manufacturers through instruments such as the Important Projects of Common European Interest (IPCEIs) and public-private partnerships. These efforts aim to prevent the relocation of industrial capacity and strengthen Europe’s position in key value chains amid increasing global competition.
Security and Resilience
In response to rising geopolitical uncertainty economic security and resilience are now explicit priorities, underpinning a range of new actions aimed at reducing external dependencies and strengthening internal capabilities.
A key element of this effort is the development of new partnerships and investment strategies targeting critical raw materials and key technologies. Under the Critical Raw Materials Act, the EU is building international agreements with resource-rich countries while supporting domestic mining, refining, and recycling. These steps are complemented by the establishment of resilience dashboards and early warning mechanisms to monitor vulnerabilities across sectors.
Defence capability is also receiving renewed institutional attention. The European Defence Industrial Strategy and the Act in Support of Ammunition Production (ASAP) are being deployed to accelerate procurement cycles, increase joint development, and address fragmentation in the European defence sector. This includes more flexible use of EU funds to support cross-border defence projects, and early steps toward harmonising standards and supply chains.
Overview
The EU’s competitiveness agenda is now firmly focused on delivery. Through targeted action on innovation and productivity, the green transition, and strategic resilience, Europe is laying the groundwork for sustainable, long-term growth. Implementation efforts, from capital market reforms to industrial decarbonisation and defence investment, reflect a more coordinated and forward-looking approach. These three priorities form the backbone of a competitiveness strategy designed to strengthen Europe’s position in a rapidly changing global landscape.
