The European Commission’s Competitiveness Compass plots a course — or a “growth strategy,” according to Commission President Ursula von der Leyen — for policymakers to follow over the next five years

It’s a dense 27-page document crammed with recommendations to get the European Union’s economy going.

We’ve boiled down the main points and explained where they’re heading.

Cutting red tape

Von der Leyen told reporters she’d had a “very clear signal from the European business sector that there is too much complexity” in EU regulation, much of it stemming from new climate-related laws.

A move to simplify legislation for sustainable finance, due diligence and taxonomy rules — the “omnibus package” — will be the first of several, she said, promising these will ultimately save companies €37 billion a year by 2029.

The plans have alarmed climate campaigners and others that Brussels’ new deregulation agenda might prioritize innovation and growth over the environment and echo conservative demands, including a mention of allowing e-fuels to keep combustion engine cars alive, and the “simplification” of a carbon border tax.

Staying the climate course

Von der Leyen insisted that the European Union was “staying the course on the objectives of the European Green Deal” and that climate targets wouldn’t change. The Commission even rearranged some paragraphs while drafting the Compass to emphasize innovation and decarbonization.

The green transition of traditional industry and the expansion of new, climate-friendly technologies are at the heart of the Competitiveness Compass. More detailed measures on how to achieve that are expected in next month’s Clean Industrial Deal, due Feb. 26.

The Commission will, as expected, also focus on “resource efficiency and boosting circular use of materials” — signaling that niche sustainability topics like recycling and eco-design are highly strategic. We knew the Circular Economy Act would not land before 2026, and the Compass confirms the Commission’s plans for the last quarter of that year.

Cars vs. climate targets

Bowing to carmakers’ pleas for leniency over looming fines for failing to hit new emissions targets, the document promises “immediate solutions to safeguard the industry’s capacity to invest, by looking at possible flexibilities.”

What that means will be negotiated during a strategic dialogue with the automotive industry that kicks off Thursday. Car lobby ACEA estimates that the industry will pay €15 billion in fines if the Commission doesn’t act.

Industry Commissioner Stéphane Séjourné pushed for the language to be included over the objections of Climate Commissioner Wopke Hoekstra, said an EU official privy to the discussions and granted anonymity because they are not authorized to comment.

Energy prices

European companies pay significantly more for electricity and gas than do their U.S. and Chinese counterparts. That’s a problem, and von der Leyen is keen to fix it.

Her plan, in short, is to invest in more grids and connect them up, and also change how contacts are made and fees are charged.

That costs money — and so far there isn’t much of that. The EU also can’t wave a wand and make some of its other preferred reforms happen overnight.

Still, the ambition is there, which has encouraged energy and industrial lobby groups. But the vital details are still to come: For starters, an Affordable Energy Action Plan is due at the end of February.

Making breakthroughs

Von der Leyen said improving competitiveness means “that we really have to focus more on breakthrough innovation and breakthrough technologies.” She promises a startup and scaleup strategy as well as a “broad AI strategy for our continent.”

U.S. President Donald Trump’s $500 billion artificial intelligence infrastructure plan and the emergence of a cut-price AI model, China’s DeepSeek, show that the global AI race is on. The EU wants to get in the game and needs computing power, cloud infrastructure and access to data, the document said.

The Commission has already doled out funding for AI factories and AI-optimized supercomputers. It plans to follow that up with a cloud and AI development plan to enable the training of very large AI models, a plan expected late this year or early next. It will separately try to address the feeble adoption of AI by companies (only 13 percent of businesses are using the tech so far). An Apply AI strategy due later this year aims to fix that.

Taking action means lots of tech action plans, with von der Leyen promising strategies for advanced materials, quantum, biotech, robotics and space technologies, all “components of the markets of the future.”

Where’s the money?

The EU plans to make it easier for businesses to access private funding by making progress on the long-discussed but never-completed capital markets union, now rebranded as the Savings and Investment Union.

In concrete terms, that means the EU investment programs will be wider and the European Investment Bank will be asked to offer more public guarantees, loans and even investments in equities, starting with a new fund to help companies buy growing businesses or to support their going public.

The EU’s executive is also working on a 28th business code that offers an alternative to fragmented national systems and will cover “aspects of corporate law, insolvency, labor, and tax law.”

While the Compass promotes better coordination of national government investments, it lacks a clear plan on other common sources of money. It does, however, pave a way for countries to repurpose regional funds — often used to build schools and bridges — for critical technologies.

This is only a taster of what’s to come. Von der Leyen supported linking public funding under the next budget from 2028-2034 to implement key economic reforms that will make countries more competitive.

Buy European

Governments could favor Made-in-Europe goods via planned public procurement reforms, potentially a powerful boost for local companies and an irritant for trading partners since such tenders account for 14 percent of the EU’s gross domestic product. Like the carbon border tax or deforestation regulation, it may amount to protectionism in all but name.

The EU executive also plans to set up an industry platform for buying strategic raw materials. The bloc is dependent on imports of scarce minerals such as the lithium used in electric vehicle batteries — where industry leader China dominates both supply and processing.

Getting strategic about industry

Competition policy is “an important lever,” the compass said, pitching a review of merger guidelines to take account of innovation and “investment intensity” in strategic sectors.

The steel and metal industry will get an action plan this spring that will cover investment, inputs and the use of trade defense measures against cheap imports. The chemicals industry will get a similar plan near the end of the year.

A Competitiveness Coordination Tool aims to knock some EU government heads together and funnel money to joint industrial goals, building on the Important Projects of Common European Interest that have funded hydrogen, battery and semiconductor projects.

Trains and ships

A High-Speed Rail Plan will arrive this year to “strengthen EU cross-border rail connectivity,” the final document said. It also plans a European Port Strategy this year along with an Industrial Maritime Strategy. Aviation doesn’t get a mention, but attention will likely focus on a Sustainable Transport Investment Plan, due in the third quarter, which is expected to stimulate investment in sustainable aviation fuels along with other low-carbon transport fuels.

Health

The European Biotech Act will provide a forward-looking framework “conducive to innovation” in clinical trials, the document said, ditching a suggestion in earlier drafts of a more radical reworking of clinical trial regulations. The Life Sciences strategy has been penciled in for the second quarter and a Critical Medicines Act will drop by mid-March. The new draft also mentions short-term measures to simplify rules on medical devices.

Ramping up defense

Since the war in Ukraine started, Brussels and EU capitals have urged defense contractors to ramp up production, but companies have complained that the current rules and regulations are too burdensome and that finding financing is too difficult. The broader simplification push may help them.

One of their key asks of Brussels is to “defense-optimize horizontal instruments,” as the Aerospace, Security and Defence Industries Association of Europe put it last year. Defense companies are now likely to start lobbying the EU executive to ensure their sector is at least taken into account, if not prioritized in future proposals.

No game change for farming

Tucked into the fine print of the Compass are a few modest nods to farming — because it’s hardly Europe’s next economic rocket.

The strategy gestures at fostering agricultural entrepreneurship and linking farming to the bioeconomy. But let’s be real — no one expects farmers to start churning out unicorn startups. Still, the Commission wants to squeeze out more efficiency and ease the administrative burden on both farmers and regulators.

A Vision for Agriculture and Food lands on Feb. 19, promising sustainability and resilience. The EU also aims to cut red tape and push circular economy principles. But will it bring real change? Expect consultations, strategies, and tweaks — but not so much game-changing shifts.

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