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Innovation at the forefront: Europe’s bid to boost competitiveness

The European Commission unveiled the Competitive Compass, a document unveiling the EU's economic policy for the next five years. Innovation is a key to boost the bloc competitiveness.

Published on January 30, 2025

Von der Leyen

Mauro traded Sardinia for Eindhoven and has been an editor at IO+ for 3 years. As a GREEN+ expert, he closely monitors all developments surrounding the energy transition. He enjoys going on reports and likes to tell stories using data and infographics. He is the author of several series: Green Transition Drivers, Road to 2050, and Behind the Figures.

The European Union is shifting its focus. After five years of prioritizing climate policy, Brussels policymakers aim to provide more flexibility for businesses. Cutting red tape and better coordination of policies—these two mantras will guide the EU’s economic doctrine of the next five years. 

Yesterday, the European Commission published its Competitiveness Compass,  is the master plan set to make these two concepts a reality and presents a list of actions to improve Europe’s faltering economy. The document's first pillar is all about innovation. 

The compass explicitly builds upon the competitiveness analysis conducted by former European Central Bank head Mario Draghi. The economist underlined the need for action in three areas: refocusing efforts to close the innovation gap with China and the United States, a joint plan for decarbonization and competitiveness, and increasing security and reducing dependencies. 

“The Competitiveness Compass transforms the excellent recommendations of the Draghi report into a roadmap. So now we have a plan. We have the political will. What matters is speed and unity. The world is not waiting for us. All Member States agree on this. So, let’s turn this consensus into action,” said President of the European Commission, Ursula von der Leyen, in a statement.

A strategy for European startups 

The compass calls for “restarting a virtuous innovation cycle” to close the existing innovation gap. As a first step, the Commission will launch a “dedicated EU startup and scaleup strategy” in taking action to remove barriers to startup growth. An upcoming Innovation Act will also promote innovative companies' access to European research and technology infrastructure and intellectual assets in “view of increased patenting.” This act would provide a regulatory sandbox for companies to develop new ideas, too. 

In a speech to the World Economic Forum last week, Ursula von der Leyen stated that introducing a 28th regime within the compass was part of the Commission’s working program. This single set of business, labor, and taxation laws wants to make it easier for companies to operate on a European level. Having such a harmonized set of rules is part of the compass. 

The industry demanded such a change. A group of European startup founders and investors previously launched EU Inc., a petition to campaign to create such a legal entity in Europe. “As things are nowadays, it is implausible to give startups room to grow and build on their momentum,” Philipp Herkelmann, one of EU Inc. initiators, told IO+ earlier. As the movement gained momentum, it presented a proposal to the newly appointed Commission last December.  

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European companies must balance rapid innovation and responsible use of AI

Corporations encounter the task of harmonizing swift integration with ethical utilization of AI technology.

Improving innovation financing 

The compass also states that forthcoming initiatives will help mobilize capital for European startups and scaleups. The Commission promises to work on a TechEU investment program–alongside the European Investment Bank and private investors–to bridge the existing financing gap. 

At the same time, there will be a new focus on boosting research and development (R&D) spending, coordinating this funding on high-impact projects. The upcoming European Research Act aims to increase R&D expenditure to 3% of the GDP of member states. 

Betting on key technologies 

The paper recognizes AI as one of the key technologies that need to thrive and keep the bloc competitive. To this extent, the AI Continent strategy will include the creation of AI factories aiming to boost Europe’s computing power. Building on existing infrastructure, these facilities will allow startups to train their AI models. In addition, the EU Cloud and AI Development Act will mobilize public and private money to fund the construction of new AI Gigafactories. 

The compass identifies other technology areas as “new growth engines.” These are bioeconomy, advanced materials, and space tech. A dedicated forthcoming act will provide a new framework to stimulate and improve innovation in each sector. Creating a “Competitiveness Fund” in the next seven-year EU budget is set to fund these technologies. Yet, there is no reference to how much money the fund would allocate. 

The full list of actions and timeline included in the innovation pillar