What’s in Europe’s Competitiveness Compass?
But also — ECB, Norway, Sanctions, German Debt Brake
Hello! Today is February 5, and here is your EU news summary for the week. Feel free to share this newsletter with friends and colleagues, and follow us on Twitter and LinkedIn.
The Briefing
The European Commission has unveiled its plan to revive Europe’s economy. The so-called "Competitiveness Compass" aims to restore Europe’s position as a serious contender in the global economic race.
COMPASS • "Europe has everything it needs to succeed in the race to the top. But, at the same time, we must fix our weaknesses to regain our competitiveness," Ursula von der Leyen declared. "The world is not waiting for us. All Member States agree on this. So, let's turn this consensus into action."
In order to achieve this, the Commission has drawn up around twenty legislative proposals to be implemented by 2027, inspired by the Mario Draghi report handed to Ursula von der Leyen last September.
One of the key points of this strategy is an unprecedented reduction of the administrative burden on businesses. "Industry is sending us a clear message: the EU must simplify its regulatory framework," explained Ursula von der Leyen.
On February 26, the Commission will thus present an "omnibus" legislation, a single text modifying several key pieces of legislation at once in order to reduce administrative obligations for businesses by 25% and by 35% for regulations on SMEs.
Among the regulatory rules targeted are the Corporate Sustainability Due Diligence Directive (CS3D), the Corporate Sustainability Reporting Directive (CSRD), and the green taxonomy. Other "omnibus packages" will follow and could affect the Carbon Border Adjustment Mechanism (CBAM) and the REACH regulation, which aims to protect people against health risks related to chemical substances.
Another major obstacle to European competitiveness is the high cost of energy — much higher than that of its main competitors. To address this, the Commission will present an Affordable Energy Action Plan alongside the Clean Industrial Deal on February 26. Facilitating long-term electricity purchase contracts and accelerating investments in energy transport and storage infrastructures are among the measures considered.
EUROPEAN PREFERENCE • In 2025, the Commission also plans to make new proposals to accelerate decarbonisation by supporting strategic industrial projects and simplifying state aid rules to accompany the industry’s green transition.
To support local production, the Commission is considering introducing a European preference for strategic sectors and technologies, as part of the revision of the public procurement directive in 2026.
In a move echoing the protectionist winds blowing from Washington and Beijing, the Commission is mulling over a "European preference" for strategic sectors in public procurement. This proposal has already sparked debate, with France championing the idea while Europe’s more liberal northern states are opposed to it.
To finance these ambitions, the Commission is counting on the revival of the Capital Markets Union — renamed as the "Savings and Investment Union" in the Competitiveness Compass. However, this project has been blocked for years due to diverging opinions among Member States.
The Compass also proposes a reorientation of European budget resources from 2028, implying a reduction of funds allocated to cohesion and agriculture.
FUNDING GAP • A competitiveness fund could also be created as part of the next multiannual financial framework (MFF, the EU’s long-term budget), consolidating several existing financial instruments.
In his report on European competitiveness, Mario Draghi estimated that an annual investment of 800 billion euros is necessary to revive the European economy, a threshold below which any initiative risks being insufficient.
The lack of funding worries socialist MEPs, like Aurore Lalucq (Place publique). "Without an ambitious budgetary roadmap, these announcements risk remaining a dead letter," she claims in an op-ed published in French magazine Le Point.
Luis Garicano, professor of public policy at the London School of Economics and former vice-president of the Renew group, shares these concerns and remains skeptical about the simplification push: "The simplification effort seems admirable. (...) It remains to be seen if the same president who oversaw the creation of a vast regulatory and administrative mountain will lead its demolition."
Meanwhile on the business side, the Compass has been favourably received. The representative of European employers, BusinessEurope, praised the executive while emphasising that the strategy must be "urgently be followed by concrete and impactful actions".
Conversely, NGOs, such as WWF, fear that the compass will fuel "blind deregulation that consolidates the market position of polluting industries" at the expense of decarbonisation and the development of green technologies.
In Case You Missed It
ECB • On 30 January, the European Central Bank cut interest rates for the fifth consecutive time, lowering the benchmark deposit rate to 2,75%.
In a press conference, ECB President Christine Lagarde voiced concerns about the eurozone economy, noting that “it is set to remain weak in the near term”. The eurozone GDP increased by only 0,7% in 2024.
Lagarde was more optimistic about inflation, which now appears to be firmly under control. The ECB expects to reach its inflation target of 2% during this calendar year.
Euro area annual inflation is expected to be 2,5% in January 2025, a slight increase from December 2024. The figure exceeded the expectations of analysts, who had projected an annual rate of 2,4%. The ECB noted, however, that “most underlying inflation indicators have been developing in line with a sustained return of inflation to our medium-term target”.
OSLO • The two-party coalition government of Norway collapsed on 30 January after weeks of bitter debate about the transposition of EU energy laws. The Eurosceptic Centre Party has now left the coalition, leaving the Labour Party at the head of a caretaker government. Legislative elections will be held in September 2025.
The disagreement centred on the EU’s fourth clean energy package. Adopted in 2019, the package contains new regulations for Europe’s energy markets. Although Norway is not an EU member, it is bound to adopt the package as a member of the European Economic Area (EEA).
Before his resignation, the Centre Party’s leader and Finance Minister Trygve Slagsvold Vedum denounced a loss of energy sovereignty, stating that Norway must ‘take back national control’ of electricity prices.
The demise of the coalition government will not help to ease tensions between Oslo and Brussels, which were exacerbated by a surge in electricity prices last December.
Several Norwegian political parties blamed electricity interconnectors with Denmark, Germany, and the United Kingdom for the uncontrolled rise in domestic electricity prices.
SANCTIONS • On January 27, the Council of the EU decided to extend the economic restrictive measures in force against Russia for an additional period of six months, until July 31, 2025.
The European Commission is set to propose a 16th package of sanctions against Russia.
The new sanctions package would include restrictions on imports of Russian liquefied natural gas (LNG), add new entities and individuals to the sanctions list, and create sanction against gaming consoles — Kaja Kallas, EU High Representative for Foreign Affairs and Security Policy (the EU’s top diplomat), said that these devices could be used to control drones. Decisions on sanctions must be approved unanimously by the Council of the EU.
DEBT • As German federal elections approach, the debate around the "debt brake" is becoming more and more existential. This constitutional rule limits the federal structural deficit to 0.35% of GDP, thus restricting the government's budgetary room for maneuver.
In an interview with CNBC, Finance Minister Jörg Kukies advocated for targeted reforms of this rule. "The structural weaknesses of our economy absolutely have to be addressed," he declared. He emphasizes the urgency of investments in rail, road, digital, and educational infrastructures.
According to the latest polls, a majority of Germans believe that the debt brake should be relaxed. Friedrich Merz (CDU), who is set to become chancellor according to polls, has shown openness to a possible adaptation of the mechanism.
The Greens and part of the SPD are calling for more flexibility, while the FDP firmly opposes it. This political fracture has already led to the collapse of the coalition on November 7, 2024.
What We’ve Been Reading
Luis and Pieter Garicano, in their Silicon Continent newsletter, and Jeromin Zettelmeyer, in brief for Bruegel, share their reactions to the announcement of the Competitiveness Compass by the Commission.
On ECIPE’s blog, Matthias Bauer argues for greater regulatory certainty and ‘technology openness’ to support the EU’s automobile industry.
This edition was prepared by Augustin Bourleaud, Antonia Przybyslawski, Matteo Matuszewski, Lidia Bilali, Léopold Ringuenet, Luna Ricci, Théotime Beau, Hana Rajabally, Rogier Prins and Maxence de La Rochère. See you next week!