On January 29^th, European Commission president Ursula von der Leyen and vice-president Stéphane Séjourné presented a “competitiveness compass” that promises simpler rule makings and other approaches to foster innovation.

The European Commission proposed their new level of regulation, the 28^th regime, making it possible (on a voluntary basis) to operate with identical rules in the member states and thus discarding the 27 versions of different regulations. The 28^th legal regime aims to simplify applicable rules, including relevant aspects of corporate law, insolvency, labour and tax law, and reduce the costs of failure. The goal is to create a single set of rules to help companies invest and operate in the single market.

While much of the new initiative remains unclear, it does demonstrate the methodology that the new European Commission intends to deploy in the face of recent criticism.

The competitiveness compass focuses on three pillars:

1. Closing the innovation gap
2. Establishing a common roadmap for decarbonization and competitiveness
3. Reducing dependencies and increasing economic resilience and security

Key elements include:

• Simplification
• Reducing barriers to the single market (our greatest asset in a world of giants) 
• Financing competitiveness
• High-quality skills and jobs
• Coordination

“Europe's industrial structure has become too static, with too few start-ups emerging with new disruptive technologies,” said von der Leyen. “Europe’s global share of patent applications is on par with the United States and China. But only one-third of these are commercially exploited. And that makes the difference. And only a small share of EU businesses are seizing the opportunity of digital change. If you look at our companies, only 13.5% are using AI, so one in seven is using AI, for example. This must change.”

Leveling the AI playing field

“We do not lack capital. If you look at the European household savings, it is €1.4trn per year, compared to €800bn in the US.…. What we lack is an efficient capital market that turns these savings into investments and the venture capital that is so much needed, particularly for early-stage technologies that have a game-changing potential.”

The EC has launched “a broad AI strategy,” which includes an “Apply AI initiative” aimed at driving industrial adoption of artificial intelligence in key sectors. This also include an 'AI Factories Initiative’ which offers training and development for company models with supercomputers.

Luxembourg, which learned in December 2024 that it would host an AI Factory, is part of this network. The president of the EC has placed this facility at the heart of Europe’s response to the $500bn investment in AI infrastructure recently announced by the new American president, Donald Trump. At the recent AI Action summit in Paris, President von der Leyen officially launched InvestAI, an initiative to mobilize €200 billion for investment in AI, including a new European fund of €20 billion for AI gigafactories.

Von der Leyen made it clear, the major hurtle for European start-up success is not a lack of unicorns but a lack of investments in those companies. For example, only 5% of global venture capital is raised in the EU, compared to 52% in the US and 40% in China.

As a result, the EC intends to build on a capital markets union and a banking union to create a European Savings and Investment Union this year. This union creates new savings and investment products, incentivizes risk capital, and ensures seamless investment flow across the EU.

Green ambitions maintained, but...

“Clean-tech industry is looking for opportunities. Europe is open to business.”

The EC was clear in maintaining their ecological and environmental ambitions while also making a few changes to the Green Deal strategy. More than one-fifth of the world's clean technologies are developed in Europe and the EC wants to strengthen that position even further. To do so, the EC is motivating first movers with investment certainty and preference in public procurement and simplified state aid in targeted sectors.

Despite the focus on clean tech industries, the EC will also support more traditional industries in the transition. For example, the EC has committed to guiding the automotive industry through its cleaner energy transition and creating tailored action plans for energy-intensive sectors such as steel, metals, and chemicals. Von der Leyen also addressed the high energy prices and costs in the EU, promising to introduce the Affordable Energy Action Plan to lower industry energy prices.

These are all avenues that would be meaningless if the EU did not regain some autonomy in terms of access to rare materials, which are particularly useful in technology products. “Europe is a champion in trade,” said von der Leyen, addressing the third pillar of the EU’s competitiveness compass. “We have agreements with 76 countries. We are the largest trading partner for 72 of them, representing 38% of the world’s GDP. Interestingly, there is a growing global appetite in these times to engage more closely with us, not only because our market is big and attractive but also because of our reputation as a partner… Others may focus on exploiting and extracting, we look at investing locally along the entire value chain in partner countries and taking the finished products to the European Union.” With this in mind, the EC has also launched new trade deals to secure supplies of raw materials, clean energy, and clean technology from around the world.

One omnibus will hide other omnibuses

“We have a very clear signal from the European business sector that there is too much complexity, the duration of permitting is too long and administrative procedures are too cumbersome. We have to cut red tape.”

The EC intends to present an omnibus on simplification on February 25^th covering “a far-reaching simplification in the fields of sustainable finance reporting, sustainability due diligence and taxonomy. Other omnibuses for different sectors will follow. This will be another major step in delivering on our target of reducing EU reporting obligations by 25% for all companies and by 35% for SMEs,” explained Von der Leyen. This proposal aims to save companies over €37bn a year.

“We have a plan; we have a roadmap. We have the political will. Now, what really matters is speed and unity. Speed, because the world is not waiting for us. So it is high time that we accelerate. And unity is important to really implement this political will.” 

If you'd like to know more, please contact Adrian Whelan or your BBH representative.