EU unveils Competitiveness Compass to revive growth and cut regulation

The European Commission laid out its most concerted attempt yet to reverse the bloc's economic stagnation on Wednesday, publishing a Competitiveness Compass that promises a 'simplification shock' across dozens of regulations while channelling European household savings into a new investment union. Ursula von der Leyen, the Commission president, warned that the 27-member union risks being 'stuck on a low-growth path, with less income for the employed, less welfare for the disadvantaged, and less opportunities for all' unless it acts decisively.

The regulatory burden that sparked the overhaul

The plan responds to years of complaints from European business that the Commission's dual focus on climate policy and corporate ethics has produced a thicket of rules that compound high energy costs and weak investment. Stephane Sejourne, the executive vice-president responsible for the portfolio, said two out of three companies identify regulatory burden as a key obstacle to long-term investment. Smaller firms, he noted, lack the resources to trace and track supply chains as required by the Corporate Sustainability Due Diligence Directive (CSDDD) and the Corporate Sustainability Reporting Directive (CSRD). Both face revision under the Compass, alongside chemical safety rules and environmental and human rights reporting standards.

A new legal category for mid-sized companies would exempt roughly 30,000 firms from the full weight of those directives, giving them a single, harmonised set of rules on insolvency, labour law and taxation. The Commission argues this will let them compete without the compliance apparatus that only large multinationals can afford. Critics, however, see a retreat from hard-won transparency standards.

Climate activists accuse the Commission of political retreat

Anna Cavazzini, a Green member of the European Parliament, called the planned reductions 'politically motivated'. She pointed out that the CSDDD was only adopted last year and has not yet entered into force. 'How could CSDDD hurt companies when it is not even in place yet?' she asked, adding that over-compliance with the CSRD can be tackled with guidelines rather than legislative rollback. Rachel Kennerley of the Center for International Environmental Law (CIEL) was blunter: the plan should 'point toward bold climate action, not industry appeasement and deregulation.'

The tension mirrors a broader debate in Brussels. The Commission's own impact assessments have long acknowledged that smaller firms struggle with due diligence requirements, but the political decision to revisit legislation barely implemented marks a shift in tone. The Clean Industrial Deal, promised for later this year, will attempt to reconcile decarbonisation with industrial competitiveness in sectors such as chemicals, steel and automotive.

Experts split on whether simplification delivers

Peter Chase, a visiting senior fellow at the German Marshall Fund, agreed that reporting requirements are 'too cumbersome, especially for smaller businesses'. Large companies have the local presence and manpower to verify supply chains; medium-sized firms can do some but perhaps not all. His colleague Penny Naas went further, arguing that the required information 'just isn't easily available, even in larger firms' and that streamlining would be a 'win-win for Europe, improving effectiveness while increasing competitiveness.'

The disagreement is less about the problem than the remedy. Business groups have lobbied for a blanket reduction in reporting scope; campaigners want targeted guidance and digital tools. The Commission's compromise, a new mid-cap category and revised directives, tries to thread the needle, but the legislative process will test whether member states and the Parliament accept the reopening of files they only recently closed.

Mobilising European savings for venture capital

Beyond deregulation, the Compass rests on a financial pillar: the Savings and Investment Union, to be presented in the second quarter of 2025. The numbers are stark. In 2022, the EU household savings rate was 65% larger than that of US citizens, yet global venture capital flows to the bloc amounted to just 5% of the total, compared with 52% to the United States and 40% to China. Bruegel, a Brussels-based think tank, found that much of those savings sit in bank deposits because households prefer cash over market investments.

The Commission wants to change that by creating EU-wide investment products that pool savings and direct them into European start-ups and scale-ups. Chase said the vehicle could 'spread savings around the EU', though he doubted whether all member states would agree to such a scheme. 'As long as savers know their accounts are insured by deposit insurance schemes, I doubt they would have any concern where their money is used,' he added. The political hurdle is significant: a true capital markets union has eluded the EU for a decade.

The Draghi benchmark and the €800 billion question

The Compass explicitly builds on the report Mario Draghi delivered last year as a special adviser to the Commission. The former ECB president estimated the EU needs €800 billion in additional annual investment, roughly 4.7% of GDP, to close the productivity gap with the United States and China. That figure now anchors the Commission's rhetoric. Von der Leyen echoed Draghi's warning that accepting 'a managed and gradual economic decline' would condemn Europe to 'a slow agony.'

The Start-up and Scale-up Strategy, the third pillar of the Compass, aims to lower the cost of failure and harmonise insolvency, labour and tax rules so that European founders no longer decamp for the US. The Commission notes that lower growth prospects and higher failure costs weaken the attractiveness of EU start-ups to investors. A single rulebook is meant to fix that, but it requires unanimity on tax matters, a tall order in a union where corporate tax policy remains a national prerogative.

Energy prices and the Clean Industrial Deal

High energy costs remain the elephant in the room. The Compass acknowledges that the green transition must go hand in hand with industrial competitiveness, promising a 'competitiveness-driven approach to decarbonisation' in the forthcoming Clean Industrial Deal. Specific plans for chemicals, steel and automotive are due. Whether the Commission can square cheaper energy, still largely imported, with its climate targets will define the credibility of the whole package.