Vulcan View: The latest EU developments 27 January – 31 January

European Commission launches Competitiveness Compass to boost innovation and economic resilience

On Wednesday, 29 January, the European Commission unveiled its Competitiveness Compass, an initiative aimed at strengthening the EU’s competitiveness, resilience, and innovation. The Compass comes at a critical moment for Europe as it strives to maintain its position in the face of growing global competition.

The Competitiveness Compass will closely follow the recommendations laid out by both the Draghi and the Letta reports. The Compass comprises three pillars:

• Pillar 1: Closing the innovation gap
• Pillar 2: A joint roadmap on decarbonisation and competitiveness
• Pillar 3: Reducing excessive dependencies and increasing economic security.

President von der Leyen promised an Omnibus proposal next month that will simplify sustainability reporting, due diligence, and taxonomy. Other Omnibuses for different sectors will follow. The Compass sets a target of cutting the administrative burden for firms by at least 25% and for SMEs by at least 35%.

The Compass will also work towards lowering barriers to the Single Market, financing competitiveness through a European Savings and Investments Union, and Promoting skills and quality jobs. There will be better coordination of policies at the EU and national level, with the introduction of a Competitiveness Coordination Tool to ensure this.

Based on President von der Leyen’s address, there can be expected R&D investment opportunities across all sectors, particularly as pillar one focuses on bridging the innovation gap. Additionally, the simplification of sustainability reporting highlights the EU’s long-term commitment to advancing renewable energy solutions, improving energy efficiency, and promoting carbon reduction technologies.

The European Competitiveness Compass signals a clear emphasis on diversifying supply chains within the EU, with reshoring production being a key priority. While President von der Leyen expressed willingness to source critical raw materials externally, it is expected that these materials will primarily come from regions that align with the EU’s values and objectives.

The Competitiveness Compass is the first major initiative of this mandate and sets a path for Europe to become a place where future technologies and clean products are being invented and manufactured to allow for Europe to become the first climate-neutral continent.

By focusing on innovation, sustainability, and economic security, it aims to reduce dependencies and strengthen Europe’s resilience. This comprehensive initiative will place Europe in a leading position, supporting its long-term climate goals and competitiveness.

The European Commission’s new approach to EU competitiveness sparks warning from Ireland

The Competitiveness Compass is part of the EU’s next steps in response to Mario Draghi’s report on EU competitiveness, which was published in November 2024. In January 2025, an unpublished response by the Irish government to certain recommendations included in the Draghi report came to light. Although receptive to several recommendations, the government raised concerns about plans to shift the focus towards European companies at the cost of foreign MNCs. The document referenced the “substantial contribution” that multinational firms make to the European economy and the employment opportunities that they provide.

The response, prepared by the Department of Foreign Affairs, conveyed Ireland’s concerns about any potential move away from the EU’s open approach to global trade. The document states that Ireland is “cautious” about language included in the report, which suggests “taking a more selective approach” to trade partners. The response warned of possible retaliatory measures, reduced global growth and damage to markets as consequences of international trade fragmentation that may arise.

Furthermore, the response emphasised Ireland’s “longstanding concerns” regarding the EU’s proposal for “technological sovereignty” which may lead to less innovation, higher prices, reduced investment and damage to the security of European services and infrastructure. The Draghi report recommended that EU companies receive preference in computer chips, defence contracts, space exploration, critical minerals and net zero technologies. The document cautioned that this move could lead to increased prices and reduced availability. However, The EU outlined in the Competitiveness Compass its intention to review public procurement rules to incorporate a European preference for critical sectors and technologies.

Additionally, the document implied that Draghi’s suggestion that foreign companies must enter joint ventures with local companies on strategic green or tech projects risks undermining WTO rules and existing EU obligations. Moreover, the paper expressed apprehension about the extension of EU state aid rules, which “run the risk of creating a costly subsidy race between Member States”, which would favour larger Member States. Overall, the document underpins the government’s commitment to fostering a multinational-friendly environment in Ireland and their recognition of the importance of multinationals to Ireland’s economy and exchequer. The paper urged the EU to take the needs of foreign multinationals into account in future industrial policy.

However, Tánaiste and Minister for Foreign Affairs Simon Harris stated that one of the most effective strategies for helping the EU navigate the challenges posed by Trump’s presidency is to concentrate on the proposals put forward by influential figures like Draghi. He emphasised the need for the EU to focus on competitiveness. Notably, Harris’s ministerial portfolio will now encompass trade.

The Competitiveness Compass

The European Commission published its ‘Competitiveness Compass’ on Wednesday, 29 January. The Commission pledged to focus on the following areas of strategic importance to the EU’s competitiveness in 2025: State aid, start-ups, research, artificial intelligence, life sciences, agriculture, steel, metal, chemicals, cars, defence, trade, water, critical minerals and skills.  In addition, a new “28th regime” will be established in 2026 to support innovative European companies. This initiative will be overseen by Irish Commissioner Michael McGrath.

European Commission launches strategic dialogue to safeguard EU’s automotive industry

On 30 January, the European Commission will officially launch the Strategic Dialogue on the Future of the European Automotive Industry, addressing the sector’s most pressing challenges for one of the EU’s most important economic pillars.

The automotive industry is a pillar of the EU’s economy, employing over 13 million people and contributing approximately 7% to the EU’s GDP. However, the sector faces profound challenges, including increased global competition, rapid technological innovation, and the urgent need for decarbonisation.

A pivotal moment for European Manufacturing

The Strategic Dialogue, announced by European Commission President Ursula von der Leyen, aims to protect and boost the automotive industry by engaging key stakeholders to develop concrete solutions.

Speaking before the European Parliament on 27 November 2024, President von der Leyen emphasised the importance of the initiative: “The automotive industry is a European pride and is crucial for Europe’s prosperity. It drives innovation, supports millions of jobs, and is the largest private investor in research and development. Each sector has unique needs, and it is our responsibility to tailor solutions that are both clean and competitive. We need to support this industry in the deep and disruptive transition ahead. And we must ensure that the future of cars remains firmly rooted in Europe”.

Key areas of discussion

The dialogue will address five critical areas:

• Innovation and leadership in future technologies: this includes discussions on next-generation batteries, software, and autonomous driving.
• Clean transition and decarbonisation: the agenda includes the regulatory framework, charging infrastructure, and ways to stimulate demand for clean vehicles.
• Competitiveness and resilience: addressing workforce skills, labour costs, energy affordability, and critical raw materials. Concretely, the labour market faces significant challenges in ensuring workforce skills align with evolving demands. This requires effective reskilling and upskilling programs for workers, which could be addressed by private-public collaboration.
• Regulatory streamlining: ensuring coherence between different regulations and optimising processes to support industry innovation and growth. Currently, the sector faces significant challenges with complex and burdensome reporting obligations, which increase compliance costs and hinder innovation. Simplifying and harmonising regulations could be essential to alleviate these issues and support the industry.
• Trade Relations: it will address global competitiveness and the need for ensuring an international playing field,

Strategic Approach

Under the leadership of President von der Leyen, the strategic dialogue will bring together European automakers, suppliers, trade unions, and civil society representatives, ensuring a holistic approach. In addition, thematic working groups will result in detailed recommendations to build a comprehensive EU strategy for the automotive sector. Finally, Transport Commissioner Apostolos Tzitzikostas will develop an action plan for the industry based on the insights gathered during this strategic dialogue.

Vulcan Views

The initiative comes at a pivotal time, as European automakers struggle to compete with Chinese rivals and face potential challenges from changing global trade dynamics. By tackling these issues proactively, the EU seeks to preserve the international competitiveness of its automotive industry while advancing its climate objectives.

On top of the current emphasis on electric vehicles, the EU should broaden its approach to include other innovative solutions, such as synthetic fuels and emerging technologies, that could contribute to a sustainable and diversified automotive future.

To achieve this, collaboration between industry leaders, researchers, and policymakers is essential. Research programs and funding should focus on exploring the viability and scalability of these alternatives, while targeted incentives can encourage automakers to diversify their investments. Public-private partnerships and cross-sector collaboration could further accelerate the adoption of innovative solutions, ensuring the industry has the flexibility to meet climate goals while addressing the varied needs of different markets.

As Europe stands at a technological and economic crossroads, this strategic dialogue is a timely and welcome initiative at a decisive moment for one of the EU’s most important industrial sectors. By fostering innovation, supporting research into alternative solutions, and encouraging a broader range of technologies, the EU can secure a resilient, competitive, and forward-looking automotive industry that aligns with its climate and economic ambitions.

Compliments of Vulcan Consulting – a member of the EACCNY