The EU Commission’s Competitive Compass

The European Commission has proposed a range of actions to enhance the EU’s competitiveness, focusing on innovation, decarbonisation and reducing dependencies. These actions are largely based on the Mario Draghi report issued in 2024. The actions are designed to address structural weaknesses and long-standing barriers. The European Commission’s Competitiveness Compass outlines a series of actions aimed at boosting the EU’s economic competitiveness and productivity. The strategy is built upon three transformational imperatives and several horizontal enablers.

Closing the Innovation Gap: The EU aims to revitalise its innovation cycle by addressing barriers to start-ups and scaling up companies. Key actions include a dedicated EU Start-up and Scale-up Strategy, improving university-business relations and commercialising patents. The European Innovation Act will promote access to research infrastructure and regulatory sandboxes. A 28th legal regime is proposed to simplify rules for innovative companies operating in the Single Market. The Commission will also work to boost European venture capital and launch a TechEU investment programme. Furthermore, the EU will increase R&D spending to 3% of GDP and focus research on strategic priorities with a European Research Area Act. To excel in future technologies, initiatives such as the AI factories initiative, the EU Cloud and AI Development Act, a Quantum Strategy and a Quantum Act, will support the development of AI, quantum and other advanced technologies. The EU Bioeconomy Strategy, European Biotech Act and Advanced Materials Act will boost growth in life sciences and advanced materials. A Space Act will also safeguard the European space sector. Competition policy will be revised to support innovation and the Technology Transfer framework will be reviewed to facilitate technology dissemination. Finally, the EU will encourage the diffusion of innovation across the economy with an Apply AI Strategy and improve digital infrastructure with a Digital Networks Act.

A Joint Roadmap for Decarbonisation and Competitiveness: The EU strives to make its decarbonisation efforts a driver of competitiveness. An Affordable Energy Action Plan will address high energy prices. The plan will focus on market integration, long-term power purchase agreements, demand flexibility and better designed tariffs. The EU will invest in modernising and expanding its energy infrastructure. To encourage clean production and circularity, the EU will promote demand for low-carbon products. A Clean Industrial Deal will be established and a flexible state aid framework will encourage decarbonisation. Tailor-made action plans for energy-intensive sectors will also be developed, including a Steel and Metals Action Plan and a Chemicals industry package. The EU will engage with the automotive sector to design solutions for a clean transition, and a Sustainable Transport Investment Plan will help with the development of charging infrastructure and low-carbon transport fuels. A review of the Carbon Border Adjustment Mechanism will address carbon leakage. The EU also intends to tap the potential of the circular economy by creating a single market for waste and secondary materials with a Circular Economy Act.

Reducing Excessive Dependencies and Increasing Security: The EU seeks to reduce its reliance on single suppliers of key goods and services. The EU will pursue trade agreements and partnerships, and will focus on Clean Trade and Investment Partnerships. A Trans-Mediterranean Energy and Clean Tech Cooperation initiative will stimulate investments in renewable energy. To reduce dependencies, the EU will promote domestic production, recycling and diversification. The Commission will also present a Roadmap on lawful measures towards ending Russian energy imports. A policy combining domestic production, stockpiling and diversification will be implemented as part of the Critical Raw Materials Act. The Critical Medicines Act will strengthen the supply of medicines. The Commission will introduce a European preference in public procurement for strategic sectors and technologies. A White Paper on the Future of European Defence will focus on increasing defence cooperation and a Preparedness Union Strategy will outline an approach to potential threats. An Internal Security Strategy will also help respond to security threats and a European Climate Adaptation Plan and a Water Resilience Strategy will address climate and water issues.

Horizontal Enablers: The strategy also includes several horizontal enablers. The EU will focus on reducing regulatory burden, with a goal of reducing reporting burden by at least 25% for all companies, and 35% for SMEs, and will also propose a definition of small mid-caps. A European business wallet will be the cornerstone of digital business. The EU will aim to make the most of the Single Market by implementing a Horizontal Single Market Strategy. The Commission also plans to present a Savings and Investments Union to mobilise private investment. The EU also aims to boost skills and quality jobs by building a Union of Skills and a Quality Jobs Roadmap. The Commission will introduce a Competitiveness Coordination Tool to coordinate policies with member states. Lastly, the next Multi-annual Financial Framework will introduce a European Competitiveness Fund.

What does this mean for Malta?

As outlined, this competitive compass document emphasises strengthening the Single Market. Malta, as an EU member, should benefit from measures that reduce barriers to trade and increase the free flow of goods, services, capital and people This could mean new opportunities for Maltese businesses to expand within the EU and attract investment. The Malta 2050 vision document should outline how it will tackle barriers to trade and market integration in key sectors and promote cross border trade.

This Competitive Compass document also discusses the need to improve access to finance for businesses, especially start-ups and scale-ups, through a Savings and Investments Union. Malta could benefit from increased availability of venture capital, equity and other forms of risk capital. A refocused EU budget may also provide opportunities for Malta to obtain funding for projects that support competitiveness. The Malta 2050 vision should reflect the need for improved access to finance, especially for start-ups and scale-ups. The document could describe how Malta intends to create a more suitable environment for attracting venture capital and equity investment and how it plans to use the EU’s Savings and Investment Union.

The EU plans to promote the integration of digital technologies, such as AI, across different sectors. Malta could benefit from the “AI factories” initiative and the EU Cloud and AI Development Act, which aim to increase the availability of computing power for businesses. Malta’s vision should incorporate a strong emphasis on innovation, research and development, and the adoption of digital technologies. The Malta 2050 vision document should align with the EU’s objectives of boosting R&D investment and cultivating a culture of innovation. The document could describe how Malta will support the development of technology-led sectors, such as AI, and leverage initiatives such as the “AI factories”. It should outline how Malta plans to improve digital infrastructure.

This Competitive Compass document also promotes a transition to a decarbonised economy. Malta, like other member states, may need to adapt its industries and energy infrastructure and implement energy efficiency measures to benefit from this transition. The Clean Industrial Deal initiative is designed to create an attractive location for manufacturing in the EU, including for energy-intensive industries which are also present in Malta. The Malta 2050 vision document needs to align with the EU’s ambitious goals for decarbonisation. This includes developing a roadmap for transitioning to clean energy, promoting energy efficiency and supporting the circular economy. The vision document should show how Malta plans to use the Clean Industrial Deal initiative to attract investment in clean technologies and promote sustainable manufacturing. The plan should discuss how Malta intends to reduce its reliance on fossil fuels and tackle high energy costs.

The plan emphasises the importance of skills and quality jobs. Malta could benefit from initiatives that focus on investment, adult and lifelong learning, skills creation and recognition, and the mobility of skilled workers. The Malta 2050 vision document must acknowledge the importance of skills and quality jobs. The plan should incorporate the EU’s ambition to create a “Union of Skills”, focusing on investment, lifelong learning and the recognition of different types of training. The Malta 2050 vision should reflect how the island intends to address skills gaps and labour shortages by investing in its workforce, attracting skilled professionals from third countries and promoting fair labour practices.

Through this document the EU commission highlights the need to cut red tape. Malta may benefit from the EU’s effort to simplify rules, reduce administrative burdens and streamline procedures. A 25% reduction target for reporting burdens for all companies, with a 35% target for SMEs is set. The Malta 2050 vision should incorporate the EU’s efforts to cut red tape and simplify regulations. The document could address how the country will implement proportionate regulation and streamline administrative procedures for businesses and citizens and use digital tools to facilitate interactions with government bodies. The vision should commit to a reduction of reporting burdens.

The plan emphasises certain strategic sectors including AI, semiconductors, quantum technologies, biotechnology and clean energy. Malta could benefit from EU level support in these areas if they develop these industries. The 2050 vision document should highlight key strategic sectors like AI, semiconductors, quantum technologies, biotechnology and clean energy that are being prioritised by the EU. It should outline Malta’s strategy to develop these industries, if applicable, and to access funding and resources at the EU level.

There is also a proposed Competitiveness Coordination Tool which aims to align industrial and research policies and investments at the EU and national levels. This tool could mean that the EU and Malta work more closely to achieve economic goals. The Malta 2050 vision document should mention the EU’s Competitiveness Coordination Tool, designed to align industrial and research policies and investments at the EU and national levels. Malta’s vision should show a commitment to working with the EU to implement coordinated cross-border and EU-wide actions on shared priorities.

In conclusion, Malta’s economy could benefit from increased access to finance, a strengthened Single Market, digital and green transition initiatives, improved skills development and reduced regulatory burdens if the measures proposed in the document are successfully implemented. The Malta 2050 vision should consider the challenges outlined by the EU’s Competitiveness Compass. In my opinion, one of the main challenges is that the EU Competitiveness Compass has a sense of urgency to it, of catching up on time lost, as evidenced by its very ambitious implementation timeline.

On the other hand the Malta Vision 2050, with its 25-year long horizon, is susceptible to entertaining a lot of high level, long-term ideas that need to be aligned with a more tangible policy horizon (five to 10 years) to be meaningful and effective. Having said so, I believe it is extremely important to integrate the outlined aspects of the EU’s Competitiveness Compass into the Malta 2050 vision document, to provide a clear pathway for the island’s economic development, ensuring that Malta remains competitive within the EU framework, while addressing its own unique national challenges.