New plan to regain lost competitiveness in the EU - right ambition but requires swift action  

On January 29, European Commission President Ursula von der Leyen presented a new roadmap, the Competitiveness Compass, to create growth opportunities in the EU over the next five years. The roadmap is based on a series of recommendations from Mario Draghi's high-profile report last year on Europe's future competitiveness, where military conflicts, the battle for new technologies and trade barriers between nations are increasing globally.  

In a month when Donald Trump returned to power in the US and announced new trade policies, the overarching message from von der Leyen was that "Europe is open for business" and "Europe is ready for change".  

TechSverige has previously highlighted Sweden's long tradition of entrepreneurship and innovation in our industry report, with global tech successes, but that fewer people are choosing to become entrepreneurs both in Sweden and the EU today. That global competition has intensified and that we have lost ground in recent years, where funding problems, skills shortages and an inhibiting regulatory environment are clear obstacles and that Europe has not fully taken advantage of the opportunities of digitization and developments in tech.  

The ambition of the Competitiveness Compass is therefore the right one, i.e. that Europe should once again become the place for future technologies and skills. That we should and must develop in order to regain competitiveness and catch up with the US in terms of productivity.  

The compass focuses on three core areas: innovation, decarbonization and competition, and security, and contains many promises. 

The Compass highlights that Europe needs to be at the forefront of innovation in technology sectors that will be important in tomorrow's economy. The EU should aim to bridge the innovation gap by investing in sectors such as artificial intelligence (AI), biotechnology and space technology, and through a more efficient capital market. Europe is also where the environmental technologies of tomorrow need to be created, in order to reach the 2050 climate neutrality target. It is also a way for the EU to increase its competitiveness. Access to renewable energy where and when it is needed, at a competitive price, is crucial for this and it is therefore necessary that the EU focuses as proposed also on energy.  

In order to increase innovation, investments in digital network infrastructure are needed and one of the Commission's flagship initiatives is to present a proposal for a Digital Networks Act this fall. The ambition is to reduce the regulatory burden in the sector and improve incentives for companies to invest in the digital network infrastructure of the future. A welcome and important change of course, now it is important that the Commission and the Member States dare to question old truths and the need for rules that often originate from a completely different market situation.  

To bridge the skills and jobs gap, there are plans for a Skills Union and a focus on both attracting and retaining talent and promoting skills development and the link to labor market needs which is positive. Already in the first quarter of 2025, the Skills Union is planned to include a plan for STEM education as well as basic skills in schools. TechSverige welcomes the focus and emphasizes the importance of really prioritizing STEM and basic digital knowledge and skills throughout the education and training system, it is about strengthening both the future of workers and the future workforce of the industry. 

The regulatory burden and bureaucracy will be reduced by 25-35% for companies in the EU, a simplification of regulation that will not affect efforts to combat climate change. TechSverige is fundamentally in favor of reducing the regulatory burden, which has been increasing for a long time in several areas of the industry, not least for small and medium-sized enterprises. This increases their ability to compete in the market. It has been suggested that much of that relief will be on sustainability regulations, which may be paused or postponed. Sustainability is not only crucial to reaching EU climate targets, but an important goal for both companies and their financiers that often means quality development that promotes business and the ability to stand up to global competition. Swedish tech companies are considered by many to have come a long way in their development and need to continue to have the right opportunities to continue to develop, deliver on sustainability goals and cope with competition.  

To a certain extent, it is gratifying that AI is to be used to reduce the regulatory burden, but it rather underlines the magnitude of the problem. Otherwise, the Commission's thoughts remain what we have heard before - more cross-border or European solutions. A push for digital reporting might have been a novelty in 2005, but it's a real nuisance by 2025. However, the effort to reduce the negative effects of the GDPR is welcome. 

The Commission is discussing important issues such as AI, data centers, computing power and cloud computing. However, this takes place against the backdrop of the AI regulation coming into force and great uncertainty about what it will mean for the willingness to invest in AI in the EU. Today, only 13% of European companies use AI and there are reasons to link this low figure to regulatory uncertainty and burden. Access to data is also addressed and simplifications are of course welcome, but as the value of data increases, this is also becoming a more difficult area to navigate - even with a compass. There must be clear market failures or other shortcomings that prompt further regulation in the data field. It is important to address digitization, AI, quantum technologies, data and much more. However, with the compass, it becomes clear that the calm that was needed after the previous Commission's 116 proposals in the field of digitization will not be forthcoming. Some of it will certainly be good, but the compass also risks contributing to uncertainty and delays in some digital areas. 

It is also important to put the compass in the context of Swedish areas of strength. Last autumn, Vinnova presented a report on six identified strategic technology areas with a heavy focus on AI, quantum, digitization and life science. The fact that this is in line with the focus presented by the compass is fundamentally positive and shows that Sweden has an important contribution to the critical mass of innovation in the EU that these areas represent. 

To increase security , future technologies, services and products, both raw materials and energy, will be developed in Europe. According to the Commission, hybrid threats require greater coordination and cooperation between the private and public sectors. This makes sense, but so far it has been more on the regulators' terms than on the risks, opportunities and costs of addressing them. New legislation such as NIS2 has also recently come into force. Positively, of course, with cooperation on difficult issues like the threats to submarine cables. An Internal Security Strategy will be launched. The question is whether this is the most appropriate level to tackle the issues in practice. 

As I said, there are many promises in the compass. In total, some 50 initiatives that so far only exist on paper. The important thing now will be to quickly and effectively translate this into reality in the coming years. And it will require a great deal of commitment from Sweden in Brussels to help create the best possible conditions for the whole, but also for Sweden to be able to take part in, for example, industrial policy incentives and investments. In other words, a lot of work will be required if Europe is to succeed in the race to the top.

Christina Ramm-Ericson
Head of Industrial Policy and Chief Economist