Questions and Answers: Long-term view on competitiveness

Why does the EU need a long-term view on competitiveness?

The EU has quickly reacted to the disruptions caused by the COVID-19 pandemic and Russia's war of aggression against Ukraine with a common coordinated response, demonstrating that our common strength is greater than the sum of all Member States' efforts. However, in an increasingly challenging geopolitical context, the EU needs to look beyond crisis management to build a robust and future-proof economy that secures prosperity in the long-term.

In that sense, the long-term view provides a reference for the discussions on the long-term competitiveness and productivity of Europe's economy leading to the decisions by European business and policy makers on the investments and policies that will shape the EU's economic future. The European Council Conclusions of December 2022 has asked the Commission to present a strategy at EU level to boost competitiveness and productivity.

What is new about this long-term view on competitiveness?

Many EU policy goals, like those in the Fit-for-55 package, REPowerEU and the Digital Decade for the green and digital transitions, have been set for 2030. The long-term view on competitiveness looks beyond that year, proposing several action lines for the EU and its Member States to work through a sustained effort on structural improvements, well focused investments and regulatory measures.

Grounded in the European model for inclusive economic growth, based on sustainable competitiveness, economic security, trade and open strategic autonomy and fair competition, the long-term view aims to provide a forward-looking, well-defined and coordinated EU framework to boost competitiveness, accompanied by a monitoring system to assess progress.

How will the long-term view on competitiveness benefit European businesses and society?

The European model of economic growth has been a source of prosperity for the last decades and EU is one of the three major economic regions of the world. However, the EU is not on par with other parts of the world in terms of productivity growth and innovation, production and adoption of some key transversal technologies.

Looking at the EU's competitiveness from a long-term perspective is essential for setting the right conditions for European businesses, to flourish and create prosperity in a way fully aligned with the European social model based on equal opportunities for all.

What are the main elements of the long-term view on competitiveness?

The long-term view is articulated around nine mutually reinforcing drivers:

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  A functioning Single Market
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  Access to private capital and investment
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  Public investment and infrastructure
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  Research and Innovation
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  Energy
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  Circularity
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  Digitalisation
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  Education and skills
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  Trade and open strategic autonomy

Accompanying these nine drivers, as a second leg of action, the long-term view proposes to work actively towards a regulatory framework more suited for competitiveness and growth, suggesting some priority areas.

How is a functioning Single Market related to long-term competitiveness?

The Single Market is the core of the EU's four fundamental freedoms and competitiveness and will remain so in the future. With a level playing field and a robust competition policy as priorities, broadening and deepening the Single Market, fostering integration of services, is the single most cost-effective measure to secure EU's productivity.

Why access to private capital and investment is important for EU's competitiveness?

A competitive economy needs an efficient access to private funding to support the investments that will underpin future growth. Completing the Banking Union and deepening the Capital Markets Union are essential for the entire European economy, as well as the development of EU tax and financial services regulatory frameworks supportive of businesses. Sustainable finance and seed public funds will also play a key role here.

What is the role of public investment and infrastructure?

Public investment is key for competitiveness, through the provision of essential services such as healthcare and education and the funding of large-scale infrastructure in energy, connectivity and transport, for which cross-border and multi-country projects will be needed. It is also essential for crowding in private investment and for stimulating supply chains by increasing demand through public procurement. The European economic governance framework needs to be urgently reformed to ensure debt sustainability and to stimulate growth-enhancing investments.

How does the long-term view address Research and innovation?

The long-term view highlights that the EU needs to increase its investment on Research and Innovation to make good on its commitment to 3% GDP by 2030, and more beyond, and to catch up with the most advanced economies on these fields, as they will determine the competitiveness of tomorrow. Tax incentives, public-private partnerships and large-scale projects will be crucial to de-risk investments in innovation, especially in the key areas of clean technology, digital and biotechnology.

Why energy is one of the drivers in the long-term view?

To maintain its competitiveness, the EU needs reliable and secure supply of affordable energy, with a well-integrated energy market able to resist disruptions. To that end, the fast roll-out of renewables, the digitalisation of energy systems and energy storage facilities will be key for the EU to increase energy independence and progressively reduce the cost differential with other parts of the world.

How can circularity support competitiveness?

A more circular economy can boost competitiveness by decreasing resource dependence and waste and increasing productivity. The Circular Economy Action Plan, the Eco-design rules for sustainable products and the digital product passport will be key to foster the transition towards a more circular economy in the EU, and with it, more employment and growth.

What is the role of digitalisation in the long-term view?

Digitalisation is one of the foundations of future competitiveness, as an efficiency and innovation booster, and where the EU needs to increase efforts for catching up and leading globally. Together with investments in safe, secure and sustainable digital infrastructures, more support is needed for key digital technologies such as Artificial Intelligence, Quantum Computing, microelectronics, web 4.0, virtual reality and digital twins, and cybersecurity.

How does the long-term view address education and skills?

The availability of a skilled workforce grounded in a European system with equal opportunities and quality employment will be key for a thriving and competitive EU economy. Building on the high-quality education and training system, further effort is needed to develop and recognise skills, to increase the participation of women, the young and third country nationals in the labour market, and to promote Vocational education and training.

How is trade and open strategic autonomy related to competitiveness?

Over the last decades, open trade has made the EU more prosperous, bringing more opportunities for commerce, investment, innovation and productivity growth. In a shifting geopolitical environment, open trade is also key for reducing supply chain dependencies. In that sense, the EU needs to continue working to open markets for EU companies by deepening ties with allies and trading partners, preserving fair trade principles and addressing risks in a targeted way.

How will the regulatory framework be improved?

The quality of public administration and that of the regulatory framework are crucial for the Union's competitiveness. The EU has one of the most advanced better regulation systems in the world, and the ‘one-in, one-out' approach and the new competitiveness check are further improvements.

The Communication will work on more rationalization and simplification of reporting requirements for companies and administrations, with a focus on digital, green and economic areas, and with the aim to reduce such burdens by 25%. It also envisages the development of a more innovation-friendly approach to regulation, using regulatory sandboxes and testbeds and incentives-based regulatory models.

The continuous assessment of the EU legislation by the Commission to ensure that it remains future-proof and fit for purpose is also part of this improvement effort, where more attention will be paid to the cumulative impact of policies.

As the proper application of EU law in Member States is key to avoid additional regulatory or administrative burden, improvements can be made also there, relying on the assistance that the Commission provides Member States in transposing EU law correctly, fully and on time.

How will progress be measured?

The long-term view includes a monitoring framework composed by 17 Key Performance Indicators (KPI), selected among the wide range of monitoring instruments existing at EU level for the different policy areas. These indicators are accompanied by their respective targets in terms of values or trends, and together will allow to measure the EU's improvements in each of the competitiveness dimensions.

The Commission intends to present the update of this indicators on an annual basis in the Single Market and Competitiveness Scoreboard, to inform and prompt discussion on any necessary policy measures at EU level related to competitiveness.