• Long-awaited steps to close the tech gap are, at last, on the table: The Competitiveness Compass promises initiatives – from the Apply AI Strategy to the AI Continent Initiative and the 28^th Regime for innovative companies – to build digital competitiveness.

• Supporting European tech via public procurement: A European preference in Public Procurement for critical technologies stands out as the most tangible industrial policy proposal in the Compass.

• Yet, competitiveness requires more than a roadmap, it needs bold action on tech sovereignty: Europe’s ability to gain competitiveness depends on the swift deployment on industrial policy instruments to mobilise public-private efforts to create its own European technological stack. The Commission’s priority should be an action plan to address dependencies on key strategic assets, such as satellite communications, cloud computing, platform and generative AI.

 

The Competitiveness Compass, published today by the European Commission, outlines the EU’s executives’ aims to realise the reforms championed by the Draghi Report. It acknowledges that excelling in digital innovation is a key lever of productivity and competitiveness — a fact that now must be translated into concrete action.

While the Compass envisages significant steps forward for the EU on digital innovation and competitiveness, it falls short of advancing a bold Digital Industrial Policy which can bring Europe to the destination: becoming a technological sovereign, independent and competitive continent.

In what follows, DIGITAL SME provides its views on specific measures and critical issues included in the Compass.

Simplification and coordination

Firstly, the Compass promises to reduce red-tape by promoting a simplification effort, which will start with an upcoming Omnibus law. While this is welcome, DIGITAL SME recommends a one-simplification approach, meaning that it should be pursued in all policies. That means simplification of EU legislation in digital policy is a must: to prompt this, DIGITAL SME, in consultation with its members, will advance concrete proposals over the next month. A new definition of ´small mid-caps´ is also a welcome step to tailor regulatory obligations in a more proportionate manner for some innovative European companies.

Secondly, the Compass envisions a Coordination Tool to foster coordination on competitiveness among Member States, in addition to existing coordination efforts within the European Semester and the Next Generation EU. It is positive that the Compass underscores digital infrastructure and AI verticals as the key areas embedded in the scope of this tool.

If we are to boost Europe´s digital infrastructure and AI industrial capacity, however, a Coordination Tool among Member States can’t be the core of Europe´s action. What is needed is a bold approach towards European Digital Industrial Policy.  In this respect, the Coordination Tool should rather promote – among Member States – a ´pooling and federated approach´ to digital infrastructure – leveraging existing dispersed digital assets to build Europe´s own technology stack. This would be a tangible action to deliver results in one of the most important sectors defined as ‘’ strategic’’ in the Draghi Report. Cooperation not only with Member States but also with and within European industry should be encouraged as it will be essential to create a much-needed “EuroStack”.

Economic security and independence

Being competitive is only possible if Europe ensures its economic security, the Compass says. While the compass rightly states that trade partnerships are essential to its prosperity, the 27-member bloc must also address the challenges linked to unfair competition and minimise the potential weaponisation of assets by highly concentrated suppliers, as is the case for digital technologies.

To ensure this, rewarding European innovation in technology is key. That is why the most promising proposal in the Compass is the introduction of a European preference in public procurement through a review of the Public Procurement Directive. This could be a first step to the realisation of a Buy European Tech Act, which should prompt authorities to promote EU-made products and the strategic objectives of the twin transition within public procurement procedures.

Innovation gap

The Compass mentions some more tangible measures to close the innovation gap between the EU and its global competitors, which are identified as the primary reason for lagging growth in Europe.

Among the solutions proposed, the 28^th regime is finally set to see the light in 2026. This regime will promote a harmonised set of rules for innovative companies, wherever they operate in the Single Market. DIGITAL SME welcomes this step, but the EU must understand that innovative companies include digital and innovative SMEs, not only start-ups: ensuring tech SMEs have priority access to a Single Market of more than 450 million customers should be Europe’s priority.

DIGITAL SME also welcomes the highlighted objective for Europe to be at the forefront of innovation in tech sectors such as AI, quantum and space technologies. In this regard, the path laid out with the AI Factories is the right one – Europe has a cluster of HPCs (3 of the top 10) – but more should be built to make sure European SMEs and start-ups can access computing power, an essential layer of AI innovation. While these initiatives and the announced EU Cloud and AI Development Act are steps forward, the Compass lacks details on how the EU will decrease dependencies on non-EU Cloud providers. Without a coordinated plan and federated approach to cloud infrastructure in Europe, the continent also risks falling behind in AI development, as cloud computing is a bottleneck in AI innovation for start-ups and SMEs.

Another critical element in the AI, Data and Cloud strategies outlined in the Compass, is that Europe over-relies on Public Funding. The focus on public investment tools like the EIB and STEP is significant, but the private sector’s role is underemphasized. The EU venture capital market remains underdeveloped compared to the US, and the Compass does not lay out clear incentives for private investment. This reveals a structural weakness of the EU: there is a lack of private investors willing to support risky innovation.

Innovation diffusion across the economy

While the abovementioned measures on closing the innovation gap are steps in the right direction, the Compass should be more accurate when it comes to plans to foster digital diffusion across the economy.  

There can be no real competitiveness for the continent if Europe continues to be dependent on digital infrastructure produced by non-European hyperscalers.  From connectivity to computing power, data storage, online marketplaces and AI, Europe can no longer rely on foreign services.

To deliver innovation diffusion, while preserving technological sovereignty and competitiveness, Europe should promote a tailor-made approach to the digital transformation of industries: digital SMEs are the enablers of SMEs’ twin transitions. In particular, they deliver a “tailor-made digitalization”, by following a sector-specific approach. As such, digital SMEs’ industrial partnerships with traditional SMEs are the key success factor to promote innovation diffusion.

Last but not least, developing public-private partnerships is also key to boosting innovation and building Europe’s industrial capacity and competitiveness by leveraging on tech sector. This approach can be decisive in areas such as cybersecurity, but also in workforce’s upskilling and reskilling,  as witnessed by the success of the Large-Scale Partnership on Digital Skills. Building a workforce with the right skills to lead Europe towards digital leadership and competitiveness is also a must-do. The Compass confirms the EU’s plan to build a Union of Skills to build competitiveness via the workforce. In light of this initiative, DIGITAL SME advanced proposals to build on best practices by European tech SMEs and attain an effective Union of Skills.