NEWS ANALYSIS – Europe’s quest for competitiveness in an age of geopolitical uncertainty

Since the start of the 2024–2029 European legislative cycle, strengthening European competitiveness has moved to the centre of the EU agenda. The shift reflects a more unsettled global economic and trade environment, particularly in relations with long-standing partners such as the United States. In this climate of volatility, competitiveness is no longer framed as a long-term ambition but as a necessary condition for protecting Europe’s economic standing.

Pressure from Member States has reinforced that urgency. In early January 2026, Germany and Italy warned publicly that, without concrete progress on structural reforms, the European Union risks widening the gap with the United States and China. 

Both governments called for swift action to cut red tape, accelerate permitting procedures and deepen integration of the single market as core pillars of a more competitive Europe.

A new competitiveness agenda

According to the EU’s Competitiveness Compass framework, up to 47 targeted proposals addressing productivity, innovation and the reduction of strategic dependencies are expected by the end of 2026.

Early signs of this shift were already visible during the first year of the mandate, notably with the adoption of the Omnibus I proposal, also known as the “Sustainability Omnibus”. Omnibus I encapsulated the EU’s emerging two-pronged approach to competitiveness. 

On the one hand, it sought to streamline regulatory processes to stimulate economic growth within the Union. On the other hand, it acknowledged external considerations, including the need to attract foreign investment to help offset broader economic challenges. 

Striking the right balance between easing regulatory requirements to encourage foreign companies to operate in the EU and avoiding excessive dependence on non-EU actors is likely to be one of the defining challenges of the coming years.

The trade-off’s of “Made in Europe”

Within this current legislative cycle, momentum on competitiveness legislation has remained strong. The European Commission is advancing the so-called “Made in Europe” regulations, which would increase domestic content requirements in public procurement for green technologies such as batteries, electric vehicle components, and solar equipment. 

While designed to reinforce EU supply chains and industrial capacity, the proposal has sparked debate over potential impacts on market access for non-EU companies.

Member States are divided. France has actively promoted the initiative, whereas Sweden and the Czech Republic caution that such “buy local” measures could raise procurement costs and weaken the bloc’s overall competitiveness.

Industry reactions already reflect this tension. Several European industrial players, including major automakers, have pushed back against rigid local content thresholds proposed under the EU’s industrial strategy, arguing that such requirements risk undermining competitiveness in globally integrated value chains.

Between openness and protectionism

Against this backdrop, the trade-off between openness and protection is likely to shape how the EU’s competitiveness strategy materialises in practice. In light of recent global economic uncertainty, two broad strategic scenarios may emerge.

First, the EU may intensify efforts to diversify its economic partnerships by deepening ties with other regions. The Gulf Cooperation Council is frequently cited among potential partners, alongside India, Australia and ASEAN countries. 

A key illustration of this approach is the near-final free trade agreement with India, which European Commission President Ursula von der Leyen confirmed in January 2026. If concluded, the agreement could open access to a market of nearly two billion people and significantly deepen EU–India economic relations.

These diversification efforts, however, are not without friction. As of 1 January 2026, the EU suspended India’s Generalised Scheme of Preferences for 87 per cent of Indian exports, effectively raising tariffs on a broad range of goods. The decision complicates trade relations at a sensitive moment and highlights the tension between strategic objectives and short-term economic costs.

Alternatively, mounting external economic pressures could push the EU towards a more inward-looking strategy, limiting access to the internal market for foreign companies and prioritising internal resilience over openness. The extent to which future legislative initiatives affect companies from third countries will depend largely on where political decision-making ultimately settles along this spectrum. 

That positioning, in turn, is likely to be influenced by external shocks, including sudden shifts in U.S. or Chinese trade policy.

Beyond legislation, Brussels is leaning more heavily on strategic instruments to reinforce its competitiveness push. A revamped InvestEU programme, agreed in late 2025, is intended to crowd in public and private capital for priority sectors, from innovation and defence to clean technologies. At the same time, tougher foreign investment screening points to a deeper shift: competitiveness is increasingly being framed not just as growth, but as resilience.

Whether this strategy succeeds will depend on how convincingly the EU can navigate a familiar tension. Opening markets and attracting capital remain essential to growth. Protecting strategic assets and limiting dependence are becoming political imperatives. The balance Brussels strikes between the two will determine whether Europe’s competitiveness agenda delivers momentum or merely adds another layer of constraint.

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