EU compass sets new rules for competitiveness

The European Union is currently taking targeted political steps to make the continent's industry future-proof and competitive. The new EU Commission has placed a clear emphasis on strengthening Europe's competitiveness with the so-called 'Competitiveness Compass.' This strategic realignment particularly follows the recommendations of the Draghi Report and is intended to guide the Commission's work over the next five years.

There is criticism from the industry that many EU regulations are too detailed, prescriptive, and far removed from real business practice, according to Holger Kunze, Managing Director of the Brussels office of VDMA: "The massive overregulation of recent years is overburdening European companies and hindering their urgently needed capacity for innovation." The challenge for policymakers: to integrate flexibility and practicality into the regulations without diluting the effectiveness of the green and digital transformation.

VDMA: Compliance consumes more energy than value creation

In companies, the density of regulations and the burden of implementation are particularly met with discontent. Industry representatives find the numerous regulations particularly burdensome, here are a few examples.

• EU taxonomy: Well-intentioned, but difficult to understand in implementation, not very practical - especially for SMEs without their own ESG department
• REACH regulation: Substance and chemical regulation with high documentation requirements - a perennial issue in the process industry
• CSRD (Corporate Sustainability Reporting Directive): Reporting obligations that already bind enormous resources - even before tangible effects arise
• Digital identity and data protection requirements (eIDAS, NIS2, and GDPR): High complexity, legal uncertainty, massive liability risks

Overall, this creates a situation where, according to VDMA, compliance consumes more energy than actual value creation. “The result of this policy is an overwhelming burden, especially for medium-sized businesses,” says Holger Kunze.

Main criticisms of the EU regulatory flood

Too many, too extensive, and too detailed regulations: Companies have to navigate a thicket of regulations that not only bind resources but also stifle innovation. Companies' ability to innovate is restricted: Instead of allowing flexibility in how goals are achieved, the EU often prescribes in too much detail what and how something must be done - this stifles progress. “All of this means disadvantages in global competition,” says Kunze. “While other regions (USA, Asia) focus more on market-oriented control, European companies struggle with high bureaucracy costs and pressure to adapt - often without a clear benefit advantage.”

Bureaucracy slows down innovation and competitiveness

The focus is on the central demand from industry and small and medium-sized enterprises to the EU for fewer detailed specifications and more goal orientation. Too much bureaucracy slows down innovation and competitiveness - nationally and internationally, according to the VDMA. Companies are seeking regulatory relief through exemptions, thresholds, and industry-specific flexibility and reliable transition periods to retrofit technologies and processes without economic shocks. European one-stop solutions are also being demanded instead of national implementation labyrinths, as well as digital reporting procedures that make bureaucracy reduction truly noticeable. The pressure is growing not only due to the rules - but also due to global competition, where companies compete with faster, more flexible locations.

“It will become even more important for Europe to stick together”

This global competition has taken on a new, different face since Donald Trump's return to the White House. Trump's protectionist disruptions with tariffs, export restrictions, and trade wars are burdening the global economy, according to Bertram Kawlath, president of the VDMA: “Global trade will not come to a standstill - even if more and more countries try to build protective walls or subsidize their own industries. But it could lose more 'freedom.' It is all the more important for Europe to stick together and strengthen the internal market, instead of talking it down more and more.”

Only as a consolidated economic bloc can the EU remain a strong player in international trade. “If Europe falls back into the era of national egoisms, we will be increasingly crushed between the power ambitions of major economic powers and the warlike ambitions of various autocrats. Europe faces an enormous challenge: to stand up to all protectionists with all its might,” Kawlath continued.

According to the VDMA, around 60 percent of its members have confirmed in a survey that they are very strongly or strongly affected by the US tariffs. “The exact impact on the machinery and plant engineering sector is currently not foreseeable,” says the VDMA president. “Tariffs between the EU and the USA should not be built up, but abolished. Because they harm producers and consumers in both regions.”

“EU Commission seems to be serious now”

The new EU internal market strategy could help to prepare Europe well as an economic bloc. VDMA CEO Thilo Brodtmann says: “The EU Commission seems to be serious now and is addressing the most pressing problems of the European internal market. The points on the EU internal market strategy that have now become known in advance sound promising. This is especially true for the ‘think-small first’ approach, i.e., the increased focus on small and medium-sized enterprises, which benefit enormously from the internal market but have so far also had to struggle with immense hurdles.”

Brodtmann continued: "In the area of employee secondment, which causes our companies a lot of headaches during cross-border assignments, the EU Commission is finally tackling the bureaucratic problems. Harmonized and uniform rules across the EU must be standard."

EU internal market as an important trading platform

The importance of intra-European trade in machinery and plant engineering for the strength of the continent is shown by the latest statistics. In the first eleven months of 2024, EU machinery exports reached a total value of 543 billion euros, with around half (272 billion euros) going to other EU countries. "This highlights the importance of the EU internal market as an important trading platform for our industry," said Kawlath. The industry revenue of European machinery and plant engineering is estimated at 860 billion euros for 2024 (minus six percent compared to the previous year) - about 27 percent of the global machinery market. The industry expects another challenging year in 2025. Due to many global trade barriers and significant customer uncertainty, companies must anticipate a continued weak level of investment.

EU industrial policy: New narrative, new political direction, new priorities

EU expert Holger Kunze from VDMA sees EU industrial policy on the brink of a paradigm shift: "The EU recognizes that it is falling behind economically in the global competition, especially with the USA and China. The answer: an active change of course." This includes a strong economy, which also stands for geopolitical capability, according to Kunze: "Only those who are economically capable can act sovereignly in foreign policy, secure supply chains, build defense, and set standards." A rapid turnaround is therefore necessary, as the previous inertia of the EU is extremely dangerous in the current geopolitical situation: "Now quick, pragmatic decisions must follow," says Holger Kunze.

At the top of the new EU priorities is competitiveness. Here, experts are calling for alignment with the Draghi Report (2024), which proposes deep structural reforms. Equally important is an immediate reduction in bureaucracy as a key demand of the industry. Additionally, the Green Deal is being rebranded as the Clean Industrial Deal with a stronger focus on competitiveness. New trade agreements could become a growth engine, but much still needs to happen, as Bertram Kawlath explains: "On the one hand, all attempts to conclude multilateral agreements have been more or less buried. Even the long-agreed Mercosur agreement is still in limbo. Many governments are seeking salvation in bilateral agreements, where as much as possible should be gained for their own side."

The new top priorities also include resilience and sovereignty with sophisticated supply chain strategies to free themselves from strategic dependencies (China, energy, semiconductors) - with the goal of gaining more autonomy in critical technologies and raw materials. But defense and security policy is also at the top of the new EU agenda. The focus here is on building a European defense industry in response to geopolitical tensions and securing industrial capacities for weapons, equipment, and cybersecurity.

“The EU is serious about reducing bureaucracy”

On the important point of reducing bureaucracy, there seems to be movement in Brussels. Regarding the EU Commission's plans to simplify sustainability reporting, the EU supply chain law, and the EU taxonomy in an omnibus regulation - a legislative project of the EU that combines several legislative changes or initiatives into a single legislative package - VDMA Chief Executive Thilo Brodtmann says: “The omnibus proposal to simplify three particularly burdensome regulations must send a clear signal to the economy: The EU is serious about reducing bureaucracy. A poor compromise that ultimately brings no concrete improvements in everyday business would permanently shake the trust of medium-sized industry.”

On April 3, 2025, the European Parliament took a big step in the right direction by agreeing to postpone the EU regulations on sustainability reporting and corporate due diligence by two years.

Call for relief grows louder - and heard

The call for simplification is becoming much louder - because the current requirements for sustainability reporting overwhelm many companies, especially in the industrial SME sector. A practical realignment requires several steps. "On the one hand, there needs to be a reduction in data points," says Thilo Brodtmann. Not every detail needs to be captured. The focus should be on impact-relevant metrics that can be operationally managed and credibly reported - without Excel excesses or consulting armies.

Other important approaches for the VDMA chief executive are the simplification of requirements and the limitation of the trickle-down effect in the supply chain. "Only in this way can companies pursue their sustainability goals in a focused manner without being overwhelmed by bureaucratic processes." If the regulatory framework is truly focused on focus, feasibility, and impact, sustainability can be truly anchored across the board - and not just in corporate headquarters with ESG departments. The EU legislator seems to be at a crossroads: streamline processes or lose acceptance.

VDMA: Keep bureaucratic sustainability obligations practical

The EU's economic policy is thus facing a historic upheaval. Commission President Ursula von der Leyen is putting competitiveness at the center - at first glance at the expense of previous sustainability goals. Regarding the adoption of the 'Stop the Clock' proposal, which suspends reporting obligations for companies, VDMA Chief Executive Thilo Brodtmann says: "We are very pleased that after the Council, the EU Parliament also adopted the 'Stop the Clock' proposal to suspend several reporting obligations so quickly. This step is absolutely necessary and particularly important for companies that would have been confronted with the high data burden for the first time this year."

Companies could now defer the bureaucratic burdens of the Corporate Sustainability Reporting Directive (CSRD) and the future European Supply Chain Directive (CS3D) and focus on the actual challenges of transformation. "Now it is important to quickly negotiate the remaining substantive changes to the CSRD and CS3D and not to torpedo the EU Commission's proposals. Only in this way can companies make their sustainability strategies future-proof and efficient." The VDMA will continue to advocate for keeping bureaucratic sustainability obligations practical.