Informal Competitiveness Ministers' Meeting

DISCUSSION NOTE Informal meeting of Ministers responsible for Competitiveness (Internal Market and Industry), 3 February 2026 Strengthening the European Defence Technological and Industrial Base Europe faces a structural industrial challenge. As highlighted in the Draghi Report, global competitors, notably the United States, benefit from defence industrial ecosystems that operate at greater scale and with higher levels of integration, supported by sustained investment and predictable demand. The United States alone spends more than twice as much on defence as all EU Member States combined, with an R&D budget roughly ten times higher than Europe’s [1]. EU Member States have responded to the deteriorating security environment by increasing defence spending to €343 billion in 2024. However, the effectiveness of this expenditure in generating long-term industrial value varies significantly, reflecting differences in procurement approaches, investment horizons, and the balance between operational delivery and industrial investment [2]. Maximising “value for money” therefore depends not only on budget levels, but on how spending is structured to support production capacity, innovation, and supply-chain resilience, rather than being absorbed by overhead, fragmentation of demand, or short-term solutions. Recent analyses, including the European Defence Industrial Strategy (EDIS), indicate that a substantial share of defence procurement has been sourced from outside the EU since 2022, although the precise magnitude varies by methodology and data source [3]. While many European armed forces already rely on standardised platforms, divergences in national requirements, upgrade pathways, approval procedures, and sustainment arrangements continue to limit the ability of European industry to fully capture the industrial benefits of increased defence spending. As a result, a significant share of investment-related spillovers, including production scaling, learning effects, and supply-chain development, is not fully retained within the EU. The adoption of the European Defence Industry Programme (EDIP) provides an important framework to incentivise cooperation and joint industrial investment at EU level. However, the broader industrial landscape continues to be characterised by largely uncoordinated national planning and procurement decisions. Hence, it should be closely observed how EDIP helps overcome these uncoordinated practices, as they limit demand predictability and investment certainty for the industry, reducing the overall industrial impact of rising defence budget. Looking ahead to the next Multiannual Financial Framework, the European Competitiveness Fund creates a unique opportunity to integrate defence, dual-use, and industrial policy under a single strategic roof. The central obstacle to competitiveness is the lack of scale. European demand is split, resulting in short production runs, high unit costs, and unpredictable demand signals that discourage capital investment. The lack of coordinated procurement and dependence on non-EU suppliers carries costs ranging from EUR 18 billion to EUR 57 billion (6.5% to 20.5% of all European military spending) annually [7]. Furthermore, Startups, Scaleups and other SMEs face an estimated annual financing gap of around €4 billion, which limits the ability of agile dual-use innovators to scale up production or integrate into cross-border supply chains [4]. The new Fund could act as a catalyst to modernise the industrial base and address the critical transition phase between research, prototyping, and industrial-scale manufacturing, enabling Europe’s 2500 defence-related SMEs [3] to grow and compete globally. Finally, industrial resilience depends on closing the divide between civil and defence technologies. The traditional innovation model has inverted, as breakthroughs in areas such as artificial intelligence, quantum technologies, and space are now predominantly driven by the civilian sector, while rigid administrative and regulatory barriers continue to obstruct the effective “spin-in” of these technologies into defence applications [6]. Addressing this gap requires targeted support for testing, certification, and early industrialisation, where many dual-use technologies currently stall. Success therefore requires more than de-risking investment; it depends on a well-functioning Single Market in which standardisation is treated as a strategic enabler of interoperability, scalability, and reduced external dependency. By harmonising certification processes, technical requirements, and qualification pathways, the EU can offer comparable “plug-and-play” operational utility across Member States, enabling faster deployment and interoperability of European systems and strengthening a genuinely integrated European Defence Technological and Industrial Base, while preserving diversity of industrial actors and national specificities. Questions for discussion: 1. How can the European Competitiveness Fund be structured to drive cross-border defence industrial cooperation, enable European manufacturers to achieve scale and efficiency, and reduce structural dependencies on third countries particularly by strengthening critical sub-component supply, raw materials access, and the integration of civil and defence industrial supply chains? 2. How should EU-level financial instruments be adapted to close the estimated €4 billion annual financing gap faced by European defence industrial actors, especially SMEs and dual-use innovators, in order to ensure that high-potential companies can scale up industrial capacity within Europe rather than being acquired by non-EU investors? References [1] Mario Draghi, The Future of European Competitiveness, European Commission, September 2024. [2] European Defence Agency, Defence Data 2024/2025 estimates. [3] European Commission & High Representative, Joint Communication: A new European Defence Industrial Strategy (EDIS), JOIN(2024) 10 final. [4] European Commission, Staff Working Document accompanying the EDIP Proposal, SWD(2024) 150. [5] Enrico Letta, Much more than a market: Speed, Security, Solidarity, April 2024. [6] European Commission, EU Defence Industry Transformation Roadmap: Unleashing Disruptive Innovation for Defence Readiness, October 2025. [7] (Centrone and Fernandes, 2024) as cited in the Commission Macroeconomic Report, November 2025. CYPRUS PRESIDENCY OF THE COUNCIL OF THE EUROPEAN UNION DISCUSSION NOTE Informal meeting of Ministers responsible for Competitiveness (Internal Market and Industry), 3 February 2026 Competitiveness Compass – A year after The Draghi Report on European competitiveness [1] provided a comprehensive assessment of the Union’s structural weaknesses and identified the reforms and investments needed to restore long-term competitiveness. Building on these recommendations, the European Commission launched the Competitiveness Compass as its guiding framework for the EU’s long-term competitiveness agenda, with 90 % of its flagship initiatives directly inspired by the Draghi report’s recommendations. Structured around three transformational pillars: (i) closing the innovation gap, (ii) a joint roadmap for decarbonisation and competitiveness, and (iii) enhancing security and resilience, the Compass serves as the Commission’s operational roadmap for the 2024-2029 mandate [2]. Our discussion today aims to focus on the real impact the concrete action plans have brought. Member States are kindly invited to reflect on their experience, highlight key challenges, and suggest possible ways forward to accelerate the delivery and enhance the effectiveness of the Competitiveness Compass and related initiatives at both EU and national level. Achievements According to the Commission’s "The Draghi Report: One Year On" review (September 2025), implementation of the Competitiveness Compass has proceeded at pace, with over 50% of the Compass’s flagship initiatives tabled [3]. These measures are expected to mobilize over €1 trillion across innovation, clean tech, and security to ensure the EU remains competitive and resilient. The "AI Continent Action Plan" (April 2025) aims to shift focus from regulation to capacity building, deploying a network of 19 facilities and mobilizing €200 billion in investment to triple Europe’s compute capacity [4, 5]. Simultaneously, the Clean Industrial Deal (February 2025) will mobilize over €100 billion to support energy-intensive sectors and clean tech manufacturing [3, 6]. Strategic autonomy measures have also advanced with the approval of the first list of strategic projects under the Critical Raw Materials Act [3, 6]. Additionally, the first batch of "Omnibus" simplification packages, once adopted and implemented, will result in estimated administrative savings of €8.4 billion for businesses, contributing to the target of reducing reporting obligations by 25% [3, 7]. Challenges for SMEs and start-ups Despite these advances, structural barriers continue to impede the diffusion of competitiveness gains. A "two-speed" economy is emerging, in which large enterprises adopt AI at two to three times the rate of small and medium-sized enterprises (SMEs); Eurostat data (2025) reveals that while infrastructure is expanding, AI uptake among EU SMEs remains low at approximately 13.5%, indicating that innovation is not yet fully permeating the wider industrial ecosystem [8]. Furthermore, the Annual Single Market and Competitiveness Report 2025 (2025 ASMCR) highlights that European start-ups continue to face a "financing cliff" compared to US peers, as the Savings and Investments Union has not yet delivered the deep private capital pools required for scaling [2, 9]. Finally, the 2025 ASMCR indicates that two-thirds of EU companies consider themselves hindered by excessive regulation, suggesting that the burden reduction efforts have not yet yielded the necessary tangible relief for businesses [9]. Against this background, the Presidency encourages Member States to reflect on the following questions: 1) How can competitiveness gains be accelerated when implementing the Competitiveness Compass, while ensuring the balance between speed and quality of reform? 2) In what ways can ongoing competitiveness measures be better tailored to help SMEs innovate, scale and compete in the Single Market and globally? 3) Which remaining gaps do you identify that are not being addressed under the Competitiveness Compass? References [1] Mario Draghi, The Future of European Competitiveness, European Commission, September 2024. [2] European Commission, Communication on the Competitiveness Compass, COM (2025), 30 January 2025. [3] European Commission, The Draghi Report: One Year On – High Level Conference, 16 September 2025. [4] European Commission, AI Continent Action Plan, April 2025. [5] Interface EU, The European Union’s AI Factories: Policy Brief, October 2025. [6] European Commission, The Clean Industrial Deal, February 2025. [7] European Commission, Press Release: Simpler EU digital rules to save billions, November 2025. [8] Eurostat, Digital Economy and Society Statistics: AI Uptake in Enterprises, January 2025. [9] European Commission, Annual Single Market and Competitiveness Report 2025, January 2025. CYPRUS PRESIDENCY OF THE COUNCIL OF THE EUROPEAN UNION LUNCH DEBATE Informal meeting of Ministers responsible for Competitiveness (Internal Market and Industry), 3 February 2026 Towards 2030: A Stronger, Fairer, and Safer Single Market for European Consumers The 450 million consumers in the Single Market constitute a fundamental pillar of the European economy, contributing to 51% of the EU’s GDP. Without consumers, the Single Market itself would cease to exist. It is therefore imperative to ensure a high level of consumer protection, as this directly strengthens public trust in the internal market and boosts its competitiveness. At the same time, an adequate legislative framework, combined with an effective enforcement mechanism, safeguards businesses that operate lawfully and in good faith within the rules, protecting them from traders who seek to gain an unfair competitive advantage through illicit practices. As new commercial practices continue to emerge, and consumer habits evolve rapidly—driven in part by accelerated technological advances and shifting geopolitical conditions—the continuous adaptation of the regulatory framework is essential in order to guarantee effective consumer protection for the years to come. Moreover, despite the significant benefits that the Single Market offers to consumers, barriers that limit its full potential continue to exist, particularly in cross-border transactions. Legal and administrative divergences, as well as practices that hinder consumers’ access to goods and services across the Union, prevent them from fully reaping the benefits that the Single Market has to offer. In this context, on 19 November 2025, the European Commission adopted the 2030 Consumer Agenda, which will serve as the strategic plan guiding the European consumer policy until 2030 across the following key priority areas: 1. Completing the Single Market for consumers. 2. Digital fairness and consumer protection online. 3. Sustainable consumption. 4. Effective enforcement and redress. As part of this plan, the European Commission has also announced its intention to put forward two major legislative initiatives in 2026. More specifically, the upcoming Digital Fairness Act is expected to strengthen the protection of consumers, including minors, in the digital environment against practices such as dark patterns, problematic practices by influencers, addictive design features, unfair personalisation that takes advantage of consumers' vulnerabilities and problematic features in digital products such as social media, video games and e-commerce. Furthermore, the Commission intends to revise the Consumer Protection Cooperation Regulation to strengthen enforcement, protect consumers from market players who do not respect EU rules, and shield compliant businesses from unfair competition. Against this background, the Presidency encourages Member States to reflect on the following questions: 1. Which remaining barriers that prevent consumers from reaping the full benefits of the Single Market do you consider to be the most crucial to address? 2. Regarding consumer protection in the digital environment, what areas identified in the Digital Fairness Fitness Check or elsewhere do you consider require the most immediate legislative action to better protect consumers, particularly children, from harmful practices? CYPRUS PRESIDENCY OF THE COUNCIL OF THE EUROPEAN UNION Saatja: "Minister of Commerce" <[email protected]> Teema: Informal Competitiveness Ministers' Meeting, 02-03 February 2026, Lefkosia - Discussion papers Kuupäev: 2026-01-08 10:54 Tähelepanu! Tegemist on välisvõrgust saabunud kirjaga. Tundmatu saatja korral palume linke ja faile mitte avada. Dear Madam or Sir, On behalf of the Cyprus Presidency of the Council of the European Union, please find enclosed, the discussion papers for the Informal Meeting of Ministers responsible for Competitiveness (Internal Market and Industry), to be held on 2–3 February 2026, in Lefkosia, Cyprus. Kind Regards, Minister’s Office * <mailto:[email protected]> [email protected] ' +357 22 867111 7 +357 22 375323 G 6 Andrea Araouzou str., 1076 Nicosia, Cyprus @cyMECI <http://www.meci.gov.cy> www.meci.gov.cy