“Europe needs investment in innovation and industry, but competitiveness cannot come at the expense of democracy, cohesion and workers’ rights. Public funding must deliver public benefits, quality jobs and a just transition for workers.” — Judith Kirton-Darling, General Secretary of industriAll Europe

Why this matters

The proposed European Competitiveness Fund would become one of the largest spending instruments in the next EU budget, shaping how Europe invests in industry, innovation and the green transition.

Key takeaways

• The proposed European Competitiveness Fund (ECF) would concentrate a significant share of the EU budget but risks weakening democratic oversight and reducing the role of the European Parliament.
• Despite its size — around €409 billion (20% of the proposed EU budget) — the fund would remain far below the €800 billion annual investment gap identified for Europe’s industrial transformation.
• The current design risks redirecting research funding away from basic research, weakening Europe’s long-term scientific capacity.
• Strong reliance on “excellence criteria” could deepen regional inequalities by concentrating funding in already well-resourced regions.
• Without strong social and environmental conditionalities, the fund could reinforce a deregulatory agenda and undermine a just transition for workers.

Competitiveness fund at the centre of the next EU budget

The EU’s proposed European Competitiveness Fund (ECF) is being presented as the centrepiece of the next Multiannual Financial Framework (MFF) for 2028–2034. The fund would serve as an EU-wide investment vehicle intended to concentrate and streamline funding for strategic industries.
However, industriAll Europe warns that, despite its ambition, the proposal risks weakening Europe’s industrial competitiveness while sidelining democratic oversight and accelerating a shift towards deregulation that could undermine workers. To highlight these risks, industriAll Europe has published a policy brief explaining key elements of the proposal.

Competitiveness has become a central priority for the European Commission, building on the Draghi report on EU competitiveness (summer 2024) and the Competitiveness Compass (January 2025). In its July proposal for the next EU budget, the Commission followed this up with the European Competitiveness Fund.

Although the EU budget will undergo nearly 18 months of negotiations and revisions, it is already clear that innovation and social cohesion objectives risk being replaced by a deregulatory approach framed under the language of “competitiveness”.

A persistent investment gap

Europe’s innovation gap is well known. Business research and development spending stands at 1.5% of GDP, far below the 2.6% recorded in the United States, while public investment remains below the long-standing Lisbon target of 3% of GDP.
At the same time, Europe faces structural fiscal constraints — including strict deficit rules, limited EU-level revenue and restricted borrowing capacity — making it difficult to finance an industrial policy on the scale required for the green and digital transitions.

Against this backdrop, the proposed MFF budget of €1.98 trillion, of which 8.5% would go directly to debt repayments, represents a smaller envelope than the €2.018 trillion spent between 2021 and 2027 when NextGenerationEU is included.

Within this budget, the ECF would account for around €409 billion, or roughly 20% of the total MFF. However, this amounts to approximately €58 billion per year, far below the €800 billion annual investment gap identified in the Draghi report.

For example, the proposed €67 billion allocation for clean energy is dwarfed by the estimated €460 billion per year required for decarbonisation. In other words, the ECF would command a very large share of an EU budget that has shrunk in real terms while still falling far short of the investment required.

Governance concerns and democratic oversight

The proposal also raises significant governance concerns. The Commission is pursuing a “de-risking” strategy designed to attract private investment. While this approach may mobilise private capital, it also shifts financial risks onto public budgets while allowing private investors to capture much of the upside.

At the same time, decision-making on the allocation of funds risks moving further behind closed doors. Financial intermediaries — including investment firms, private equity funds and venture capital funds — could play an increasing gatekeeping role in the distribution of public guarantees.
The ECF would also represent a substantial shift in institutional power. Decision-making authority would move further towards the European Commission and away from Member States and the European Parliament.

Under the current proposal, oversight of work programmes could become largely procedural, while independent experts risk being excluded from key evaluation processes.

The fund would consolidate 14 existing EU programmes and allocate funding across four thematic pillars:

• defence and space
• health and biotechnology
• clean transition
• digital leadership

Funding for Horizon Europe — the EU’s flagship science, technology and innovation programme — would also fall under the ECF framework. However, in its current form the ECF cannot legally fund research and innovation directly.
This could redirect significant resources away from basic research towards technology deployment. Europe could be left with only €4.5 billion per year dedicated to fundamental research, a fraction of what the United States or China invest.

Risks for regional cohesion

Europe’s innovation geography is already highly uneven. Strong research regions capture a disproportionate share of public R&D funding, while peripheral regions struggle to attract investment.
The ECF’s strong emphasis on “excellence criteria” risks reinforcing these disparities, particularly if cohesion funds are reduced or redirected towards ECF programmes.

Such a “winner-takes-all” approach risks weakening the political legitimacy of the European Union, particularly in regions experiencing long-term economic stagnation and rising anti-EU sentiment.

Competitiveness agenda and deregulation

The ECF must also be viewed in the broader context of the EU’s competitiveness agenda, which has increasingly moved towards deregulation.
In early 2025, the European Commission introduced an “Omnibus” package that weakened the Corporate Sustainability Reporting Directive (CSRD) and the Corporate Sustainability Due Diligence Directive (CSDDD), presenting these changes as necessary to boost competitiveness.
However, this approach risks undermining social and environmental protections. For workers, the implications are significant. Without strong conditionalities on job quality, collective bargaining or environmental standards, the ECF could contribute to a race to the bottom rather than supporting a just transition.

What industriAll Europe is calling for

In its policy brief, industriAll Europe argues that Europe needs a stronger innovation and industrial policy built on public purpose, democratic governance and high-quality employment.

The organisation proposes several alternatives, including:

• creating an EU-wide networked DARPA (defence advanced research projects agency)-style structure to support high-risk, high-reward research programmes with long-term horizons
• adopting a place-based industrial strategy to rebuild research and innovation capacity in lagging regions
• recognising public services — including education, healthcare and care systems — as essential innovation infrastructure
• embedding social innovation and Industry 5.0 principles across EU funding programmes
• strengthening conditionalities to ensure that public investment delivers public benefits
• reinforcing democratic governance and social dialogue in innovation policy, from EU-level oversight to workplace decision-making.

Conclusion

Europe urgently needs stronger innovation and industrial policies. However, competitiveness cannot be achieved by weakening democracy, cohesion or long-term investment capacity.

While the European Competitiveness Fund aims to strengthen Europe’s position in global competition, its current design risks deepening regional inequalities, sidelining workers’ voices and weakening Europe’s scientific base at precisely the moment when ambitious public investment is most needed.

Read the full policy brief here