The FDI angle
– The EU is adopting economic security measures creating potential barriers to international investment and trade
– There are calls for Brussels to further strengthen these policies and tools, to defend itself from vulnerabilities arising from new geopolitical tensions involving the US, China and Russia.
Why it matters: The EU’s shift towards economic security sits awkwardly with its founding principles of open borders, and strengthening these measures creates potential reputational risks and the chances of integration across the bloc.
The EU’s foundations are rooted in the idea of an open economy. Welcoming foreign investment, striking trade deals and championing multilateralism sit firmly within the bloc’s DNA. But this characterisation is being tempered by its embrace of a new philosophy. In the name of economic security, the EU is creating tools to defend its interests and assert geopolitical power in ways never seen before.
Economic security as a concept is still so fresh it defies a single definition. Some say it is about protecting society from economic shocks, coercion and the weaponisation of commerce. For others, it is about tackling any vulnerability that makes a society feel economically insecure.
What is clear, though, is that economic security means extending protectionist thinking traditionally reserved for matters of physical defence to a broader swath of the economy. And despite sitting awkwardly with the EU’s founding principles, it is an area where the bloc is doubling down.
“The first 35 years of European integration were about maintaining full employment. The next 35 years were obsessed with price stability. And now, the goal they’re really pursuing is economic security,” says Matthias Matthijs, senior fellow for Europe at the Council on Foreign Relations.
EU’s geoeconomic turn
The rise of economic security within the EU has been driven by a weakening of the liberal, international economic order in which the bloc historically thrived. This has played out through Russia’s annexation of Crimea in 2014, China’s assertive push abroad under Xi Jinping, the declining sway of multilaterals like the World Trade Organization (WTO), supply chain breakdowns during the Covid-19 pandemic, and unorthodox industrial policymaking by the US.
The first whiff of EU economic security came in 2017 when then European Commission president Jean-Claude Juncker declared “we are not naive free traders” as he proposed the bloc’s first foreign direct investment (FDI) screening framework. However, the EU’s geoeconomic turn has unfolded under the watch of Ursula von der Leyen. The adoption of ‘open strategic autonomy’ in 2021 seemed like a game-changer at the time. But in retrospect, it was “kind of like playing footsie” with the economic security concept pursued by the bloc today, says Abraham Newman, a political scientist and professor at Georgetown University.
Since then, the EU has been rolling out a toolkit to minimise its vulnerabilities amid growing geopolitical tensions and technological shifts. In 2023, it became the second advanced economic bloc, after Japan, to adopt the concept into its policymaking by publishing its European Economic Security Strategy, which encompassed everything from export controls and research of dual-use technologies to outbound FDI screening. It has also pursued a ‘de-risking from China’ strategy, enforced its Foreign Subsidies Regulation, and launched the Anti-Coercion Instrument, which lawyers warn could breach WTO rules.
“We’ve seen a leap forward at quantum speed of the development of [economic security],” said Simon Mordue, deputy secretary-general of the European External Action Service at the EBRD’s annual meetings in May. “We have been doing a lot of work recently in a toolbox of economic security … where the EU is now beginning to play more of a role.”
The Trump wake-up call
Yet there are calls for Brussels to take an even stronger approach. “The challenge Europe faces right now between an increasingly economically powerful China, which uses its market for coercive ends, and a US government that is less and less committed to the rules-based trade order, means Europe has to stand up its capabilities,” says Mr Newman.
His comments are echoed by Agathe Demarais, senior policy fellow for geoeconomics at the European Council on Foreign Relations, who describes the second Trump administration — with its aggressive stance on trade and annexation — as “a wake-up call for Europeans”. She says that “to project its geoeconomics power [the EU] will need to beef up its institutional framework”.
Yet in devising and enforcing economic security tools, the EU has faced a familiar challenge: obtaining consensus among its fragmented base of 27 member states. Five years after the commission instructed member states to establish FDI screening regimes, three of them — Greece, Croatia and Cyprus — still do not have one. In adopting electric vehicle tariffs against China last year, five member states opposed the move and 12 abstained.
Mr Matthijs is among those who believe that 2025’s geopolitical disruption is the best chance yet to pull the bloc together for its collective good. “With Trump coming back, [EU countries are] suddenly aware we have all these tools. We mostly wanted to use them against Russia and China, but we can use them against the US if we must,” he says.
The European Policy Centre think-tank is advocating for the EU to make economic security the bloc’s third transition, following in the footsteps of sustainability and digitisation. “We should try to construct a global economic order which takes into account [Europe’s] economic security interests in a more thorough fashion,” says Paweł Świeboda, who heads the group’s Europe economic security project. He suggests it should be “a holistic strategy” that is integrated into all EU policies from the outset.
Meanwhile, the European Council on Foreign Relations has met with EU officials to discuss its proposal for a so-called EU economic security network. This would be a forum that connects member state officials working day-to-day with economic security tools — whether they relate to investment, trade, sanctions or other areas — to improve dialogue and foster a more co-ordinated approach to perceived risks.
Toughening up or selling out?
A more unified approach to economic security would strengthen the EU’s hand in protecting its strategic interests, but it is not without risks. For example, areas like defence and FDI screening have traditionally fallen within national jurisdiction. Steffen Hindelang, executive director of the CELIS Institute, warns that strengthening efforts to centralise these in Brussels “could backfire, with some member states trying to claim back areas they have already ceded to the EU” thereby creating even more fragmentation.
Others argue that an EU fixated on economic security discounts the gains and respect it has won by championing liberal economic principles. “The competitive advantage that Europe has is the fact that it’s a rule follower. It’s predictable. It’s been much less protectionist than the US in recent years and that in itself is economic security. We have a stable environment,” says Aslak Berg, research fellow at the Centre for European Reform.
With the EU’s expansion of economic security seeming all but certain, the bigger question is how it strikes a balance with these philosophies that have underpinned its competitive advantages for decades.
Alex Irwin-Hunt contributed to reporting for this piece.