Economic Security: A New Age For The EU – Analysis

The EU is learning the hard way to reduce dependencies on geopolitical rivals, including China and Russia. The allies are taking the first steps in this new geoeconomic reality.

A brief history of the EU’s geoeconomic vision

For years, the US had pointed to Germany and other EU member states’ dependence on Russian gas as a source of concern, only to find arguments avoiding that reality, claiming it was not appropriate for the 21st century.

Today, Europe’s leaders are faced with a similar problem: the bloc’s economy is too dependent on China and unreliable countries for strategic supply chains; it must ‘de-risk’. De-risking is a murky term, but Agathe Demarais defines it as the practice that ‘seeks to curb China’s access to top-notch Western innovation, thereby preventing Chinese firms from using Western know-how to climb the innovation ladder’ and that ‘reduces overreliance on China for critical goods’. Critical minerals are just an example, where the EU imports 93% of the annual consumption of these strategic materials from China. The effort, however, is part of a broader strategy to re-energise European industry and innovation while advancing the goals of the green transition.

To analyse current EU policy, however, it must be realised that ‘de-risking’ is very new to it as an institution. The EU was created on the basis that great power competition was harmful to the world and that increased economic cooperation and links were guarantors of peace.

The experiment of Franco-German integration in the Carbon and Steel Agreement, only months after deadly World Wars and violence, was a guiding light. In Robert Schumann’s words, this economic integration would ‘lead to the realisation of the first concrete foundation of a European federation indispensable to the preservation of peace’. Economic security was thus far removed from the ‘Four Freedoms’ that gave birth to the European idea: the freedom of movement of goods, services, people and capital.

Today, however, the EU is starting to speak ‘the language of power’, venturing into geopolitics and using trade and technology to that end. While there have been previous unsuccessful attempts to launch an effort such as the Former High Commissioner for Foreign Affairs Federica Mogherini’s 2016 EU Global Strategy, it has been the self-described ‘geopolitical commission’ of Ursula von der Leyen that has energised the EU in this direction.

What is economic security?

Recently, the EU has decided to pursue an Economic Security Strategy, assessing the risk to the EU economy through to a list of critical technologies, following the Dutch decision to impose unilateral export controls on semiconductor materials. The EU also agreed on an Anti-Coercion Instrument giving itself the power to launch retaliatory countermeasures to combat economic coercion following China’s arbitrary blockade of Lithuanian products after the country decided to open a Taipei Trade and Economic Office.

It is relevant that most of the aforementioned strategies are ‘country agnostic’, even if China is the looming ‘elephant in the room’. This is important because it denotes a recognition by the EU that it faces challenges from multiple fronts, avoiding a specific approach delimited by circumstances.

Instead, it is starting to embrace a strategic, long-term vision for economic security that should outlast malpractices from any rival. Realistically, however, the strategies identify Russia, China and North Korea as the most pressing challenges.

It is worth noting that the European Economic Security Strategy makes direct references to shared intelligence across the member states on economic security and an EU path to screening the foreign direct investments European companies make outside of the single market. This is a concrete deliverable on the high-level strategy.

As widely covered by a multitude of experts, however, this approach has not been perfect. The EU still describes China as a ‘partner for cooperation and negotiation’, an ‘economic competitor’ and a ‘systemic rival’. While these terms represent a will for nuance and responsible engagement, they are also highly confusing when it comes to crafting new strategies and policies.

Similarly, holes can be found in the Strategic Compass. While a symbol that the EU wants to speak the language of power, it became almost immediately obsolete after its contents and broad vision were not significantly updated once Russia invaded Ukraine in February 2022. The Compass denotes a change of attitude but also a concerning need to adapt to current events as well as an approach that is specific and tailored to competitors like Russia and China.

While some member states are walking the road of economic security through export-restricting measures against China and Russia, the lack of coordination among them is a source of concern. The Netherlands has taken the lead with recent export controls limiting China’s ability to access key materials for the production of chips. Germany, while a slow mover, has also released a new ‘Strategy on China’ that aims to reduce unnecessary dependencies on strategic rivals. Moving at the same pace is one of the main drivers behind a united Economic Security strategy, but other member states still have drastic differences in their views on China, with France avoiding a public acknowledgment of the threat and Hungary not regarding China as a threat at all.

One must not be overly critical. The EU was not designed as a geopolitical body, and to make any significant geopolitical decision it must create an agreement among 27 member states with different interests, and that is no easy task.

The path forward

What has been achieved is of paramount significance, but it is only a first step. And while economic security is only one dimension of security policy, we must realise the limited areas where the EU has a mandate to perform, which does not yet include national security.

While this is a new era in EU external policy, we must not confuse ‘de-risking’ with protectionism. De-risking is about securing materials vital to national security, not the usual consumer-oriented products. For the EU, the policy of ‘de-risking’ has two authorities: economic competitiveness, which stems from Brussels; and national security, which stems from the member states.

With de-risking the EU has an opportunity to align and engage further with like-minded partners such as the US, Canada and Australia. Mission-focused bodies such as the EU-US and EU-India Trade and Technology Councils, agreements granting free trade status to critical minerals and other key products are two ways in which the EU can reinforce its tech partnerships.

Economic security will not be built out of isolation, but out of engaging through coordination on strategic supply chains, on sharing information about exposures of each others’ markets to the EU’s strategic rivals and, especially, of integrating critical supply chains into a secure and reliable market-alliance.

The EU is transforming at the philosophic, political, economic and diplomatic levels. The role of the Commission and the member states is being reimagined; the change is not only seasonal but necessary. It is just as vital that the EU does not act unilaterally on member state competencies, acts as a uniting force and navigates great power competition working with Western allies.

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