In June 2023, the European Commission presented the European Union’s first Economic Security Strategy. Its publication is in itself a Zeitenwende in the EU’s foreign and economic policy, despite undeniable shortcomings, in particular the lack of a clear definition which opens the door for overly protectionist measures under the guise of security concerns. In order to succeed, however, it is critical to view economic security as a public good which can benefit the EU, its Member States, and its citizens.
The proposal comes in light of recent geopolitical developments such as the US-China trade war, Russia’s illegal war in Ukraine, the COVID-19 pandemic, migration crises, the rule of law backsliding, and democratic regression, among others. It is clear that the EU is somewhat ill-prepared for the new and emerging risks in the bloc’s more challenging geopolitical context. The pandemic, for example, openly highlighted the threat posed by highly concentrated supply chains on the function of the EU Single Market and the economy of several Member States – as well as the impact of overreliance on China, and the potential for aggressive external actors to weaponize supply chains.
Russia’s illegal war against Ukraine demonstrated how overreliance on a single country for gas – particularly one with systemically different set of values on democracy and rule of law system, governance/economic models and interests – hinders the EU’s strategic options to act in light of a war, jeopardising the Union’s citizens and economies. In the aftermath of the Russian invasion, many EU-based companies and Member States have also had to bear the burden of economic retaliation.
All these crises have had enormous economic costs for European citizens, while also posing a direct risk to the functioning of our societies and economies. The EU now appears to be taking the first step in implementing its position on economic security, presented at the G7 leaders meeting in Hiroshima in May.
The European Economic Security Strategy is presented not only as a blueprint for mitigating some effects of new geopolitical developments, but also as shift of how the EU sees itself in the world in relation to other superpowers: economic security shapes geopolitical dynamics to resist economic coercion. However, the strategy lacks a clear definition of “economy security” and how these “de-risk” actions are in the greatest public interest of the EU, even though the EU has long championed globalisation as being in the best interest of its citizens and economy.
A European Zeitenwende
Nonetheless the European Economic Security Strategy can be viewed as a first attempt to develop a common understanding of economic security within the Union bloc and thus its own definition, in this new and challenging era. The concept of “economic security” is still developing, and Japan and the United States, for example, who have taken more steps than the EU in defining and understanding economic security, understand it as striking a balance between economic cooperation and national security goals, and as a first step towards accepting that one country must not be overly reliant on another country in order to avoid overdependence, such as the EU on Russian for gas or China for supply chain. Japan has gone so far as to appoint a dedicated Minister for Economic Security in 2022 and adopting an “economic security bill”. At the heart of Japan’s economic security policy is the diversification of supply chains, such as gas, oil, and food, in order to reduce reliance on single sources of production and avoid weaponization.
The impact of the ongoing war in Ukraine on trade and supply in key energy and agricultural sectors has also amplified the EU needs to thinking about its Economic Security, as well as its Member States. In June 2023, Germany, the EU’s dominant economic power, proposed its own first ever national security strategy, explicitly reformulating economic interdependencies in its Zeitenwende approach, implying that it will “de-risk” in the best interests of its economy and citizens, as well as for the benefit of the public good, which is in line with the European Economic Strategy. Germany suggests this “turning point” is pertinent not just for itself but the Union as a whole: the EU should adopt Zeitenwende, rethinking economic security and historical reliance on external European countries.
Plutarch is dead
The newly announced Strategy constitutes a shift beyond the EU’s previous “strategic autonomy” security priorities which seeks to minimize “the risks arising from economic linkages” – such as with Russia on natural gas, China on automobile components and other industrial manufactured exports, and with the US on trade relationships that include heavy reliance on technology and defence. This new EU “de-risking” strategy has revised all these economic linkages. Previously, global economic integration was seen as the best avenue for overcoming bilateral and ethnic disputes, based upon the Plutarchian idea that countries which are more economically and socially integrated are less likely to go to war. Russia’s war in Ukraine, China’s weaponizing of supply chains and the US-China trade war have shown that concentrated economic relationships can also pose a serious risk that must be managed. Instead, the EU now requires a strategy that predicates trade on alignment with key norms – such as the rule of law and democracy, decarbonisation, and a commitment to open economies based on the EU Single Market rules – must be the foundation for future EU engagement with other countries.
The EU Strategy goal is to “provide a framework for a robust assessment and management of risks to economic security at the EU, national, and business levels, while preserving and increasing our economic dynamism”. Broadly, the four significant risks are identified as:
- Supply chain resilience
- Physical/cyber security risks to critical infrastructure
- Technology security/leakage
- Weaponization of economic dependencies/economic coercion
The Strategy outlines three pillars to assess and mitigate these risks: promotion, protection and partnership.
- Promotion tackles the necessary development of EU competitiveness and growth, improving the Single Market, developing the EU’s scientific, technological, and industrial foundation, particularly in green technology and semiconductors.
- Protection includes better coordination and alignment of export control regimes to prevent the outflow of sensitive technology, as well as a review of the incoming investment screening framework. This pillar incorporates a strong appeal for action to Member States (nine out of 27) that have not yet implemented an inbound investment screening system.
- Partnership covers strengthening cooperation with countries around the world to address shared security concerns through diversified and improved trade agreements, strengthening international rules and institutions, and investing in sustainable development.
Shaping the European Economic Security
First and foremost, for the EU to achieve greater economic security, it must agree on a clear definition of just what it means – which it has not yet provided. It is critical to have a clear and shared understanding of “economic security” in the EU: currently, the concept may mean something different for each Member State, particularly in light of Russia’s war on Ukraine and China’s growing global and political influence. The securitisation of the economy raises many challenges for some Member States, due to their reliance on other countries for gas, food, and other goods enabling their economies to function.
It is worth noting that, even though both Japan and the United States have recently adopted economic security legislation, implying that economic security will better protect their economies, the concept of economic security has yet to be properly defined. Since the EU appears to be heading in the same direction, possibly by introducing a directive on economic security, it must explain to its Member States how this shift benefits their economies and the Union as a whole, as much of the strategy’s underlying message hints at a more protectionist policy approach, which the EU has traditionally opposed.
Following this clarity, specific conditions must be put in place to achieve the Strategy’s goals. Economic security cannot be achieved in isolation, and Member States must first have resilient economies that can withstand the Strategy’s demands. Revitalising Member States’ economic sectors – where there is a clear linkage between economics and security, especially in defence, cybersecurity, telecommunication, gas, and food – will require considerable investment in economic capacity, cutting down the need for foreign finance and investment. Working with European companies and incentivising them to support the EU’s economic security goals will be critical.
There are copious structural and legal changes to be developed and implemented in the EU to achieve the Strategy goals, particularly on the de-risking component and identifying specific current and future vulnerabilities (not just with regard to China), then taking appropriate action to build greater economic resilience by reducing dependencies. But in addition to all of this, the most critical step towards establishing economic security is a shift in thinking, wherein achieving the EU’s economic security goals must be viewed as a public good, insofar as unequivocally agreeing that future relations should be developed only with countries who share comparable principles in terms of the rule of law and democracy. Furthermore, if more protectionist policies are to be championed following the publication of the strategy, it will be essential to communicate that economic security can benefit European citizens as a public good. This could be done by demonstrating that the EU is committed to investing more in local European economies, industries, technological advances, and, most importantly, human capital.
Learning from others and learning from the past
For Member States and experts who wish to understand how the process towards greater EU economic security might begin, it may be worth looking at Japan, which introduced the Economic Security Promotion Act (ESPA) in 2022, from which some of the aims of the European Economic Security Strategy derive. This relates especially to how to incentivize private companies to diversify their supply chains in critical infrastructure sectors, and engage with other countries that do not share the same rule of law and democratic values.
In closing, the EU should learn from the past challenges posed by the Trump administration’s threats on US commitments to NATO and European security, the COVID-19 pandemic on dependence on China’s supply chain, and Russia’s war in Ukraine on EU Russian reliance for gas. It must work on realising economic security in collaboration with European companies, providing the right set of conditions and incentives to achieve robust critical infrastructure sectors, building internal resilience in order to move away from dependence on non-EU countries. And all of this must be done in a transparent and challengeable way, ensuring the approach is not simply a fig leaf for protectionism, but establish a common economically resilient union with the ability to define values and partners globally that share the same rule of law and democratic values.