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Econographics June 16, 2023

What the EU’s economic security strategy needs to achieve

By Elmar Hellendoorn

Ursula von der Leyen, the President of the European Commission, will present an Economic Security Strategy for the EU next week, on June 21. She had promised to return to the issue when making her groundbreaking speech on China in late March.

Then, she managed to pull off a coup of sorts. By suggesting that the EU “de-risk” its relationship with China she simultaneously appeared tough on Beijing in the context of Europe and nudged the US discourse away from more hawkish talk of “decoupling.”

However, next week’s speech will prove even trickier. (As there is much at stake, squabbles over what does and doesn’t go into the EU Economic Security Strategy speech have already reached the media.) The Commission, which will author the forthcoming EU Economic Security Strategy, must tread carefully so as not to alienate member states who care deeply about their economic relations with China. Yet, it must simultaneously move toward a clearer objective for the EU-China relationship and coax its members toward a more “realpolitik” view of the world. None of that will be easy.

Europe’s economic security

It is the first time the Commission will issue a document on economic security. Its prerogatives on trade and market regulation used to not be so directly affected by geopolitics. Now, the global struggle for access to and control over strategic economic resources is defining the world’s geopolitical fault lines. So, it is right for the EU Commission to try to approach economic security as comprehensively as possible, combining strategic vision and attention to technical detail. Such an integral approach should at least allow the EU to assess emerging risks and threats to the EU’s economic security in a more systematic way.

The harsh reality in EU policy making is that process often dominates content. This is both a blessing and a curse. Economic security is about securing access to and control over strategic economic resources. What is “strategic” is of key importance to the security of the EU and its member states. While talk about economic security nowadays often focuses on high tech, such as semiconductors, it also includes being able to feed the European population, having access to natural resources, and having an industrial base and a well-educated workforce. Furthermore, it requires secure infrastructure—ports, roads, waterways, railways, telecommunications—to get the resources to their destination in the EU.

Clearly, as economic security shapes geopolitical dynamics, the EU’s understanding of it should not be limited to a set of working-level policies. An adequate approach to economic security must link the more tangible, technical aspects with higher order, strategic and geopolitical issues, which are often more abstract. One’s understanding of how economic security relates to geopolitical dynamics at the strategic level should guide and inform the more technocratic issues like investment screening, export controls, financial-economic sanctions, anti-coercion, and their associated risk assessments.

Economic security is also closely related to other dimensions of policy making, including defense policy and international finance. The EU, or its member states, depend on military power for secure access to and control over strategic economic resources. That is why European discussions about the military aspects of strategic autonomy matter to economic security. And financial geopolitics play a major part in determining the EU’s economic security, as the “real economy” is highly dependent on global finance and capital flows. It demands a constant intellectual effort to appreciate how economic security interacts with these and other policy dimensions.

Lacking a more comprehensive view, European policy makers are at risk of reacting in a fragmentary and ad hoc manner to complex economic security challenges. Sound ideas and strong knowledge form the basis for good political discussions and effective decision making on economic security. The EU Economic Security Strategy therefore needs to define the development of European knowledge and ideas about economic security as a necessary element. Member states themselves should also deepen their knowledge about economic security to help shape the Commission’s understanding.

Three hurdles to clear

To arrive at a more comprehensive approach to economic security, the European Commission will have to address at least three hurdles.

First, it will have to foster consensus about how to approach economic security among the different Directorate Generals (DGs) involved. These DGs tend to have different perspectives on the economy, some being more interventionist-minded, others being more free-market minded. Also, the Commission and the Council, constituted of the EU member states, will have to reconcile their views. Whereas the Commission tends to have the lead on economic issues, the Council’s member states have the lead on foreign and security policy. Moving ahead on economic security, at the intersection of both fields, may demand significant intra-EU diplomacy. The EU Economic Security Strategy should lead to the establishment of a European forum where the nexus of economics and security can be discussed on an ongoing basis between all relevant stakeholders.

Second, the strength of any strategy tends to depend on its clarity, or the definition of objectives and means. The Commission will thus have to combine strategic clarity with diplomatic consensus, which is a balancing act. Moreover, the Commission wants to publish the strategy document quickly, while strategic clarity tends to emerge only after time. The risk is that clarity is achieved on rather small and pre-existing technocratic issues, while the higher, more strategic issues are left ill-defined. The EU Economic Security Strategic should therefore call for long-term strategic clarity on economic security, as a compromise between diplomatic consensus in the short run and strategic clarity in the longer run.

Third, and perhaps most importantly, a comprehensive European approach to economic security requires a stronger European geopolitical or “realpolitik” reflex. The importance of economic security has been long underestimated and misunderstood in Europe as the EU policy makers did not tend to view the world in terms of power politics and national security dilemmas. An effective EU approach to economic security requires a context or culture of more strategic and geopolitical reasoning. The EU will be less at risk of an inadequate, fragmented approach if it has more access to outside, independent, and informal views, and knowledge about economic security to inform its decision making. The Commission should therefore use its Economic Security Strategy to stimulate a more thorough academic and intellectual debate about the intersection of economics, security, and geopolitics.

Good policies are based on sound ideas and strong knowledge. The EU’s Economic Security Strategy will be most relevant if it stimulates intellectual debate and strategic clarity. The Commission may operate pragmatically in the short run by seeking consensus on the more technocratic issues, while at the same time laying the groundwork for the next phase. The greatest challenge is to attune the EU’s traditional technocratic reflexes with the strategic exigencies of a geopolitical context dominated by great power competition.

Dr. Elmar Hellendoorn is a nonresident senior fellow with the GeoEconomics Center and the Europe Center.

At the intersection of economics, finance, and foreign policy, the GeoEconomics Center is a translation hub with the goal of helping shape a better global economic future.

Image: European Commission President Ursula von der Leyen attends a news conference during a meeting with Moldovan President Maia Sandu in Chisinau, Moldova, May 31, 2023. REUTERS/Vladislav Culiomza