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Europe is too shy about using its economic power

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Security is about power — the power to prevent others from harming you, the power to expand the choices available to you, and in the last instance, the power to coerce others to protect your own vital interests. Yet power is a word that struggles to make itself heard in Europe’s ever more frequent discussions of economic security.

Last week the European Commission published its latest package of economic security measures. They all went in the right direction: screening inbound and outbound investments better, controlling sensitive exports and increasing research funding for dual-use technology. The EU collectively needs to be able to do these things, without which European political priorities remain a balancing item in global great power politics — as when the US decided to limit China’s access to the most advanced semiconductor manufacturing machinery, and strong-armed ASML, the world-leading Dutch producer of photolithography equipment, to follow suit. 

The stirrings of an economic security policy, however welcome, fall miles short of what is needed. Recent proposals don’t deliver action at EU level: they mostly ask member states to do more and consult on further policies. But even acquiring more tools — which admittedly cannot happen soon enough — does not add up to an agreed policy on what to do and which specific geoeconomic goals are to be achieved.

Most EU countries have preferred to see the global multilateral rules-based order as precisely that — an order, which regulates behaviour peacefully. The historical reason is that it’s how European countries overcame their legacy of war. The structural reason is that most of them are small — and even the biggest ones are realising their diminished status. The EU has tended to see the world in its own image. It was created as the most concrete manifestation of a cross-border rules-based order the world has ever seen. 

But the world is not like the EU and is becoming less so. Fighting to reverse this is noble, for sure. But if the choice is between dominating and being dominated, what do Europeans prefer? That is the question they are still very far from facing up to. 

In the unusual cases when the EU and its member states have been willing to take their gloves off, it has paradoxically tended to be against wayward members of the bloc itself. There was no compunction about using economic power against the victims of the eurozone debt crisis, to the point of engineering changes of government in Greece and Italy. Reports that the EU has laid out ways to sabotage Hungary’s economy in order to push back against Viktor Orbán’s recalcitrance over support for Ukraine provide a fresh example.  

But these are examples that confirm the rule. The same can be said about commission president Ursula von der Leyen’s unusually muscular speech last March about China’s aggressive intentions in economic policy. Identifying the unfriendly aims of others is a necessary condition to resist them. But it is not sufficient, and EU action is not at the level von der Leyen’s warnings should entail. 

Take sanctions, the closest the EU gets to a proper economic security policy. Russia’s assault on Ukraine in 2022 was so egregious as to bring unprecedented forcefulness and unity to sanctions policy, in welcome contrast to the ineffective sanctions imposed after Russia’s first invasion of Ukraine in 2014. But unlike the US, the EU is extremely reluctant to apply extraterritorial force to its sanctions and unleash all its economic power against sanctions-busting companies in third countries. Governments look out for their companies’ interests, leaving collective security a victim of a geopolitical tragedy of the commons.

The same allergy to using power applies to Russia’s foreign exchange reserves, more than €200bn of which is blocked in EU jurisdictions. One may debate the wisdom of confiscating these assets to fund Ukraine’s reconstruction. But most of the EU’s political system has been pushing to place the issue beyond the realm of legitimate options altogether, by clinging to the most conservative legal analysis available and diverting political attention to whether to tax EU-based institutions’ windfall profits from managing Russian state holdings. 

The upshot is to avoid the real question of economic power: is it in Europe’s interest to use its financial muscle to enforce Russia’s obligation to compensate for the destruction it has inflicted on Ukraine? 

Many more such questions would be actively debated by a bloc mentally and politically fitted out for full-fledged economic security policy. Beyond extraterritoriality and coercive economic tools, such an EU would see the macroeconomy as an instrument for power. It could shift from structural export surpluses, with the dependence that brings, towards larger domestic investments. Or it could link the discussion of budget rules more closely with the need for more security-related spending.

It would bring debates on enlargement, treaty reform, common budgets and the European Political Community squarely under a security umbrella, and seek ways all these could use the attraction of the EU market to draw more countries closer into Europe’s orbit and away from the influence of China or even an increasingly unreliable US.

A willingness to wield economic power: these are uncomfortable words given Europe’s history, but necessary nonetheless. If done without forgetting Europe’s multilateral ideals, it would be good for the world too.

martin.sandbu@ft.com

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