As global pressures mount, the realisation that the EU needs a stronger economic security policy is growing. President-Elect von der Leyen announced in her Political Guidelines that the European Commission will prioritise the issue in the new term. She has since designated the first-ever Commissioner for economic security, choosing Maroš Šefčovič for the job. In addition, Mario Draghi made increasing security and reducing dependencies one of the three main pillars of action in his flagship report on competitiveness. This is in line with what the Chief Executive of the European Policy Centre Fabian Zuleeg stated in June 2023, calling for a paradigm shift in policy.
While recognition is increasing, the EU is visibly at a juncture regarding economic security, trying to decide between two possible approaches: a 360° one, which suggests an all-hands-on-deck way forward, and a narrower focus where economic security becomes primarily about foreign economic policy. The two concepts may have a significant area of overlap, but they are not quite the same.
The EU’s initial Economic Security Strategy from June 2023 was very much in the former category, a holistic approach which argued for actions to promote, protect and partner. The vision that emerges from the Mission Letter to the Commissioner-designate for trade an economic security is a narrower one, predominantly focused on a part of the external dimension. A degree of confusion was added when the Mission letter tasked Maroš Šefčovič with developing a doctrine on economic security and implementing the existing strategy. Conventionally, as a set of principles, doctrine should come first, and strategy needs to follow on this basis. Reversing the order so quickly in the day - given that the strategy is just over one-year old - implies a degree of uncertainty about the intended direction of travel.
Member states are not uniform on the issue either. Some are deeply committed and concerned. Some prefer Brussels not to interfer in their own approaches, or play a complimentary role, if any at all. Yet others are simply agnostic. The future Polish EU Council presidency in the first half of 2025 will help, as it will place emphasis on all matters security, including economic security. The Danish presidency in the second half of the year is also musing attaching a high priority to the issue. In this context, it would be recommendable to set up a Council Working Party on economic security to align positions and deepen the culture of economic security. Events, especially the outcome of US elections in November, may call for resolute action within economic security rather sooner, than later.
Risk-only focus will not suffice
The first period of the strategy’s implementation has been heavily focused on addressing risks, be it through inward investment screening to identify how third countries target Europe’s technological jewels, or through the risk assessment in the four areas defined as critical - AI, semiconductors, biotechnology and quantum. While the former approach has led to the much-needed recalibration of the EU’s previously unconditional openness to foreign investment, the latter has become a black box, with little transparency and mutual learning between governments and business. Even member state officials realise that not being in the room means complete lack of information about the process. Another deep dive is now upcoming on risk assessment, with conclusions expected by the end of the year. This is important work, part of which needs to be confidential, but the broad parameters should be made public, to increase awareness about what is at stake.
In addition, focus on risk should not divert attention away from technological excellence, Europe’s pathway to economic security. Mario Draghi stated in his report, that Europe “must profoundly refocus its collective efforts on closing the innovation gap with the US and China, especially in advanced technologies”. Europe’s technology revival needs to be a centrepiece of the new political cycle. It is the best form of resilience. And it cannot take place in isolation. Leading Europe’s top semiconductor research facility, IMEC’s CEO Luc Van den Hove has argued recently that collaboration and internationalisation have been the “driving forces behind the chip industry’s gigantic strides forward.” This means that while risks of leakage need to be identified and critical parts of the technology ecosystem ringfenced, technology partnerships have to flourish, rather than be wound down. New consortia will be needed to enable innovation breakthroughs in the environment of ongoing technology convergence.
Economic security plays into hard security as well, incentivicing defence innovation, the development of new weapon systems, and integration of new technologies into the armed forces. As Erich Schmidt, former CEO of Google, has recently pointed out, the ongoing AI revolution translates into entirely new realities on the battlefield, with the need for weaponry that is “affordable, attritable and abundant” at the same time. Not having control over these developments would mean compromising both hard and economic security.
Economic security in all policies
Ensuring vitality of the entire economic base, from top technology performers down to SMEs, is essential for economic security. This means that all policies need to come to reflect its logic. In the February Framework Paper, together with Georg Riekeles, we argued for an economic security policy matrix to be applied, with new initiatives taking the Prepare, Promote, Protect, and Partner lens into account when elaborating actions to follow. This is not about introducing a new impact assessment or making the legislative process more complicated, but rather a change of culture towards incorporating resilience into the texture of EU policymaking.
One example of the benefits of this approach is the EU’s net-zero transition with the newly proposed Clean Industrial Deal. In pursuing it, the EU should double-down on electrification, as the best way to achieve the objective of structurally lower energy prices, while minimising carbon emissions. Once such a strategic objective is set, economic security has to accompany policy all the way to the last gram of lithium needed for car batteries, reflecting how much the success of the clean transition hinges on securing critical minerals for renewables.
Integrating economic security in all policies is also needed to heed Mario’s Draghi warning of the “risk of weaponisation which results from Europe being at the forefront of absorbing Chinese overcapacity”. Although the latter is largely a systemic issue reflecting the increasingly blatant incompatibility of the Chinese economic model with the Western one, the way to face it off is not by means of protectionism but in a two-pronged way: by defining the EU equivalent of the Japanese doctrine of “strategic indispensability”, which places emphasis on developing a level of technological sophistication in a selected number of areas, to make third countries irresistably dependent on ourselves, hence decreasing the risk of weaponisation, developing a minimum capability in other technology areas, to reduce overexposures.
The recent vote on counterveiling duties for Chinese EV vehicles has exposed a major difference of opinion among the member states on the practical steps of dealing with Chinese overcapacity, with most capitals siding with the European Commission’s push-back against unfair subsidisation, but some, including Germany, resisting such measures.
An economic security in all policies approach would allow for the management of unavoidable trade-offs, as resiliance will require modulating the degree of openness of the European economy while cushioning against vulnerabilities will entail a certain degree of cost. Having an overview of the entire policy landscape will enable to optimise the inevitable choices which will have to be made.
Partnerships to be reinvented
While the Critical Raw Materials (CRM) Act, which entered into force in May 2024, envisages a range of actions to lower dependence on imports, sourcing of CRMs and technologies from third countries will remain a vital issue. As the recent Foresight Study by the European Commission’s JRC indicated, the EU’s share in global production of raw materials is never higher than 7% for the 15 vital technologies examined. Although the EU’s vulnerability tends to diminish along the supply chain, the criticality of the upstream phase of manufacturing cannot be underestimated. What is more, in some technologies, such as batteries, solar PV, data storage and servers, smartphones, tablets and laptops, the vulnerability remains along the entire supply chain with a significant dependency on the final products.
The EU has already started to work closely with like-minded countries such as Australia, Canada, Chile, and the US, and integrate CRM supply chains. It has also set up the Critical Raw Materials Club, expanded in the spring in the form of the Minerals Security Partnership Forum, to promote resilient and diversified supply chains. It has also aimed to increase cooperation with resource-rich countries in Africa and Latin America as part of its Global Gateway strategy, focusing on mutual benefits through sustainable and responsible sourcing.
In its trade agreements, the EU has begun to introduce chapters on raw materials to establish market principles and harmonise standards and regulatory principles. In parallel, Strategic Projects under the CRM Act have begun to be rolled out, with 44 of them concerning third countries. However, the EU-Chile trade agreement has been criticised by over 100 civil society organisations, stating that the provisions concerning Energy and Raw Materials risk limiting Chile’s industrial development and increase incentives for irresponsible mining practices. At the same time, some countries, such as Indonesia and Namibia, have introduced export bans on unprocessed CRMs.
Drawing conclusions from this situation, the EU’s pursuit of economic security needs to be closely aligned with value creation in the partner countries, forging an external dimension of the Clean Industrial Deal. More emphasis is needed on making these relationships fully symmetrical, with partners having enough to gain in terms of structural leveraging of their development prospects. This will involve accepting the fact that a lot of processing of raw materials will remain in third countries. In addition, the EU needs to avoid the risk of cacophony given the multiplicity of instruments involved. Clean Trade and Investment Partnerships, the Global Gateway investments, and Just Transition Partnerships must be brought under one umbrella.
Institutional anchoring
Economic security is not a niche subject that can be delegated to one or the other units in a Commission Department. To make a difference, the approach must span all policies and be reflected in an innovative policy design, which cuts across institutions. Earlier this year, the EPC proposed an Economic Security Council to be set up at the interface of the Commission, Council and Parliament. In addition, the European Council needs to regularly discuss economic security based on foresight and anticipation, which needs to be strengthened, as Ricardo Borges de Castro has argued. The designation of a new Commissioner for economic security is most welcome, but he now needs to be equipped with the means that will enable him to do the job.
