Balancing Act: Europe’s Strategy for Economic Resilience and Openness

MICHELE AGIUS – POLICY ADVISOR – MBB

In recent years, Europe has faced unprecedented challenges that have tested the resilience and security of its economy. The global pandemic, Russia’s invasion of Ukraine, and escalating geopolitical tensions have exposed vulnerabilities across supply chains and critical infrastructures that Europe had not anticipated. These events have underscored the need for a robust strategy to shield the European economy from external shocks and hostile actions. The European Economic Security Strategy (EESS) emerges as a response to these multifaceted risks, aiming to secure the economic foundations of the EU while maintaining its openness and competitiveness on the global stage.

The primary aim of the EESS is to enhance the economic security of the EU by making it more resilient to external shocks and reducing dependencies of critical sectors on foreign partners. The strategy is structured around three main pillars, the first of which is to promote the Single Market, by enhancing the EU’s competitiveness and economic resilience through investments in industrial capabilities and the economy of the future, such as advanced semiconductors, quantum computing, biotechnology, and clean energy. Moreover, the EESS includes measures to encourage the extraction, processing, and recycling of these materials within the EU, thereby reducing dependencies on non-EU countries. This approach is expected to strengthen the EU’s autonomy in key technological areas and support its long-term economic security.

The second pillar is to protect the Single Market, and here the EESS focuses on safeguarding the EU’s economic interests by enhancing defences against various economic security risks. Central to this pillar is the strengthening of trade defences and the rigorous application of Foreign Direct Investment (FDI) screening mechanisms, to prevent potentially harmful investors and trade practices that could threaten the national security of Member States. Additionally, it prioritizes enhancing cybersecurity measures across critical infrastructures, employing robust legislative tools such as the ‘NIS 2 Directive’ to bolster digital and physical infrastructures against cyber-attacks and espionage. The pillar also intensifies controls on exports of sensitive technologies and dual-use goods to prevent technology leakage that could inadvertently boost the military capabilities of adversarial states.

Finally, the EESS emphasizes on strengthening international alliances and partnerships by seeking to diversify and secure supply chains through enhanced cooperation with a broad range of countries that share the EU’s economic and security values and concerns. It involves actively pursuing free trade agreements, fostering resilient and sustainable value chains, and ensuring robust economic ties with key strategic partners. Additionally, the EU aims to leverage initiatives like the Global Gateway to invest in secure links worldwide, which support sustainable development and enhance the EU’s influence in shaping the global economic framework.

The discussion around an EESS anchored in the principles of competitiveness and openness is a welcomed development. However, the protection of vital security interests must not serve as cover for disguised protectionism, nor should it endanger the integrity of the Single Market. To ensure the strategy’s success, there needs to be a right balance between economic and national security objectives. This requires a thorough assessment of the different risks identified under the strategy before adopting new EU tools, which must be precise, proportionate, and predictable. These risk assessments should be conducted in close cooperation with business representatives and other key stakeholders.

Collaboration with new non-EU partners is also a very positive development, but each partnership should be carefully assessed to ensure it brings concrete benefits for European business. Benefits such as new international markets and strengthened supply chains, will mitigate the risk of critical goods shortages in essential industries such as automotives and pharmaceuticals. Advanced technology collaborations in industries such as AI, biotechnology, and quantum computing will also reinforce the R&D capabilities of the Single Market in the coming years.

Lastly, renewed partnership and cooperation between the Commission, Member States, and the private sector will be essential. This should come in the form of further intelligence sharing to protect companies from emerging security risks. More coordination and cooperation at EU level is also instrumental in areas such as export controls and FDI screening. One potential option could be the EU setting stricter licensing requirements for exports of quantum computing technologies to countries where there is a risk of these technologies being diverted to develop military capabilities, ensuring that exports do not compromise EU’s strategic interests. Foreign investment in private enterprises operating in critical infrastructure such as energy, telecommunications, and ports, could require thorough assessments to ensure it does not pose a security risk to the strategic autonomy of the EU.

This article was first published on The Malta Independent on the 21^st July, 2024.