Geoeconomics—the interplay between trade, finance, technology, and national security—has become the new buzzword in Brussels. Europe’s ability to remain relevant on the global scene depends on its ability to tackle geoeconomic challenges, including Russia’s war against Ukraine and China’s mounting economic coercion. It will also matter for handling the United States’ new leader. President-elect Donald Trump has threatened to ramp up tariffs against European partners, could upend transatlantic cooperation to curb Russia’s financial resources used to wage war against Ukraine, and may even lift sanctions on Moscow.
To surmount these troubles, European Union officials have announced all kinds of policies in recent years, such as creating an instrument to defend the bloc against economic coercion, identifying strategic technologies, and boosting European production of material critical for the transition to clean energy. Europe’s success, however, will take more than drafting agendas and appointing well-meaning leadership. Hamstrung by an overly complex distribution of responsibilities across its numerous institutions and 27 member states, the EU suffers from internal dysfunction when it comes to geoeconomics. These divisions make it perennially difficult to impose and enforce sanctions, export controls, and other tools of economic statecraft.
If the bloc cannot come up with a more collaborative system to conduct day-to-day operations, it will be unable to chart an independent path through growing international challenges. Thankfully, the EU can draw on its own experience in other fields, including competition policy, data privacy, and medicine, to find a way forward. In these areas, the EU has knit members’ various capabilities into a system of collective oversight. In a similar manner, member states must now pool their resources to address their shared geoeconomic concerns.
To achieve this goal, it is time for the EU to create a European economic security network. This network would bring together representatives from member states’ economic security bureaucracies to share best practices and coordinate policy. The EU must do this quickly: the world is becoming more chaotic, and if the bloc cannot create a functioning geoeconomics apparatus soon, it will find itself outmaneuvered by allies to its west and foes to its east.
EUROPEAN DISUNION
On paper, the EU has everything it needs to be an economic security superpower. The bloc is the world’s third-largest economy, with an internal market of 450 million wealthy consumers. It is the world’s second-largest source of foreign direct investment flows. And it has the assets needed to implement sweeping financial sanctions. The Swift cooperative, which connects all international banks, sits in Belgium. The EU also controls the world’s second-most-used currency, the euro.
The bloc’s leaders realize their continent’s economic security potential. In 2023, the European Commission released an economic security strategy document laying out how economic statecraft measures such as export controls could have ripple effects across the continent and beyond. Because several critical technology firms, including the Dutch semiconductor equipment giant ASML and the German enterprise software firm SAP, call Europe home, EU policymakers know that the continent is a potential chokepoint for technology supplies. Yet Europe’s economic security efforts have largely stalled. The bloc’s strategy is mostly defensive and reactive, focused on protecting Europe from China’s unfair trade practices, Russian aggression, or the United States’ potential imposition of sweeping tariffs. And even on these points, there is little agreement among EU member states or even within European institutions. European policymakers say they aim to “de-risk” from China, but they cannot even settle on a definition of what that concept means or what it would entail in practice.
The recent vote of member states in the Council of the European Union to impose tariffs on Chinese electric vehicles is a perfect illustration of the pitfalls of the bloc’s fragmentation. Instead of sending a credible signal to Beijing, the vote unleashed bitter infighting among member states. As China threatened to retaliate with tariffs on imports of German cars, Berlin turned on Brussels and voted against the measures—a move that left many European policymakers baffled. Germany was not the only EU member state to vote against the tariffs: Hungary, which received nearly half of Chinese foreign direct investment to Europe in 2023, also said no. Although the EU ultimately approved the measure, the optics of European fragmentation were bruising, and the fighting will likely encourage Beijing to try to continue dividing EU member states in the future. In other cases, fragmentation has already led to some watering down of policies: European efforts to curb imports of Russian liquefied natural gas have been continuously held up by some member states, Spain in particular.
On paper, the EU has everything it needs to be an economic security superpower.
Even when the bloc manages to unite, as it did to levy financial sanctions against Russia after the invasion of Ukraine, it depends on American personnel and expertise to enforce its own policies. U.S. authorities have imposed sanctions on twice as many vessels whose deliveries violate the G-7 and EU’s oil price cap as their European counterparts have. With the return of Trump, that dependence could prove dangerous. The incoming president has taken a much more hostile stance toward European states than his predecessor. If the policy goals of the United States and those of the EU start to diverge on key issues, such as China’s increasingly aggressive behavior toward Taiwan in the South China Sea or Russia’s war against Ukraine, Europe could struggle even more to deploy its economic statecraft tools independently of the United States.
The EU faces another problem in carrying out its international economic measures. The bloc’s members can unanimously agree to adopt a sanctions package, but it remains up to member countries to execute the measures, and the entities tasked with doing that vary from state to state. In France, the Treasury takes the lead in assessing the economic and financial aspects of sanctions, whereas the Ministry of Foreign Affairs advises on their political implications. In Germany, specialized government agencies handle sanctions enforcement. In Malta, an ad hoc sanctions monitoring board includes representatives of no fewer than 18 ministries, public institutions, and law enforcement agencies. In such a complex system, it is a wonder that members manage to cooperate on sanctions at all.
To further complicate matters, each country deploys different tools and standards. Some member states have more institutional capacity and technical expertise than others and are better able to monitor sanctions compliance and go after bad actors. In the spring of 2023, the Netherlands had 45 open cases of sanctions violations, while the Czech Republic had none. Penalties for sanctions violations also vary widely across EU member states. Swedish citizens can expect to cough up no more than 18,000 euros (less than $20,000) for sanctions violations, while Dutch citizens may be fined up to 900,000 euros (nearly $1 million). Until recently, Germany did not have laws on the books empowering the state to seize forfeited assets. In a bloc where citizens of one state are broadly free to live in any of the others, the inability of authorities to work across borders creates ample opportunities for sanctions evasion.
STRENGTH IN DIVERSITY
The contrast between the United States’ capabilities and those of the EU is stark. Since the 9/11 attacks in 2001, Washington has made a series of investments in economic security institutions. The Treasury Department’s Office of Foreign Asset Control alone has more than 200 staff members and an annual budget in the tens of millions of dollars. Similar levels of expertise are mirrored in the Commerce Department’s Bureau of Industry and Security, which enforces compliance with export controls, and the National Security Agency, which collects signals intelligence.
Adopting the U.S. model will never be an option for Europe, as member states are typically loath to give up power to Brussels. Fortunately, the EU doesn’t need to emulate the United States. The bloc has repeatedly turned its diversity into a strength by designing efficient network-based implementation systems in many domains, including competition policy, data privacy, medicine, energy, and telecommunications.
For example, the European Medicines Agency features a decentralized network of 50 national agencies across EU member states. The agency pools scientific expertise across the bloc’s countries, acts as a single contact point for the private sector for licensing purposes, and ensures consistency and unified standards for EU medicines, leaving some leeway to member states. Each country, for instance, can set up its own medicine reimbursement rates under its national social security program.
Without significant institutional investments, the EU’s economic security ambitions will likely fail.
The European Medicines Agency and other such EU networks can serve as a template for a new agency tasked with safeguarding Europe’s economic security. Based in a European city (the EMA is based in Amsterdam), a European economic security network would assemble representatives of EU member states and specialists to centralize knowledge and expertise. Crucially, the network would facilitate information exchange among member states and create better communication with Brussels. Sanctions could be a trial topic for the network before it expands its reach to other domains, such as export controls and investment screening.
In the sanctions field, expertise sharing would be critical to promoting best practices, resolving difficult cases, and supporting smaller EU states that might not have the administrative capacity to go after sanctions-busting schemes. Like the European Medicines Agency, an economic security network could also serve as a one-stop shop for businesses, centralizing information and providing much-needed legal certainty so that companies can make sure their transactions do not run afoul of sanctions regimes. The network would not magically solve political divisions among EU member states, but it would at least help set common standards for sanctions enforcement while ensuring that members do not feel as though they are being robbed of their prerogatives.
Such a network would also boost Europe’s credibility with adversaries. By cementing cohesion, it would check the ability of foes to play European member states off one another in a bid to water down the effectiveness of EU economic statecraft. It could, likewise, boost the EU’s bargaining power vis-à-vis the United States by making it more difficult for Washington to pressure individual member states or cut bilateral deals with Trump-friendly countries, such as Hungary or Italy.
Without significant institutional investments, the EU’s economic security ambitions will likely fail. Its members will be vulnerable to adversaries looking to cause harm and allies prioritizing their own interests. Europe must therefore make the best of its internal messiness. If it cannot unify, it should draw on its diversity to forge a strong and unique economic security network.
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