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Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
There was a time when the EU was described as an economic giant but a political dwarf on the world stage. Most of the bloc was content with that condition. Economic heft, they felt, substituted for geopolitical power, and could even translate into global political influence — at least in the regulatory sphere where the “Brussels effect” would make others align with European preferences.
The danger of the EU’s lopsided qualities has now abruptly and painfully become apparent to its leaders. Far from parlaying economic heft into political influence, Europe’s geopolitical vulnerability, in the form of resource and military dependence, is instead threatening its economic strength. As the newly popular terms “geoeconomics” and “economic security” attest, the two spheres have blended. Your economy is only as safe as your geopolitical situation, and vice versa.
So it is timely that the European Commission has just updated the economic security strategy it adopted two years ago. Back then, it reflected the realisation of dangerous dependencies on Russia and China. Today the new US national security strategy has demonstrated that the western front is just as precarious.
The update conveys a welcome new sense of urgency. The commission rightly calls for “an integrated, whole-of-government-and-business approach”. That should mean strategic coherence between separate policy decisions. At the moment, though, the EU is unable to make strategic linkages between China’s stance on Ukraine and its access to EU markets even if it wanted to; it neither tries nor is set up to see these decisions in combination.
But to paraphrase the old question: if you’re so smart, how come you aren’t (already) economically secure? The EU’s Joint Research Centre mapped out vulnerabilities in critical materials supply as early as 2011 and 2013. The same period featured fierce warnings against excessive dependence on Russian energy when Germany was blithely pursuing a second Nord Stream pipeline. Timely corrective action on both would have spared Europe a lot of grief.
Georg Riekeles of the European Policy Centre (EPC) points to how European industry was caught out this year when China interrupted deliveries of Nexperia’s chips after the Dutch government’s takeover of the Netherlands-headquartered company. Despite “a chips crunch under Covid”, says Riekeles, “European car manufacturers are still largely operating on a single supplier and no stockpiles model”.
The problems and solutions identified by the commission have been apparent, but not acted on, in the past. What is going to make things different now? Think-tanks including the EPC have called for an “economic security council”. That may not be a bad idea. But the challenge is fundamentally political.
Donald Trump gets a lot wrong about Europe. But here is a kernel of truth: “They talk too much . . . They talk but they don’t produce.” The US president was referring to the one area — Ukraine policy — where his criticism is least justified. In general, however, Europeans sit on the wrong side of a chasm between rhetoric and action.
Yet on occasions the EU does show a flash of steeliness. On Friday, it used a majority procedure to put the blocking of Russia’s central bank reserves on a new legal basis, no longer requiring six monthly unanimous renewals. With a pen stroke, gone was the power of Hungary’s Viktor Orbán, or any other EU leaders letting themselves be used by the Kremlin to frustrate Europe’s greatest means of pressure against Russia. That power move eases the path for another one: in a few days, leaders are likely to push through a big “reparations loan” for Kyiv, funded by cash accumulated on EU banks’ balance sheets due to the sanctions.
After years of dithering, then, Brussels is putting its thumb on the scales in the so-called peace talks over Ukraine’s future. The disabling of holdout members’ vetoes will do much more for the EU’s economic security than anything proposed in the strategy update.
The move does not by itself make the EU economy less vulnerable to outside pressure. But it shows a greater readiness to act. Article 122 of the EU Treaty, under which Brussels removed the unanimity requirement, grants powers for economic emergencies. It was used — controversially — for pandemic crisis policies, and adversaries will note it can be used again.
The EU has proved that it is not condemned to be a herbivore, as my colleague Edward Luce has described it — if, at least, this successful baring of teeth at home whets Europe’s appetite to wield power abroad as well.