What can Europe do to mitigate economic security risks?

On 3 December, the European Commission published a proposal for strengthening economic security which argues for improving the use of existing tools. Our new paper analysing the European Union’s economic security strategy and the risks it faces argues that the EU must now implement risk mitigation strategies, adapting instruments to a geopolitical context that is fundamentally different to the one where the Commission published its strategy on this topic in 2023. We make three main recommendations.

First, to reduce dependencies for critical raw materials and infrastructure in the digital and financial sectors. Although the Commission has introduced an initiative on critical raw materials, and acknowledges dependencies in financial services, digital infrastructure and space technology, it has not yet announced policies to address the latter. 

Second, supply-chain chokepoints must be identified based on reverse dependencies – chokepoints under EU control – and used to ensure that, if needed, the Anti-Coercion Instrument (ACI) can be activated in a targeted manner. The 3 December proposal has little to say either on reverse dependencies or on how to use the ACI.

Third, the EU must use industrial policy and economic partnership tools in a coherent and balanced way based on a proper economic assessment. Our paper highlights that external partnerships are critical for de-risking, and that ‘made in EU’ instruments that penalise partners of free trade or investment agreements should be avoided. The proposal indicates that the Commission will seek to implement European preference criteria for strategic sectors and act to strengthen the EU industrial base and supply chain resilience through the Industrial Accelerator Act. However, whether these proposals will be consistent with international commitments is unclear. 

Although the proposal includes useful ideas to improve economic security governance, these fall short of our recommendation to set up a Council working group on economic security and to privilege enhanced cooperation with Comprehensive and Progressive Agreement for Trans-Pacific Partnership countries on supply chain resilience.

The Why Axis is a weekly newsletter distributed by Bruegel, bringing you the latest research on European economic policy. 

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