The EU lacks a credible economic security strategy – POLITICO

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Tom Keatinge is Founding Director of the Center for Financial Crime and Security Studies at the Royal United Services Institute.

In the summer of 2014, newspaper headlines were unanimous: Western nations had responded to the Kremlin’s annexation of Crimea and its complicity in the downing of a Malaysian passenger plane in Ukrainian airspace by imposing sweeping economic sanctions on Russia. However, the reality of European Union action is somewhat different.

The EU offers a handy timeline of the restrictive measures it has imposed on Russia over the past nine years – and it is a record of inaction and failure.

Compared to the sanctions imposed over the past 12 months to “cripple the Kremlin’s ability to fund the war,” the 2014 measures were far from comprehensive. And, a lesson for today’s political leaders, interest in maintaining economic pressure on Russia and its war machine quickly evaporated, with key members of the bloc redoubling their economic involvement with its belligerent neighbor and a misconstrued notion of ” Change through Trade” maintained “Change through Trade” instead.

It was an approach that continued to give the Russian military the ability to develop weapons, import needed components, and stock up its arsenal to attack its peaceful neighbor, even though it clearly fell short of President Vladimir Putin’s ambitions. But just imagine the extent to which eight years of properly implemented and maintained economic restrictions on the Russian military could have quashed the Kremlin’s aspirations in Ukraine.

And here lies the central failure of the EU – it manages from “crisis to crisis”. Radical thinking and fixing only happens when vulnerabilities are exposed and Brussels is forced to act.

Consider the series of steps taken by the European Commission on an issue like money laundering, prompted mainly by revelations and scandals. Changes and improvements are only a consequence of milestone events like the Panama Papers – leaked documents on offshore companies and the financial activities of politicians – or the exposure of extreme errors, as in the case of the Danske Bank Estonia scandal.

Similarly, in confronting Russia’s large-scale invasion of Ukraine in 2022, the EU ran fast only to stand still. Eurocrats and their counterparts in member countries have rushed to draft and agree on a series of sanctions packages that are truly far-reaching. In the meantime, with the appointment of a sanctions officer and the realization that implementation by Member States and compliance by third countries are not yet what they should be, it is now a key task for 2023, the substance of last year’s work to reconsider.

But again, all of this is reactive. New structures, policies and regulations are being built on the ashes of the disaster. However, managing from crisis to crisis is not a strategy – it is a sign of failure.

So what should the EU do? What lessons should it learn from the frenetic activity of the past 12 months?

The key lesson is the importance of developing a macroeconomic security strategy – a strategy that not only ensures the reliability of the supply chains on which the EU relies, but that recognizes the bloc’s position as the world’s largest economy, a top trader and uses partners for 80 countries and the world’s largest retailer of goods and services.

This is an unrivaled position but lacks a security strategy based on EU economic dominance. And while the advocacy of “openness” is to be welcomed, it can become an existential vulnerability when accompanied by naivety.

The key lesson is to develop an overall security strategy that recognizes the bloc’s position as the world’s largest trader in goods and services | Adrian Dennis/AFP via Getty Images

Of course, some member countries have already started weaning themselves off Russian energy supplies and “unstraining” their economies as much as possible without waiting for Brussels’ guidance. But a fragmented, spontaneous and reactive response to such future security crises will once again expose the EU as weak and unprepared.

And in no other area is the question of economic security more pressing than it is in the case of China.

The extent of economic ties between the EU and China makes it grossly irresponsible not to prioritize the development of an economic security strategy – even if it means turning on its head the EU’s cherished vision of being an open and competitive economy. EU leaders should work with like-minded partners – notably the United States – to develop a common strategy for economic security that capitalizes on the strengths and opportunities each has to offer, not sycophantic and pompous trips to Beijing company.

And while for some government involvement in the private sector may herald a return to the inept, government-led industrial strategies of the 1970s and early 1980s, economic security in the 21st century will require close collaboration between private sector policy making and investment. The instincts of the profit-seeking industrialist must be guided by intelligent, forward-looking government policies that incentivize investment decisions that do not expose a nation to unacceptable economic security risks.

From critical minerals to foreign direct investment and technology supply chains, security – and partnerships with allies – should be at the heart of decision-making. And it shouldn’t just be defensive, either.

Using their wealth and trading opportunities, Western nations should secure expanded alliances around the world with countries facing an “East vs. West” choice. The harsh reality, however, is that while the EU has faltered, China has forged global economic alliances in its favour, and Russia’s security measures have garnered support – or at least approval.

So, yes, 2023 should be about making sure that the greatest possible restrictions are imposed on the Russian economy and its ability to fund and resource its illegal war in Ukraine. But it should also be about thinking ahead, learning lessons from failed policies and ensuring that the EU develops an economic security strategy that anticipates future threats and capitalizes on its most valuable security asset – its position as the world’s largest economy.