For years, the European Union preached the virtues of openness. Capital, goods and services were to flow freely across borders, and Brussels would stand as the great defender of globalisation against the vulgar protectionism of others.
Yet now, with geopolitical tensions mounting and Europe’s industrial weakness becoming impossible to disguise, the mood inside the Berlaymont, headquarters of the European Commission, has shifted dramatically.
The latest proposal emerging from the European Parliament is the clearest sign yet that Europe’s governing class has entered a new age of economic nationalism. Under fresh measures designed to protect “strategic sectors” from “risky foreign investments”, Brussels is preparing to tighten scrutiny of overseas ownership in industries ranging from artificial intelligence and semiconductors to energy infrastructure, telecommunications and defence supply chains.
The language coming from EU institutions is revealing. Officials increasingly speak not of free trade, but of “economic security”, “strategic autonomy” and “de-risking”. Such phrases, once confined to academic conferences and think-tank white papers, are now the organising principles of European policy. The implication is unmistakable: Brussels no longer trusts the global marketplace it once championed.
There are, of course, reasons for this abrupt change of heart. Europe has watched with growing alarm as China tightened its grip over critical minerals, battery production and industrial supply chains. Russian gas dependency exposed the catastrophic strategic naivety of successive European governments. Meanwhile, American subsidies under Washington’s industrial policies have lured investment away from the continent at an uncomfortable pace.
The result is a Europe that suddenly fears vulnerability everywhere.
Recent reports suggest the EU is even considering forcing companies in key sectors to diversify away from Chinese suppliers, potentially limiting reliance on any single foreign source. What would once have been condemned as state interference is now presented as prudent strategic planning.
The proposed investment screening rules fit neatly into this broader transformation. The reforms would expand Brussels’ ability to examine foreign takeovers and investments in sectors deemed essential to Europe’s future competitiveness or security. National governments already possess varying powers to block foreign acquisitions, but the EU now wants a far more coordinated and muscular approach.
Predictably, China is furious. Beijing has already warned that Europe risks closing the door on mutually beneficial cooperation. Chinese diplomats complain that the EU is adopting discriminatory measures under the guise of security concerns. Yet Brussels appears unmoved. After years of watching strategic industries hollowed out or outsourced, Europe’s political class has decided that dependence carries a price.
And therein lies the great irony.
The EU spent decades insisting that economic interdependence would guarantee peace and prosperity. European leaders lectured Britain endlessly about the dangers of sovereignty and national industrial policy. Markets, they said, would solve everything. Now, faced with harsh geopolitical realities, Brussels has quietly rediscovered the importance of resilience, borders and strategic control.
One can hardly miss the contradiction.
Still, beneath the rhetoric about protecting Europe lies another uncomfortable truth: these measures also reveal profound anxiety about the continent’s declining competitiveness. Europe has fallen behind the United States and China in several critical technologies. The bloc’s economic growth remains anaemic. Energy costs are punishingly high. Regulatory burdens continue to smother innovation. Even sympathetic observers privately admit that Europe often excels more at drafting rules than producing world-leading companies.
The European Commission now finds itself attempting an awkward balancing act. On one hand, it wishes to preserve the image of Europe as an open investment destination. On the other, it fears strategic dependence on authoritarian powers and foreign capital with political strings attached.
That balancing act may become increasingly difficult.
There is also a risk that Brussels’ instinct for bureaucracy will produce an investment regime so cumbersome that it deters legitimate capital altogether. Europe already suffers from painfully slow permitting systems, fragmented markets and regulatory overreach. Adding another layer of scrutiny could easily become another obstacle to growth in a continent that desperately needs investment rather than suspicion.
Even some economists sympathetic to stronger industrial strategy warn against sliding into outright protectionism. Analysts at Bruegel have cautioned that Europe should avoid retreating behind local-content rules and instead remain engaged with trusted international partners. That may prove easier said than done in an increasingly hostile global economy.
Yet politically, the direction of travel is clear. Europe’s leaders no longer believe globalisation can be left to run unchecked. The age of strategic innocence is over. From AI regulation to industrial subsidies and investment screening, the EU is moving steadily towards a far more interventionist economic model.
Whether Brussels can manage this transformation competently is another question entirely.
The danger, as ever with the European Union, is that genuine strategic concerns become entangled in the bloc’s familiar habits of overregulation, centralisation and political grandstanding. Protecting strategic industries is one thing; suffocating them beneath committees, directives and compliance regimes is quite another.
Europe may finally have recognised the dangers of dependence. But recognising a problem and solving it are rarely the same thing.
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