Overview

The European Union will be economically sovereign when its member states, companies, and individuals are free to engage in economic activity as they wish – and when its member states and institutions can implement their preferred economic policies – without fear of interference by outside powers. This is particularly challenging in a world in which powers such as China, Russia, the United States, and Turkey are increasingly weaponising the EU’s global economic interdependencies.

This index assesses member states’ contribution to European economic sovereignty by focusing on trade and investment. It explores the extent to which member states are vulnerable or resilient to other actors’ weaponisation of economic interdependencies.

Indicators

The index accounts for the complexity of trade and investment relations in their capacity to create both vulnerabilities and leverage. Therefore, rather than simply focus on the size of bilateral exchanges, the index also addresses the issue of the balance of power in member states’ economic relationships with Russia and China.

The index also tries to tread the fine line between protections and protectionism. Reducing interdependencies with the rest of the world should not be the main way to make Europe more economically sovereign. But, equally, a laissez-faire approach to international trade and investment is no longer sufficient. Europe needs a mixture of openness, diversification, and some protections – such as foreign direct investment (FDI) screening, measures to counter corruption, and an anti-coercion instrument at the EU level. This is reflected in the indicators the index uses to evaluate member states’ contribution to Europe’s economic sovereignty.

Therefore, in trade, the index assesses the asymmetries in member states’ trade with China and Russia, particularly their reliance on imports of Russian energy, and their economic leverage over the rest of the world through exports. These indicators all contribute to its assessment of member states’ capabilities.

In analysing member states’ commitments, the index focuses on public support for EU trade policies, as well as governments’ approach to implementing non-tariff trade barriers and openness to the EU’s anti-coercion instrument and 2022 economic sanctions on Russia.

To assess investment capabilities, the index focuses on member states’ need for investment (such as their gross financing needs and bond spreads), their FDI screening frameworks, and their interdependence with China and Russia – while also comparing their use of FDI to gain leverage over non-EU countries. On commitments, the index explores the level of political consensus between member states on Chinese and Russian investment, and the power of their domestic pro-China and pro-Russia lobbies – as well as their performance on corruption and FDI screening in practice.

List of indicators
Case 1: Investment

Capabilities

  1. Gross financing needs as a share of GDP: in 2021. Source: International Monetary Fund.
  2. Gross financing needs as a share of GDP: change since 2019. Source: authors’ calculations based on International Monetary Fund.
  3. Long-term bond yields: in March 2022. Source: Eurostat.
  4. Existence of national FDI screening framework: in 2021. Source: European Commission’s First Annual Report on the screening of foreign direct investments into the Union, 23 November 2021.
  5. Share of China and Hong Kong in the country’s inward FDI: in 2019. Source: own calculations based on Eurostat and OECD.
  6. Share of China and Hong Kong in the country’s outward FDI: in 2019. Source: own calculations based on Eurostat and OECD.
  7. Share of Russia in the country’s inward FDI: in 2019. Source: own calculations based on Eurostat and OECD.
  8. Share of Russia in the country’s outward FDI: in 2019. Source: own calculations based on Eurostat and OECD.
  9. Share of the country in Russia’s inward FDI: in 2021. Source: own calculations based on Russian official statistics.
  10. Share of the country in Russia’s outward FDI: in 2021. Source: own calculations based on Russian official statistics.
  11. Share of the country in China’s and Hong Kong’s inward FDI: in 2019. Source: own calculations based on Eurostat and UNCTAD.
  12. Share of the country in China’s and Hong Kong’s outward FDI: in 2019. Source: own calculations based on Eurostat and UNCTAD.
  13. Outward FDI to non-EU27 countries, per capita: in 2020. Source: own calculations based on Eurostat.

Commitments 

  1. The strength and direction of political consensus on China’s FDI in the country. Source: ECFR’s associate researchers, March 2022.
  2. The strength and direction of political consensus on Russia’s FDI in the country. Source: ECFR’s associate researchers, March 2022.
  3. The existence of influential pro-China business lobbies in the country. Source: ECFR’s associate researchers, March 2022.
  4. The existence of influential pro-Russia business lobbies in the country. Source: ECFR’s associate researchers, March 2022.
  5. Cases in which Chinese or Russian FDI in the country have been stopped because of security concerns. Source: ECFR’s associate researchers, March 2022.
  6. Cases in which Chinese or Russian FDI in the country have not been stopped despite security concerns. Source: ECFR’s associate researchers, March 2022.
  7. Corruption perception: in 2021. Source: Transparency International.
Case 2: Trade

Capabilities

  1. Share of China in the country’s final demand from the world: in 2018. Source: own calculations based on OECD’s Trade in Added Value (TiVA) database.
  2. Share of Russia in the country’s final demand from the world: in 2018. Source: own calculations based on OECD’s Trade in Added Value (TiVA) database.
  3. Share of China in the world’s final demand for the country’s added value: in 2018. Source: own calculations based on OECD’s Trade in Added Value (TiVA) database.
  4. Share of Russia in the world’s final demand for the country’s added value: in 2018. Source: own calculations based on OECD’s Trade in Added Value (TiVA) database.
  5. The country’s share in the world’s final demand for China’s added value: in 2018. Source: own calculations based on OECD’s Trade in Added Value (TiVA) database.
  6. The country’s share in the world’s final demand for Russia’s added value: in 2018. Source: own calculations based on OECD’s Trade in Added Value (TiVA) database.
  7. The country’s share in China’s final demand from the world: in 2018. Source: own calculations based on OECD’s Trade in Added Value (TiVA) database.
  8. The country’s share in Russia’s final demand from the world: in 2018. Source: own calculations based on OECD’s Trade in Added Value (TiVA) database.
  9. Share of Russian gas in the country’s final energy consumption: in 2021. Source: own calculations based on Bruegel data.
  10. Value per capita of the country’s final demand for Russia’s added value in the mining sector: in 2018. Source: own calculations based on OECD’s Trade in Added Value (TiVA) database.
  11. Value per capita of the country’s total exports outside the EU27: in 2018. Source: own calculations based on OECD’s Trade in Added Value (TiVA) database.
  12. Value per capita of the country’s exports outside the EU27 in the ICT sector: in 2018. Source: own calculations based on OECD’s Trade in Added Value (TiVA) database.

Commitments

  1. Share of people who believe that globalisation constitutes an opportunity for economic growth: in 2021. Source: Eurobarometer.
  2. The severity of trade barriers in the country: in 2021. Source: Trade Barrier Index by Tholos.
  3. Share of people who support the Transatlantic Trade and Investment Partnership: average for 2015-2016. Source: Eurobarometer.
  4. Share of people who support the EU’s trade policy: in 2022. Source: Eurobarometer.
  5. The government’s overall commitment to the EU’s FTA initiatives. Source: ECFR’s associate researchers, March 2022.
  6. The government’s overall support for the EU’s open strategic autonomy (including the anti-coercion instrument). Source: ECFR’s associate researchers, March 2022.

Results

There is a significant variation between member states’ contribution to economic sovereignty but, when weighted by population, they receive a ‘good’ score (6.2) on average. Only the Netherlands receives an ‘excellent’ score (8 points). This reflects the fact that the country is not only strongly engaged with international trade and investment but is also prudent in avoiding excessive and disadvantageous asymmetries in this – and is supportive of initiatives that boost the EU’s protections (such as the anti-coercion instrument, FDI screening, and economic sanctions on Russia).

Only the Netherlands receives an ‘excellent’ score

Eight countries receive a ‘good’ score, making economy the second-strongest area of European sovereignty, after health. These eight countries include not only the northern economic liberals such as Denmark, Sweden, and Ireland and the Benelux countries, but also the EU’s two biggest economic powers, Germany and France, and the most globalised southern European economy, Spain. In contrast, Austria and Finland – two of the EU’s wealthiest members – have lower scores, largely because of their asymmetric dependencies on Russia and China.

Bulgaria, Hungary, and Cyprus all receive ‘failing’ scores. This reflects their excessive dependence on Russia or China, their complacency about foreign lobbying, a lack of necessary protections (such as FDI screening and anticorruption measures), and the resulting weaknesses in their potential economic leverage over non-EU countries. Croatia, Greece, Slovakia, Romania, and Latvia also receive worryingly poor scores in this area (less than 5 points each).

Italy and Poland – which are among the EU’s five biggest economic powers – receive only satisfactory scores, albeit for different reasons. Performing similarly on capabilities and commitments, Italy is close to receiving a ‘good’ overall score. Meanwhile, Poland is one of four countries – alongside the three Baltic states – that score much better on commitments than on capabilities. This means that, while both the government and the public in these countries strongly support European economic sovereignty, they are not capable of making a significant economic contribution to it.

In contrast, four countries – Austria, Hungary, Malta, and Germany – score significantly worse on commitments than on capabilities. This is why Germany only receives a ‘good’ rather than ‘excellent’ overall score on this terrain. A vulnerability to Russian and Chinese lobbying seems to be a particularly big problem for Germany, as it is for Hungary and Austria.

It is concerning that Germany, which has the EU’s most powerful economy, is not the biggest contributor to European economic sovereignty.

Meanwhile, the Czech Republic, Ireland, Lithuania, the Netherlands, and Poland all perform better in economy than in any other area of European sovereignty.

The EU’s economic sovereignty is dependent on member states’ capacity to reach a consensus on key policy issues, such as economic sanctions on Russia and trade with China. Therefore, it is particularly worrying that eight of them are doing poorly or worse in this area.