The Political Economy of Geoeconomics: Europe in a Changing World (International Political Economy Series) 3031019679, 9783031019678

Table of contents :
Acknowledgements
Praise for The Political Economy of Geoeconomics: Europe in a Changing World
Contents
Notes on Contributors
List of Figures
List of Tables
1 Geoeconomics in a Changing Global Order
Introduction
Globalization and Change in Geoeconomic Times
The ‘Missing Third’ Power: EU Strategic Autonomy and Beyond
Europe in a Changing Global Order: The Plan of This Book
References
2 Balancing Dependence: The Quest for Autonomy and the Rise of Corporate Geoeconomics
Introduction
The Quest for Autonomy: A Geoeconomic Framework
Geoeconomic Balancing: Increasing State Control of Economic Interactions
Corporate Geoeconomics: Market Reactions to Increased State Action
Conclusion: Geoeconomics as a Multi-level Dynamic
References
3 European Strategic Autonomy: New Agenda, Old Constraints
Introduction
European Strategic Autonomy: Development, Diffusion, Divergence
Development: Strategic Autonomy in Europe’s Defence, Technological and Industrial Base
Diffusion: Industrial Strategy, Finance, the Euro and COVID-19
Divergence: Strategic Autonomy as a Contested Concept
Europe Versus the Atlantic?
A Geopolitical Europe?
The Shocks of 2016
Push-back on Strategic Autonomy
A Geoeconomic Europe?
Neo-mercantilist Defence Procurement
Trade and Industrial Strategy
Pandemic Preparedness and Supply Chain Resilience
Conclusion
References
4 European Foreign Policy Think Tanks and ‘Strategic Autonomy’: Making Sense of the EU’s Role in the World of Geoeconomics
Introduction
Theorising Geoeconomic Foreign Policy
European Foreign Policy Think Tanks: Development, Functions and Significance
Strategic Autonomy: From Subsidising the Defence Industry to Imagining a Geoeconomic EU
Conclusion
References
5 The EU as a Geoeconomic Actor? A Review of Recent European Trade and Investment Policies
Introduction
The Geoeconomic Turn in World Politics and the EU’s Response
The EU Investment Screening Regulation
Investment Screening as a Geoeconomic Instrument: Framing and Legal Framework
Economic Implications of Investment Screening in the EU
The Implementation of Investment Screening in the EU
Interim Conclusions
The EU’s Use of Most-Favoured Nations Clauses in Its Free Trade Agreements
The Geoeconomic Rationale of MFN Clauses in Free Trade Agreements: Framing and Legal Framework
Economic Implications
The Implementation of MFN Clauses in EU FTAs: Living up to Their Purpose?
Interim Conclusions
Europe’s (Non-)response to China’s Belt and Road Initiative
China’s Belt and Road Initiative and the Geoeconomic Rationale of Europe’s Divided Response: Framing and Legal Framework
Economic Implications: International Trade and Economic Asymmetry in EU-China Relations?
Assessment of Risks of Economic Dependence Associated with the BRI
Interim Conclusion
Conclusion
Appendix
References
6 Geoeconomics and National Production Regimes: On German Exportism and the Integration of Economic and Security Policy
Introduction
Bridging IR, IPE, and CPE Divides: Exploring Geoeconomics as a Concept
Germany: Between an Exportist Growth Model and Novel Global Dependencies
Surplus Germany and Its Institutional Repercussions on Foreign Economic and Security Policy
Conclusion
References
7 The Geoeconomics of Chinese Bank Expansion into the European Union
Introduction
The Internationalization Strategy of China: A Geoeconomic Project?
Banks: Agents of Change
Anchoring Geoeconomics—Strategic Interests of Luxembourg
Critical Reflections and Conclusion
References
8 Moving Forward: Understanding the Geoeconomic Decade of the 2020s
Introduction
Cross-Cutting Themes
Historicizing Geoeconomics
Geoeconomics as a Multi-layered Phenomenon
Geoeconomics as a Relational Phenomenon
Geoeconomics as State Transformation
A Research Agenda
Propositions for Further Research
Insights for Policymakers
References

Citation preview

The Political Economy of Geoeconomics: Europe in a Changing World Edited by Milan Babić · Adam D. Dixon· Imogen T. Liu

International Political Economy Series

Series Editor Timothy M. Shaw , University of Massachusetts Boston, Boston, MA, USA; Emeritus Professor, University of London, London, UK

The global political economy is in flux as a series of cumulative crises impacts its organization and governance. The IPE series has tracked its development in both analysis and structure over the last three decades. It has always had a concentration on the global South. Now the South increasingly challenges the North as the centre of development, also reflected in a growing number of submissions and publications on indebted Eurozone economies in Southern Europe. An indispensable resource for scholars and researchers, the series examines a variety of capitalisms and connections by focusing on emerging economies, companies and sectors, debates and policies. It informs diverse policy communities as the established trans-Atlantic North declines and ‘the rest’, especially the BRICS, rise. NOW INDEXED ON SCOPUS!

Milan Babi´c · Adam D. Dixon · Imogen T. Liu Editors

The Political Economy of Geoeconomics: Europe in a Changing World

Editors Milan Babi´c Department of Social Sciences and Business Roskilde University Roskilde, Denmark

Adam D. Dixon Faculty of Arts and Social Sciences Maastricht University Maastricht, The Netherlands

Imogen T. Liu Faculty of Arts and Social Sciences Maastricht University Maastricht, The Netherlands

ISSN 2662-2483 ISSN 2662-2491 (electronic) International Political Economy Series ISBN 978-3-031-01967-8 ISBN 978-3-031-01968-5 (eBook) https://doi.org/10.1007/978-3-031-01968-5 © The Editor(s) (if applicable) and The Author(s), under exclusive license to Springer Nature Switzerland AG 2022 Chapters 1, 2, 5 and 7 are licensed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/). For further details see license information in the chapters. This work is subject to copyright. All rights are solely and exclusively licensed by the Publisher, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed. The use of general descriptive names, registered names, trademarks, service marks, etc. in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use. The publisher, the authors, and the editors are safe to assume that the advice and information in this book are believed to be true and accurate at the date of publication. Neither the publisher nor the authors or the editors give a warranty, expressed or implied, with respect to the material contained herein or for any errors or omissions that may have been made. The publisher remains neutral with regard to jurisdictional claims in published maps and institutional affiliations. Cover credit: Rob Friedman/Stockphoto.com This Palgrave Macmillan imprint is published by the registered company Springer Nature Switzerland AG The registered company address is: Gewerbestrasse 11, 6330 Cham, Switzerland

To our families, the steadiest supporters we could ask for

Acknowledgements

We would like to thank Tim Shaw, editor of the IPE series and Anca Pusca from Palgrave for showing enthusiasm in this project. This volume emerged out of series of panels at the 2021 annual meeting of the European Consortium of Political Research. We would like to thank the participants and discussants at the meeting for providing valuable feedback. The editors would also like to acknowledge the support of the European Research Council (ERC) under the European Union’s Horizon 2020 research and innovation programme (Grant agreement No. 758430).

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Praise for The Political Economy of Geoeconomics: Europe in a Changing World

“This volume provides crucial conceptual framing of the geoeconomic logics that underpin rapid shifts in the ideational substructure of the postCold War global economic system as well as careful empirical analysis of the causes and consequences of these shifts at the domestic, regional, and international levels. By placing analytic emphasis on the role of Europe in this reordering of the global political economy, the contributing authors usefully move discussions beyond simpler US-China frames. A must read for anyone interested in the politics and economics of autonomy and interdependence in a new era.” —Sarah Bauerle Danzman, Associate Professor of International Studies at Indiana University Bloomington “The world economy has increasingly turned into a battlefield with banks and production networks serving as the foot soldiers. As scholars and policy makers try to grapple with this new uncertainty, The Political Economy of Geoeconomics makes a critical contribution. It is a must read for anyone interested in economic coercion and Europe.” —Abraham Newman, Director of the Mortara Center for International Studies and Professor at the School of Foreign Service and Department of Government, Georgetown University “In the context of the war in Ukraine and sanctions against Russia, a comprehensive book on geoeconomics and the role of Europe could ix

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PRAISE FOR THE POLITICAL ECONOMY OF GEOECONOMICS: …

not be timelier. This path-breaking volume develops a novel perspective on how varieties of actors shape current rivalries in the global political economy.” —Andreas Nölke, Professor of Political Science, Goethe University Frankfurt “The Political Economy of Geoeconomics: Europe in a Changing World shines an International Political Economy lens on the growing blurriness between economy and national security. Thanks to an interdisciplinary team of authors from various field including geography and political science, Babi´c, Dixon and Liu are able to bring a fresh analytical perspective to the new era of existential challenges to the liberal international economic order, including in rapid succession the 2008 financial crisis, the reformulation of Chinese priorities under Xi, Brexit, the Trump administration, and the pandemic. While most recent studies of economic statecraft and geopoliticization emphasize the role of contemporary states, the contributions in this volume focus on how a variety of economic actors, including firms and society groups, are adjusting to this unstable ‘interregnum’ through cooperation, competition, and conflict. The volume also brings a welcome focus to Europe, which has a powerful role to play in the supposed Sino-American clash over global dominance.” —Sophie Meunier, Princeton University, United States

Contents

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1

Geoeconomics in a Changing Global Order Milan Babi´c, Adam D. Dixon, and Imogen T. Liu

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Balancing Dependence: The Quest for Autonomy and the Rise of Corporate Geoeconomics Henrique Choer Moraes and Mikael Wigell

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European Strategic Autonomy: New Agenda, Old Constraints Scott Lavery, Sean McDaniel, and Davide Schmid

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European Foreign Policy Think Tanks and ‘Strategic Autonomy’: Making Sense of the EU’s Role in the World of Geoeconomics Jaša Veselinoviˇc The EU as a Geoeconomic Actor? A Review of Recent European Trade and Investment Policies Clara Weinhardt, Karsten Mau, and Jens Hillebrand Pohl Geoeconomics and National Production Regimes: On German Exportism and the Integration of Economic and Security Policy Kai Koddenbrock and Daniel Mertens

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CONTENTS

The Geoeconomics of Chinese Bank Expansion into the European Union Paolo Balmas and Sabine Dörry

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Moving Forward: Understanding the Geoeconomic Decade of the 2020s Milan Babi´c, Adam D. Dixon, and Imogen T. Liu

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Notes on Contributors

Babi´c Milan is an assistant professor of Global Political Economy at Roskilde University and affiliated with the SWFsEUROPE project (Maastricht University) and the CORPNET research group (University of Amsterdam). His work deals with the transformations of the global political economy in the transition from a neoliberal towards a post-neoliberal global order. Balmas Paolo is a Ph.D. candidate in Economic Geography at the Luxembourg Institute of Socio-Economic Research (LISER) and the University of Luxembourg. His research interests centre on China’s banking and financial systems, with a focus on the internationalization of Chinese financial activities in Luxembourg and Europe. Dixon Adam D. is an associate professor of Globalization and Development at Maastricht University. He is principal investigator of the European Research Council research project Legitimacy, Financialization and Varieties of Capitalism: Understanding Sovereign Wealth Funds in Europe (SWFsEUROPE). His research focuses on globalization, development, state capitalism and the political economy of sovereign wealth funds. Dörry Sabine is a senior researcher and financial geographer at the Luxembourg Institute for Socio-Economic Research. Her work focuses on the financial industry organized in and influencing the world’s leading

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NOTES ON CONTRIBUTORS

financial centres, and how shifts towards sustainable finance and technological immersion affect financial activities, institutions and regional development. Koddenbrock Kai leads a research group in International Relations at the Africa Multiple Cluster at the University of Bayreuth. He works on financialization, decolonization and social theory. He has recently edited a book on Monetary and Economic Sovereignty in 21st Century Africa (Pluto Books). Lavery Scott is a lecturer in the Department of Politics and International Relations at the University of Sheffield. His research examines reconfigurations within British, European and global capitalism in the wake of the 2008 global financial crisis. Liu Imogen T. is a Ph.D. candidate at Maastricht University where she works on the European Research Council project SWFsEUROPE. Her research interests cover subjects including state capital, sovereign wealth funds, foreign investment and the political economy of China. The focus of her dissertation is the transnationalization of Chinese state capital in Europe. Mau Karsten is an economist who is specialized in empirical research on international trade and economic development. His work appears in international peer-reviewed journals. He is currently an assistant professor at the School of Business and Economics at Maastricht University, where he teaches courses in economics and interdisciplinary programmes. McDaniel Sean is a senior lecturer in Political Economy in the Future Economies Research Centre at Manchester Metropolitan University. His research examines the comparative political economy of social democracy and models of capitalist growth. Mertens Daniel is a professor of International Political Economy at Osnabrück University. His research examines the politics of financialization, growth regimes and state banking, as in The Reinvention of Development Banking in the European Union, which was published with Oxford University Press in 2021. Moraes Henrique Choer is a diplomat with the Ministry of Foreign Affairs of Brazil. He is also a Ph.D. candidate (Katholieke Universiteit Leuven, Belgium) and visiting Ph.D. scholar at the Victoria University of

NOTES ON CONTRIBUTORS

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Wellington Law School (New Zealand). The views expressed in this article are the sole responsibility of the author and do not necessarily reflect the positions of the government of Brazil. Hillebrand Pohl Jens, LL.M. (Harvard) is a Swedish scholar and practitioner in the area of Law & Geoeconomics—the national security aspect of international economic law. He is a research fellow at Maastricht University, co-director of the CELIS Institute, and qualified lawyer in New York, England & Wales, and Ireland. Schmid Davide is a lecturer in the Department of History, Politics and Philosophy at Manchester Metropolitan University. His research sits across International Political Economy and Critical Theory and examines contemporary shifts in global order. Veselinoviˇc Jaša is a Ph.D. researcher in Political Science at the Berlin Graduate School for Global and Transregional Studies (BGTS), Freie Universität Berlin, Germany. He is part of the Cluster of Excellence: Contestations of the Liberal Script—SCRIPTS. His research interests include European foreign policy, think tanks, European integration, transatlantic relations and critical political economy. Weinhardt Clara is an assistant professor in International Relations at Maastricht University and a Non-Resident Fellow at the Global Public Policy Institute in Berlin. Her research examines global trade governance and international negotiations. She received the Anthony Deos Young Scholar Award (2021) in the Diplomatic Studies Section of the ISA. Wigell Mikael is a research director at the Finnish Institute of International Affairs and an adjunct professor in International Political Economy at the University of Tampere (Finland). He earned his Ph.D. at the London School of Economics and he has been a Visiting Fellow at the Changing Character of War Centre, Oxford University.

List of Figures

Fig. 6.1 Fig. 6.2

Fig. 6.3

Fig. 6.4 Fig. 6.5

Geoeconomics as lens: four analytical pillars (Source Authors’ own) Germany’s current account balance, 1951–2020, three-year moving average (Source Bundesbank until 1990 for West Germany; World Bank since 1991; own elaboration) Germany’s most important trading partners, import and export, 2020 (Source Federal Statistical Office; own elaboration) Germany’s export goods composition, 2020, in billion Euro (Source Federal Statistical Office) Economic activity of German enterprises abroad, stocks and turnover 2010–2019 (Source Deutsche Bundesbank 2021.Note Includes direct and indirect [via dependent holding companies] investments, netted out by liabilities)

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List of Tables

Table 1.1 Table 2.1 Table 3.1 Table 5.1 Table 5.2 Table 6.1 Table 6.2 Table 7.1

The different themes/extensions of mainstream geoeconomics provided in this volume Strategies of corporate geoeconomics A timeline of European strategic autonomy MFN clauses in services and investment chapters of EU FTAs (Based on Bohnenberger and Weinhardt, 2022) EU member and neighbouring countries and their BRI involvement Germany’s largest export companies 2019 Changes in German outward FDI 2010–2019 Most relevant MOUs between financial entities from China and Luxembourg

7 47 62 120 129 150 152 175

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CHAPTER 1

Geoeconomics in a Changing Global Order Milan Babic, ´ Adam D. Dixon, and Imogen T. Liu

Introduction The global economic order is in flux. While neoliberal globalization seemingly survived the Global Financial Crisis of 2008, many of its characteristic features were rendered obsolete by political developments in the following years. Among others, Trump, Brexit, China under Xi Jinping, and the COVID-19 pandemic each contributed to the demise of old certainties and familiar modes of global governance. Brexit proved wrong the popular imagination of a natural progression toward an ever closer, deeper, and broader European Union. Trumpism demonstrated

M. Babi´c Roskilde University, Roskilde, Denmark e-mail: [email protected] A. D. Dixon (B) · I. T. Liu Maastricht University, Maastricht, The Netherlands e-mail: [email protected] I. T. Liu e-mail: [email protected]

© The Author(s) 2022 M. Babi´c et al. (eds.), The Political Economy of Geoeconomics: Europe in a Changing World, International Political Economy Series, https://doi.org/10.1007/978-3-031-01968-5_1

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that dismantling seemingly given global institutions like the WTO or WHO is possible and desired by a significant part of the global population. The parallel rise of ‘Xiism’ (Mulvad, 2019) and its world-spanning political ambitions crushed liberal hopes of a ‘peaceful’ rise of China in the global economy. Finally, COVID-19 made it painfully clear that a highly interdependent, but unequal and unstable global political economy rather exacerbates than helps to contain the spread of a deadly virus. Hence, if the 1990s brought about the preliminary ‘end of history’ (Fukuyama, 1992), the 2020s are here to mark the ‘end of the end of history’ (Hochuli et al., 2021) as we know it. For the global political economy, this means that the decay of a phase of relative hegemonic stability during neoliberal globalization ushers in a new phase of relative instability. Longneglected competition and conflict for power, domination, and relative gains are again becoming more relevant for understanding where global politics is headed in the next decade. What does the revival of these rivalries mean for the future of the global political economy and especially Europe’s role in it? The ambition of this edited volume is to contour a set of answers to this question. We argue that after decades of neoliberal globalization, the global economic order is transforming. It is becoming more unwieldy, complex, and antagonistic. Since 2016, we are observing an advancing disintegration of the relatively stable phase of neoliberal globalization that governed the global political economy since the early 1990s. The advent of new hegemonic clashes between old, new, and aspiring powers is not only a theoretical, but a realpolitik phenomenon. However, we hold that different from earlier rounds of global rivalries, today’s battles for supremacy and hegemony will not have a mainly geopolitical, but much more a geoeconomic character. This means that beyond military, state-centered forms of ‘hard’ power contentions, today’s global landscape is being governed by more economic, network-centered, and complex forms of confrontation, competition, and cooperation.1 Importantly, these interactions are not 1 The Russian aggression against Ukraine in February 2022 might appear as disproving our point. We however deem the various reactions from Western governments as supporting our argument that international conflict is becoming more geoeconomic: from economic sanctions to energy embargoes, numerous geoeconomic instruments have been leveraged to counter the Russian invasion. Despite such an unprecedented economic warfare against Russia, a military intervention has been ruled out by any state, reversing a post-Cold War tendency for military intervention by various Western powers in international conflicts.

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limited to states as sole actors in an international environment. Rather, the different chapters in this volume show how different types of actors— states, firms, social groups, international institutions, think tanks, and others—shape the newly emerging global rivalries across different spheres of the local, national, and transnational dimensions of global politics. They cover a variety of policies, geographies, and scales in which geoeconomics today transforms global economic relations. Together, they delineate a fresh and interdisciplinary perspective on the shape of the global political economy as we enter a tumultuous geoeconomic decade. The focus on Europe furthermore puts a group of actors (the EU, its members states, and institutions) center stage that often get sidelined in the grand geopolitical narrative of our time of a US-Sino clash about global supremacy (see, e.g., McNally, 2020). By excavating the complex and contested nature of European geoeconomics, this volume contributes to a differentiated and sharpened picture on current global hegemonic battles and transformations. Recent scholarship describes these newly emerging forms of conflict through various concepts like ‘weaponized interdependence’ (Farrell & Newman, 2019), ‘economic statecraft’ (Aggarwal & Reddie, 2021), ‘geoeconomic competition’ (Gertz & Evers, 2020), or the ‘geopoliticization’ of trade and investment (Meunier & Nicolaidis, 2019). This volume uses the category geoeconomics to prepare common ground for these and further new phenomena in the global political economy. We thereby identify a set of three interrelated themes, where the chapters of this volume push beyond the existing landscape of geoeconomics research, and which help to define the contours of a contemporary political economy of geoeconomics. The first theme is an extension of the mainstream understanding of the nature of geoeconomics as the ‘admixture of the logic of conflict with the methods of commerce’ as Edward Luttwak put it famously at the end of the Cold War (Luttwak, 1990, 19). While we do not dispute the usefulness of the concept for international politics for the late twentieth century, ours is a very different world from the one Luttwak describes. Today, complex transnational economic connections, be they ownership, trade, investment, or other types of ties, govern the functioning of and power relations within the global economy (Oatley, 2019). Cross-border phenomena like global value and wealth chains allocate and channel power and opportunity in this complex environment (Horner & Nadvi, 2018; Seabrooke & Wigan, 2017). To reduce geoeconomics to ‘the logic of war in the grammar of commerce’ (Luttwak, 1990,

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19) would fall short of describing this evolving multiplicity of structures and agency forms through which power is wielded in the contemporary global political economy. The variety of approaches, perspectives, and phenomena surveyed in this volume extend this Luttwakian perspective toward different actors, forms, and instruments of geoeconomics in today’s global (dis-)order. Instead of a limited focus on conflict, we hence remain open for other types of geoeconomic phenomena, such as competition, but also cooperation. Take the recent example of Russian nuclear giant Rosatom and Dubai logistics powerhouse DP World, who began to cooperate on Arctic container shipping, opening up a unique transport passage that grants both (state-owned) companies an important edge in the emerging ‘infrastructure scramble’ (Kanai & Schindler, 2019) of twenty-first-century geoeconomic competition (Kolodyazhnyy et al., 2021). Second, and related to the first point, this volume explores the many non-state-centric ways in which a political economy of geoeconomics can make sense of today’s global political landscape. Recent research in geoeconomics has focused strongly on its relation to statecraft (Blackwill & Harris, 2016; Norris, 2016; Wigell et al., 2019). While states (and statecraft) play a crucial role for understanding geoeconomics, they are not the only actors wielding power in today’s global political economy. The role of nation states as primary agents of global politics has been at least challenged by the power aspirations of large, multinational corporations and similar actors (Babi´c et al., 2017). Previous research in this vein has established that overcoming the ‘strict national articulation’ (Cowen & Smith, 2009, 43) of territory allows us to articulate geoeconomic phenomena beyond state-centrism: Geoeconomic strategy aims rather at market control and profit extraction than at projection of state power abroad (Babi´c, 2021). To be sure, the non-state-centrism we bring in is not a negation of the relevance of state power for contemporary geoeconomics. On the contrary, we believe that a de-centering of geoeconomics from an exclusive focus on the nation state as key actor opens up the possibility to understand the many other aspects of state power through its ‘spatial flexibility’ (Moisio, 2019, 8) as a modern geoeconomic phenomenon. As an example, states like Norway or China have gained a powerful position in the global political economy by becoming large-scale owners and investors. States often do so via vehicles which are state-owned, but market-oriented like Sovereign Wealth Funds. A

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non-state-centric geoeconomic perspective can help to disentangle these seemingly antagonistic aspects of state power (Liu & Dixon, 2021). Third, our volume introduces an understanding of geoeconomics that includes, but is not reducible to concerns of national security, especially in a narrow realist sense. Geopolitics is commonly defined as the projection of state power abroad (see, e.g., Markowitz & Fariss, 2018). Geopolitical analysis then fills this quite general definition by scrutinizing by whom, to what goal, and through which instruments and circumstances state power is projected cross-border. Geoeconomic perspectives tend, in general, to follow this geopolitical logic with a new emphasis on the “growing securitisation of economic policy and economisation of strategic policy” (Wesley, 2016, 4 as cited in Roberts et al., 2019). Others like Gertz and Evers go into a similar direction by defining geoeconomics in the sense of economic statecraft and the emerging ‘collapse’ of the distinction between economic and national security (Gertz & Evers, 2020, 177). Similarly, Scholvin and Wigell (2018) view geoeconomics as an ‘alternative form of power politics’ and emphasize ‘the way states use economic power to pursue geostrategic aims’ (ibid.). While our volume does not dispute these definitions—in fact, some chapters follow such a conceptualization of geoeconomics—we seek to broaden the scope of the concept to capture the many ways in which geoeconomic phenomena deviate from a wholly security-based perspective. Going beyond the idea of geoeconomics as state power projection via economic means is important because there are a multiplicity of incentives and instruments at the disposal of state and non-state actors that intersect with logics of state power projection. Examples of such phenomena are the strategies and motivations of the shareholding state and state financialization (see, e.g., Schwan et al., 2021; Wang, 2015), the varying geostrategic logics of state-capital hybrids (Dixon, 2022), the geoeconomic power resources of institutional investors and exchanges as new global power brokers (Fichtner & Heemskerk, 2020; Petry, 2021), or how ‘hard-wired’ power inequities in (sometimes arcane) global financial and security infrastructures determine both geoeconomic strategies of actors as well as their probability of success (de Goede, 2020). Untangling the origins and identifying the loci of geoeconomic power wielded through these processes, institutions, and structures requires an analytical toolkit that does not simply reduce an understanding of such phenomena to projections of state power abroad. Taken together, this edited volume aims to delineate the political economy of geoeconomics in a changing global order by integrating

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three key aspects: First, a focus away from conflict as the mere driver of geoeconomic strategies, but a focus on other forms such as competition and cooperation in a tightly integrated global political economy; second an extension of the focus beyond the nation state as the main actor in the contemporary geoeconomic order; and third the broadening of the focus of geoeconomics beyond the security-centered understanding of the projection of state power abroad. Naturally, all three aspects are interrelated, as a focus on security issues is intimately connected to a state-centric perspective and the conflicts between these actors. The chapters of this volume do not follow a strict definition of what geoeconomics is and is not supposed to be. In order to meaningfully deliver on the claim that we are delineating the political economy of geoeconomics in a changing global order, we cannot simply define away the multidisciplinarity and multiperspectivity of the field itself. This would be presumptuous. Rather, we seek to open a dialogue that takes statecentric and non-state-centric, security-oriented and broader perspectives, competition-oriented and cooperation-oriented, and other approaches seriously. The different chapters of this volume will hence take different stances on either of the delineated elements and provide unique perspectives on the geoeconomic aspects of their cases and topics. Table 1.1 summarizes the different contributions to these themes. The remainder of this introductory chapter surveys the two other major themes of this volume: the changing global order and Europe’s role within it. In the end, we give an overview of the different chapters and their particular contributions to this volume.

Globalization and Change in Geoeconomic Times The rise of geoeconomic competition and conflict is not taking place in a vacuum. The nature of international politics is changing within an ‘old’ order that exerts a strong influence on the shape, direction, and agency space of the emerging order. For instance, during the course of neoliberal globalization, global value chains expanded across borders and they are unlikely to play a lesser role in distributing power and wealth in a post-neoliberal (and post-pandemic) world (Linsi, 2021). Global production networks, which integrate value and wealth chains, and increased network-like interdependencies in the global political economy, will also influence future geoeconomic competition. Even new types of actors like state-capital hybrids need to move within and across such existing

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Table 1.1 The different themes/extensions of mainstream geoeconomics provided in this volume Theme

Chapters addressing this theme

How do they address it

Beyond conflict: competition, cooperation, co-existence

Koddenbrock and Mertens; Choer Moraes and Wigell; Balmas and Dörry

Beyond state-centrism: towards a multiplicity of actors

Balmas and Dörry; Lavery et al.; Veselinoviˇc; Weinhardt et al.

Beyond security: multiple motivations and power resources

Balmas and Dörry; Koddenbrock and Mertens; Veselinoviˇc; Weinhardt et al.

Integration/co-existence of security and economic state strategies (Koddenbrock and Mertens); US-China competition and co-existence (Choer Moraes and Wigell); Cooperation between European countries and Chinese state-led bank expansion (Balmas and Dörry) Chinese state-owned and European banks (Balmas and Dörry); the European Commission (Lavery et al.); Think Tanks (Veselinoviˇc); various European (non-)state actors (Weinhardt et al.) Flanking FDI and infrastructure projects (Balmas and Dörry); Re-adjusting growth models (Koddenbrock and Mertens); Hegemonic aspirations (Veselinoviˇc); Trade and investment policies (Weinhardt et al.)

networks (Babi´c, 2021). The incumbents of these structures will have a say in who wins and who loses important control and access to which parts of global wealth production (Sydow et al., 2021). Another important ‘child’ of neoliberal globalization that will also determine global power politics in a geoeconomic world is China. Research on ‘China Inc.’ and Chinese (state-owned) transnational capital demonstrates how the global economic rise of China was enabled by the tenets and opportunity structures of neoliberal globalization (Liu & Dixon, 2021; de Graaff, 2020). The changing nature of globalization into more competitive and weaponized interdependencies will also have an effect on (and be driven

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by) the various ways China is integrated into the global economy, be it via global value chains, foreign (state-led) investment, transnational elites, Renminbi internationalization, and other channels. As the form of international politics is changing, so are its underlying logics within which actors operate. The late John Ruggie coined the notion of the social purpose of world politics, which is transforming slowly but steadily. When Ruggie first used the concept to describe the state of international politics, he differentiated it analytically from the shape of these politics. Pure power politics determine whether and what type of hegemonic or contested order we see, whether it is multipolarity or some other form. It is the social purpose of an order that provides the ‘generative grammar’ and thus the content (Ruggie, 1982, 382) shaping international politics. For the post-Cold War liberal international order, this social purpose consisted at its minimum of the spreading of liberal democracy and market societies around the globe, spearheaded by the United States as global hegemon. Many proponents and analysts of the post-Cold War order imagined a ‘flat,’ marketized, and decentrally governed world community bringing about global prosperity and liberty (see, e.g., Friedman, 2005; Slaughter, 2005). While there can be debates about to which extent this liberal imagination really materialized in the twenty-first century, ours is a different time. From liberal democracy, to the viability of (neoliberal) capitalism and the primus inter pares role of the United States, all basic tenets of the preceding order are up for discussion today. Neoliberal globalization, the politico-economic phase of the liberal order after 1990, was shaped by global economic relations that were at least less confrontative and weaponized than today. In a geoeconomic world, interdependence through global trade and investment or the existence of globalized value chains and production networks becomes a source of vulnerability rather than a force for tighter global integration. Similarly, a peacefully rising China in the 1990s and early 2000s is today often perceived more as a systemic competitor for Western powers rather than a potential ally (Kennedy & Blanchette, 2021). In short, the changing global order moves away from a phase of relative stability into more turbulent global conditions.2

2 By ‘relative’ stability we mean the fact that, despite major global crises, the post-Cold War global order was shaped by the ‘supremacy, but not hegemony’ of a transnationally organized historical bloc (Bieler & Morton, 2004, 96).

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We argue in this introduction that the concept of geoeconomics is suitable to describe the modus operandi of a post-neoliberal global order in flux. The ideological and material crises of neoliberal globalization eroded the weak, but existing supremacy of neoliberal ideas in global policy-making, and produced competing visions of organizing markets and societies (Brown, 2019; Gerbaudo, 2021). Although these ideas and policies did not gain hegemony or supremacy yet, they challenge key tenets of what neoliberal globalization was about. It is especially visions on the right of a post-globalized order that gained traction around the world, with Brexit and the election of Donald Trump as key events (Babi´c, 2020; Davies & Gane, 2021). These accounts challenge established neoliberal truths such as the necessity of capital mobility, the exclusively beneficial nature of global free trade, or that there is no alternative to destructive forms of downwards tax and wage competition. But also more ‘mainstream’ centrist or left positions are re-discovering long-forgotten arguments for more protectionism and a re-shoring of globalized supply chains (Helleiner, 2021). All of this is still in the making, both ideationally and materially. There is no fully fledged, competing alternative vision of world order that will soon replace the fragile supremacy of neoliberal globalization. From far-right ‘Western’ ideas to authoritarian ideas coming from elsewhere (Allan et al., 2018), potentially hegemonic concepts of re-ordering international politics still need to be refined and configured in the years to come. In this interregnum of a post-neoliberal global order, states, global companies, and other social forces are scrambling to reposition themselves strategically and ideationally. The American Trump-experience was more than an aberration of history, but contributed (maybe disproportionally) to a progressively more inwards-oriented, protectionist, and strategically repositioning United States in a changing global order (Drezner, 2019). Similarly, a ‘Xi-ist’ reformulation of Chinese foreign policies is decidedly more oriented toward disruptively ‘reshap[ing] global trade and production patterns’ (Mulvad, 2019, 449) rather than integrating into existing global structures forged during neoliberal globalization. Similarly, the EU and its member states are also undergoing an increased ‘geopoliticization’ of their trade and investment policies with regard to emerging actors in the global system (see next section). Other actors like global multinational corporations are also adapting to new geoeconomic realities by extending their strategic set of tools to deal with a more adverse environment (Babi´c

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et al., 2017). Global giants like Apple now aim to reconcile the ‘platform power’ (Culpepper & Thelen, 2020) they are able to exercise in Western markets with government-obedient strategies of gaining access to large emerging markets like China (Canales, 2021). Different from free-market and globalization advocacy of large industrial and technological firms during the heyday of neoliberal globalization, these actors are increasingly resorting to strategic instruments that have been summarized under the concept of ‘corporate geoeconomics’ in this volume (see Choer Moraes and Wigell, this volume). If global corporations have ever been understood as neutral market participants, the age of geoeconomics at last provides enough reasons to correct this view (see also Mikler, 2018). Within the world of international politics, geoeconomic competition also leads to the erosion of old alliances and the intensification of new conflicts. The rise of China as a challenge to US hegemony does not only affect those two superpowers—as a ‘classical’ geopolitical reading might suggest—but has geoeconomic reverberations across the globe. For instance, the German and the American response to the ‘China challenge’ diverges significantly in the age of ‘techno-nationalism’ (Starrs & Germann, 2021): Certain strata of German labor and its export-oriented industry firms seek to further benefit from a symbiotic relationship with a continuously expanding Chinese consumer market, while US labor and the American security establishment demand a more aggressive stance toward Chinese economic and geopolitical competition (Baltz, 2022). Such examples show not only how the ‘new cold war’ between the United States and China can be studied using geoeconomic perspectives instead of classical geopolitical ones (see, e.g., Blackwill & Harris, 2016; Gertz & Evers, 2020), but also how a geoeconomic lens expands the analysis toward different actors and new geographies. Geoeconomic studies have looked at the role of Chinese expansion into different geographical areas in the wake of its geoeconomic Belt and Road Initiative (BRI), such as Central and Eastern Europe (Song, 2019), the Indo-Pacific (Li, 2020), Asia (Yeh, 2016) or the globe as such (Beeson, 2018). Similarly, a focus on the United States, often in geoeconomic competition with China, can be found on a global scale (Aggarwal & Reddie, 2021), within Asia (Lee et al., 2018), toward Iran (Rivlin, 2018), or within global infrastructures (Schindler et al., 2021). Some scholars take this even further away from the United States and China as major geoeconomic actors. Studies on Russian geostrategy (Wigell & Vihma, 2016), German and French geoeconomic diplomacy (Olsen, 2020), Venezuela’s foreign oil policy

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(Restrepo, 2018), or the India-Pakistan dispute (Pattanaik, 2018) demonstrate that the geographies of the new geoeconomics go beyond the ‘new cold war’ setting that dominates the literature. The contributions in this volume seek to build on and extend this geographical variety of perspectives by introducing Europe as a geographical hotspot of geoeconomics in a changing global order.

The ‘Missing Third’ Power: EU Strategic Autonomy and Beyond A specific focus is put on Europe for two reasons. First, Europe is often the ‘missing third’ actor in discussions on US-Sino rivalries and the socalled new Cold War. Being less unified and speaking with multiple voices, in addition to an image of a ‘normative power’ when it comes to foreign policies, the EU is often neglected, despite the fact that it is the single largest unified economic area in the world. In terms of purchasing power standards, it is on par with China and the United States (Eurostat, 2020). This means that especially in geoeconomic times, the role of one of the global economic superpowers needs to be reappreciated and scrutinized more than it has been done so far in the existing literature. Second, a focus on Europe also reveals important ties and interdependencies to other world areas that are affected by geoeconomic competition with and by Europe, as the contributions by Balmas and Dörry or Weinhardt et al. (this volume) demonstrate. By understanding the role of the missing third power in a new geoeconomic world, we get a better grasp of the reverberations of the geoeconomic turn in EU policy-making beyond the United States, China, and Europe itself. A clear focus is given on the EU and Europe as both geoeconomics targets and actors. The relevance of Europe in an age of geoeconomics also comes back in recent debates around a more ‘geopolitical’ and even ‘geoeconomic’ Union. Such developments are relevant insofar as they shift the discourse on the role of the EU in the global order from a neutral, market-oriented, ‘normative’ power toward a geoeconomic player. In recent years, we heard different voices and attempts at broadening the debate toward issues like ‘strategic autonomy’ (Anghel et al., 2020), a more ‘geopolitical commission’ (Koenig, 2019), or ‘digital’ and ‘technological’ sovereignty (Csernatoni, 2021). All of these strategic debates involve two key aspects: First, they aim to either make sense or to push forward a new global orientation of the EU after decades of strategic alignment with US economic

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and military power. Second, they involve a ‘geo’-aspect, be it in the sense of classical geopolitical considerations or newly emerging geoeconomic threats and opportunities. This focus on geostrategic aspects suggests that global positionality and interdependencies play again a larger role in the ‘geoeconomic’ transformation of the EU in the 2020s than they did in the last decades. The ‘geopolitization’ of European trade and investment rules is thereby only one aspect of a much broader remaking of the EU on a global scale (Meunier & Nicolaidis, 2019). Scott Lavery and Davide Schmid have recently described the internal and external drivers and consequences of these fundamental transformations of the Union within a ‘new global disorder’ (Lavery & Schmid, 2021). The aim of the chapters by Lavery et al. and Veselinoviˇc in this book is to explore these drivers and consequences more in-depth from a geoeconomic perspective. One of the key drivers that motivates also our own research is the rise of statism or ‘state capitalism’ in general in recent years (Alami et al., 2022). As many astute observers have argued, statism and state-led investment forms are on the rise in recent years in virtually all spheres of the global economy. We can see a rise of state-directed multinationals in the global economy (Nölke, 2014), of National Oil Companies (NOCs) (de Graaff, 2012) and Sovereign Wealth Funds (SWFs) (Clark et al., 2013), of various other transnational state-led investment forms (Babi´c, 2021), of ‘state-permeated’ economies as such (Nölke et al., 2019), of statesteered capital markets (Petry et al., 2021), or of state ownership among the highest echelons of the global corporate network (Haberly & Wójcik, 2017). This rise represents a special challenge for the foreign policy role of the EU as liberal role model. While the Union embraced and globally promoted a model of a ‘level playing field’ for the last decades (see van Miert, 1998), new geoeconomic realities demand a course correction, as the different chapters of this volume convincingly demonstrate. Statism and state-led economies play thereby a special role: They are identified as the main protagonists of a new vision of organizing market economies that stands in opposition to the liberal model promoted by the EU (Huotari & Kratz, 2019). Beyond only theoretical disputes, EU officials urge member states to build up protectionist measures against this statist challenge (Braun et al., 2020; Espinoza, 2020; Espinoza & Fleming, 2019). Finally, even strategic papers and projects from EU member states are being launched with the explicit aim to compete on par with more state-backed and coordinated models of economic development (BMBF, 2019). Importantly, all of these phenomena can be observed against

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the backdrop of a more hostile global environment, in which geoeconomic tools and strategies—such as ‘defensive’ investment screening or ‘offensive’ industrial policies—become more important assets of economic foreign policy-making (see Weinhardt et al., this volume). These developments suggest a relation between the rise of statism on the one hand, and an increasing ‘geoeconomization’ of EU economic policies in this changing global order on the other hand. As we have seen above, statism is not a unitary force as many accounts on ‘state capitalism’ tend to portray (see, e.g., Bremmer, 2010). The multitude of different forms and shapes of a statist rearticulation make it hence difficult to claim a clear-cut causal relationship between the rise of ‘state capitalism’ and the increased geoeconomization of EU foreign policies. Despite this difficulty, recent research has tried to capture some of these mechanisms under the headers of ‘competitive emulation,’ ‘mimetic behaviour,’ or ‘mutual reinforcement’ (Alami & Dixon, 2021, 22). The chapters in this volume that deal with the strategic autonomy project also scrutinize some of these mechanisms in more detail (see Weinhardt et al., Lavery et al., or Koddenbrock and Mertens, this volume). All of them focus on specific instances where the EU or its member states react to specific challenges or developments that are often related to some of the many forms in which state capitalism is articulated globally. The rise of statism and its effects in the global political economy are hence closely connected to many of the geoeconomic responses we have seen on the side of the EU and other actors that in the past tended to promote a different, more liberal development model. To better understand the challenge arising from state capitalism, it is useful to differentiate the phenomenon accordingly. As a heuristic, we can distinguish between a more systemic (or: political) and a more economic challenge that statism represents for Europe and its geoeconomic turn. On the systemic side, the rise of the so-called BRICS countries (Brazil, Russia, India, China, South Africa) represents a key development since the mid-2000s. Back then, an emerging ‘BRICs challenge’ was described as being based on ‘relatively more statist, less market-driven forms of state’ (Stephen, 2014, 912). The group was understood as ‘a developmental and geopolitical challenge to the West’ (Kiely, 2015, 33), and scholars also identified a ‘B(R)IC Variety of Capitalism’ (Nölke, 2012, 177), which could reign in a new phase of post-liberal global capitalism. The institutional differences of this variety of (state-led) capitalism

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vis-à-vis the European growth models led to the establishment of an idealtype of a ‘state-permeated market economy’ (Nölke et al., 2015). This ideal type varies in many respects from the classical European blend of liberal, coordinated, and dependent market economies (Hall & Soskice, 2001). Different from those, state-permeated capitalisms are coordinated by informal, personal trust relations within tight state-business coalitions (Nölke et al., 2015, 543). This is reflected, among others, in corporate governance systems of statist economies, where national or even state ownership is predominant, whereas this is not the case for most European capitalist varieties (ibid., 544). Likewise, state support via extended loan and subsidy policies, or the maintaining of a controlled, almost protectionist integration into global market structures like in the Chinese case (see Weber, 2021) are key differentials to European capitalist systems. Out of the initial group of the BRICS states, it is especially China that proved to be the major emerging power of the last two decades challenging the global liberal hegemony on a systemic level—beyond, and sometimes against the other BRIC(S) states (Beeson & Zeng, 2018; Hooijmaaijers, 2021; Pant, 2013). Consequently, European opinion and policy-makers tend to speak of a ‘systemic competition with China’ (Wambach, 2019) as the key systemic challenge for the EU and its member states. The more economic aspects of the statist challenge result from the international reverberations of the state-permeated nature of economies like China. The combination of a dominance of state ownership, strong, and often competition-distorting support of national champions and industries (see Nölke, 2014), and in tendency more protectionist trade and investment policies cause controversies in the EU. As an example, the German Monopolies Commission issued a report in which it described ‘Chinese state capitalism’ as a ‘challenge for the European market economy’ (Monopolkommission, 2020). It lists subsidies for state-owned firms as one of the key intervention tools of this state capitalism, which could lead to competitive disadvantages for EU companies. The report identifies different loopholes in EU competition law which it suggests to close via new powers and instruments granted to member states. Similar ideas are being described in other realms of European foreign (economic) policy-making such as the already established investment screening mechanism, framed as a direct answer to Chinese (and other) state capitalism(s) (Huotari & Kratz, 2019). Some of the main elements of the economic challenge that statism represents are disproportionate state subsidies (resulting in unfair competition); other material and ideational support

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for SOEs competing on global markets; the instrumentalization of stateowned vehicles for political goals abroad; the acquisition of nationally important economic and security-related assets cross-border through SOEs and SWFs; and the consolidation of large global conglomerates and monopolies under state ownership through foreign acquisitions. The economic aspects of the rise of state capitalism hence go beyond and complement the partially abstract notions of a systemic challenge by providing concrete tools and strategies of state capitalist economies that urge European policy-makers to develop geoeconomic answers. Although some of these practices and developments are fueling actually existing concerns of European policy-makers vis-à-vis statist tools and economies (see Cuervo-Cazurra, 2018; Sultan Balbuena, 2016), we still need to be careful to not attribute the European geoeconomic turn solely to the rise of a more assertive, muscular state capitalism around the world. Many ideas about an ‘Eastern’ threat or the statist revival of the socalled third world are reprisals of older geopolitical grand narratives (see Alami & Dixon, 2020). We hence need to be careful to carve out the cases in which a geoeconomic turn in specific policy areas in Europe is actually formulated as an answer to the rise of statism, and also scrutinize the many other sources of this geoeconomic turn. The chapters in this volume engage in this important groundwork, from analyzing European think tanks as intellectual and organizational sources of the geoeconomic turn (see Veselinoviˇc, this volume) to differentiating various instruments and their origins on the EU level (see Weinhardt et al., this volume) and embedding these events in broader shifts in the international realm (see Choer Moraes and Wigell, this volume). Going beyond the scope of this introductory chapter, the different contributions cover the various sources and reasons for Europe to develop a more robust, but at the same time imperfect and contested set of geoeconomic policies and tools.

Europe in a Changing Global Order: The Plan of This Book After this introductory chapter, Choer Moraes and Wigell (this volume) provide a conceptual overview of the main elements of a geoeconomic world after neoliberal globalization. Being firmly rooted in international politics, their chapter argues that both states and corporations reposition themselves and develop new geoeconomic strategies in a changing global order. On the one side, states develop policies seeking to reduce economic

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interdependence built over decades of neoliberal globalization. Such strategic behavior, which Choer Moraes and Wigell dub ‘balancing dependence,’ reflects the changed coordinates of a global order in flux. Given the partial breakdown of established channels and modes of global governance, the authors hold that states aim to reduce risk and dependence in a world of geoeconomic uncertainties. On the other side, the chapter emphasizes that corporate actors also play an increasingly important role in twenty-first-century international politics. The authors develop the idea of ‘corporate geoeconomics’ to capture ‘how firms are trying to preserve a measure of autonomy in an economic environment marked by increased state intervention’ (ibid.). They argue that the phase of neoliberal globalization enabled corporate actors to wield power in the international system—a fact that states in some cases try to leverage for their own strategic considerations, and that in other instances presents a problem for balancing dependence for state actors. Similar to the points made in this introduction, the authors argue that Chinese state capitalism presents one of the main drivers of both state and corporate re-positionings in the global political economy. In sum, Choer Moraes and Wigell extend the classical state-centric perspective on geoeconomics to include the important role of corporate actors in a changing global order, and they present an overview of current geoeconomic dynamics between China, the United States, and Europe at the beginning of the 2020s. Their contribution lays the groundwork for the subsequent chapters placing the EU and Europe in this changing global context. Building on these insights, Lavery, Schmid, and McDaniels (this volume) then present the first contribution centering on the EU in a changing global order. Their chapter assesses the state of the core ‘strategic autonomy’ project of the EU as a major milestone in the geoeconomic transformation of the EU. By examining the discourse around this project in Germany, France, and the European Commission over the last decade, they deliver a state-of-the-art diagnosis about where this geoeconomic project stands and where it is headed. They first discuss the development of the concept itself, its diffusion, and the emerging interpretative and substantive divergences between various EU actors. Afterward, the authors analyze over 250 French, English, and German policy documents from the last decade to map the evolution of the concept of strategic autonomy and the interest divergences that it brings to the fore. Based on this analysis, the chapter argues that the project of strategic autonomy remains fragmented and contested, which they trace

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back to long-standing competing visions of Europe that have shaped its historical evolution. Consequently, the authors argue, we should expect stronger backlashes and challenges for the strategic autonomy project due to these historically grown constraints of EU governance as such. In order to trace the ideational origins and drivers of the strategic autonomy project, Veselinoviˇc (this volume) sheds light on a hitherto under-researched aspect of the new geoeconomic turn of the EU. By studying foreign policy think tanks as both debate circles as well as strategic mobilization platforms, the author analyzes a key powerknowledge nexus in the current debates on the geoeconomic shift of the EU. Aiming to excavate the social purpose of the ongoing transformations of European foreign policy-making, Veselinoviˇc traces the involvement of think tanks in the creation of the 2016 European Global Strategy as the background condition for the establishment of strategic autonomy. The chapter analyzes in-depth both think tank output material as well as official EU documents and positions regarding the geoeconomic renewal of EU foreign policy-making. Conceptually, Veselinoviˇc establishes think tanks as ‘meso-level’ geoeconomic actors that drive policy changes without being scrutinized accordingly. Empirically, the chapter traces the genealogy of the concept of strategic autonomy which dominates today’s foreign policy discussion within Europe. It shows how think tanks played a crucial role in the creation of this project which is today mostly associated with high-level politics. The chapter hence represents an important building block for understanding the geostrategic changes we observed in the preceding chapters. Investigating the EU’s geoeconomic turn beyond the strategic autonomy project, Weinhardt, Mau, and Hillebrand Pohl (this volume) analyze the EU capabilities to counter and adapt to increasing geoeconomics tensions between China and the United States. From a multidisciplinary perspective, the authors review three different EU-level initiatives and probe their adequacy to develop effective European geoeconomic instruments. Concretely, the chapter addresses investment screening mechanisms, the Most-Favored Nations clauses in free trade agreements, and the EU’s response to China’s Belt and Road Initiative as three recent major geoeconomic projects. They combine legal, economic, and political science perspectives to map the newly emerging political dynamics and changing patterns of EU foreign policy-making in the shadow of new geoeconomics rivalries. The authors argue that the ability of the EU to set up and implement effective defensive geoeconomic instruments

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is constrained by lack of alignment of individual member states with a common EU policy stance on new geoeconomic realities. In addition to bringing new empirical material into the debates on the potentials and limits of the EU as a geoeconomic actor, Weinhardt, Mau, and Hillebrand Pohl also contribute to conceptual discussions between different layers and scales of Europe’s geoeconomic transformation. The next chapter by Koddenbrock and Mertens (this volume) moves away from the EU-level to the member-state-level and provides a case study of the geoeconomic transformations in Germany. The country is in mainstream political discussions perceived rather as a ‘civilian’ actor, despite its hegemonic standing in the EU and Europe in general. The authors argue that a more confrontative world of geoeconomic competition and conflict also puts rather ‘commercial’ powers like Germany on the spot. They trace the recalibration of the German production regime in a changing world order and demonstrate its dilemma of being an export-dependent middle power in an environment of increasingly weaponized interdependencies. While direct state support for globally competing companies used to be problematic in the German ordoliberal context, today those companies themselves embrace the language of geoeconomic competition. This argument reflects the more general points made by Choer Moraes and Wigell (this volume). In their analysis, Koddenbrock and Mertens bridge classical comparative political economy insights with a global political economy perspective to make sense of the influence of a changing global order on national growth models. They conclude that such an integrated perspective can help us to make sense of the recent geoeconomic shifts in Germany’s foreign economic policy stance. As a second EU Member State case study, the contribution by Balmas and Dörry (this volume) traces the role of Luxembourg in the crossborder expansion of Chinese state-owned banks into the EU. Their study builds on original interview material with Chinese and European bankers to understand how Luxembourg, as an international financial center punching above its political and economic weight, has become home to a high concentration of Chinese state-owned banks in the European Union. Their chapter fills an important gap in our understanding of how the expansion of Chinese state-owned banking, as a prime geoeconomic project, is bolstered, facilitated, and enabled by European corporate actors working outside of public and political attention. They conceptualize and empirically trace Chinese state-owned bank expansion into

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Europe, and thereby enrich our understanding of both concrete geoeconomic projects as well as hitherto under-researched geoeconomic actors, namely banks. With this, Balmas and Dörry also contribute conceptually to ongoing geoeconomic debates by putting the empirical spotlight on geoeconomic actors that do not play a role in ‘Western-centric’ conceptual frameworks, but that are nevertheless crucial to understand Chinese geoeconomic practice and agency. They shed light on some of the implications of a geoeconomic world for the EU outside of its own geostrategic considerations and governance-related debates. The conclusion by the volume editors takes stock of the different contributions and their main arguments and provides an outlook for further research. Specifically, we extract different core propositions from each of the chapters and discuss them critically as the foundation for future research into geoeconomics and the role of Europe in a changing global order. With this conclusion, we seek to facilitate a research agenda that scrutinizes the role of Europe in a changing global order, but does not stop at this. We argue that the work conducted in this edited volume can serve as a critical starting point for extending the study of geoeconomics and the changing global order beyond Europe into even more understudied geographies of the global political economy such as Africa or Latin America. By clarifying the role that EU and European states play in these newly emerging global dynamics, we argue, we can sharpen our analytical tools beyond the classical geopolitical notion of a ‘New Cold War’ between the United States and China. Bringing in a ‘third’ major actor enables us to see alternative conflicts and visions of a post-neoliberal global order that also provide points of reference and connections to further world regions and political dynamics that are going to shape the geoeconomic decade of the 2020s. Taken together, the chapters of this volume thus try to understand what the causes, actors, and consequences for a geoeconomic Europe in a changing global order are. They recognize that a re-ordering of global power politics is underway, which also affects the logics and strategic choices of different actors within it. They show how such changes affect specific states (Koddenbrock and Mertens; Choer Moraes and Wigell); supranational institutions (Weinhardt, Mau, and Hillebrand Pohl; Lavery, Schmid, and McDaniel); non-state actors (Veselinoviˇc); or state-sponsored entities (Balmas and Dörry) within and beyond Europe. With this, the authors contribute to better understanding the still forming shape of a world after neoliberal globalization. They also acknowledge the

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limits of doing so in the middle of global shifts that still need to bring about a stable global order. Many of the ‘strategic’ realignments of actors like Germany, the EU, China, or the United States are still often of a more tactical nature: They meander through global disruptions and conflicts, often hoping to either preserve and salvage existing benefits and privileges or to challenge and capture relative gains in this changing global order. How the post-neoliberal global order, and Europe’s place within it, will look like might be guesswork, but this volume shows that there are instruments and analytical perspectives that can help us in monitoring and evaluating ongoing changes. This is important in order to be able to understand and act through a phase of global re-ordering that might last years, if not decades (Babi´c, 2020). Sketching geoeconomics as one of the major developments that will shape global political economy of the next decade, as this volume does, is a necessarily difficult and in many ways deficient project. Scholars of international political economy will have a list of issues that are not covered in this book: From the role of non-European/American/Asian actors and powers to the role of finance and the exacerbation of global inequalities, the list will be long. We acknowledge that a project aiming to sketch the future of the global political economy at an important historical crossroads needs to be much broader than this edited volume. At the same time, we strongly believe that an exposé of the current geoeconomic landscape, and some of its rather underexplored aspects like the role of the EU, is a meaningful contribution to such a broader project. This volume takes a first step in exploring new avenues and understanding existing but transforming global and European conflicts in uncertain times. It presents an attempt at channeling some of the emerging discussions around what the new geoeconomic realities mean for different actors that hold or aspire to global power; and to survey some of the most prominent themes within this new geoeconomic setting for European policy-making. At the same time, the limits and boundaries of geoeconomics as a concept will be tested and critically evaluated, also beyond Europe. The conclusion of this volume dives deeper into this issue. As a whole, this book presents the first building block for a political economy of geoeconomics in a changing global order, which will hopefully help students and scholars of international politics make sense of a global order that is transforming as we speak.

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Acknowledgements This chapter was supported by the European Research Council (ERC) under the European Union’s Horizon 2020 research and innovation program (Grant agreement No. 758430).

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CHAPTER 2

Balancing Dependence: The Quest for Autonomy and the Rise of Corporate Geoeconomics Henrique Choer Moraes and Mikael Wigell

Introduction The past years have witnessed a transformation in the logic underpinning global economic relations. Not only China and Russia, but also the European Union, Japan, the United Kingdom, and the United States

The views and opinions expressed are the sole responsibility of the author and do not represent the official position of the government of Brazil. H. Choer Moraes KU Leuven Centre for Global Governance Studies, Katholieke Universiteit Leuven, Leuven, Belgium e-mail: [email protected] Ministry of Foreign Affairs„ Brazil Ministry of Foreign Affairs, Brasília, Brazil M. Wigell (B) Finnish Institute of International Affairs, Helsinki, Finland e-mail: [email protected]

© The Author(s) 2022 M. Babi´c et al. (eds.), The Political Economy of Geoeconomics: Europe in a Changing World, International Political Economy Series, https://doi.org/10.1007/978-3-031-01968-5_2

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are increasingly embracing a myriad of economic policies that defy the largely market-oriented rationale of the (neo)liberal order prevailing over the course of the last three decades. This (neo)liberal order was premised on the relative separation of the realms of economic and security policy, and thus of having profit-seeking market players as leading the pace and direction of global economic relations. This attitude is well exemplified by the 1994 declaration which prefaces the agreements launching the World Trade Organization, in which trade ministers hailed ‘the participation of their economies in the world trading system, based upon open, market-oriented policies’ (WTO, 1994, p. 1263). Developments over the last years point in a different direction with major economies actively deploying a mix of innovative as well as time-tested interventions in the economy directed at safeguarding their ‘strategic assets’, ‘critical infrastructures’ or ‘emerging technologies’ from control or influence by foreign state and/or market forces. In order to make sense of these transformations, this chapter introduces the concept of ‘balancing dependence’ by which we refer to state policies that seek to reduce economic dependencies on foreign actors, both public and private. As great-power competition has been accelerating, most major powers have become increasingly concerned about the security risks that interdependence poses for state autonomy and economic preparedness. On the one hand, these risks are systemic in that they stem from the networked nature of the global economy and the effects of sudden disruptions in multi-tiered supply chains. The fragility of these global economic networks and linkages has been highlighted by the COVID-19 crisis (Farrell & Newman, 2020). On the other hand, these risks are geostrategic, relating to the way asymmetric interdependencies can be manipulated, exploited and leveraged for strategic benefits by the less vulnerable parties in these relationships (Farrell & Newman, 2019; Leonard, 2016; Scholvin & Wigell, 2018). As a result, recent reviews of security doctrines by China, the EU, Russia and the United States have seen unprecedented emphasis put on economic security and policies to reduce strategies dependencies (e.g. Helwig, 2021; McCormick et al., 2020; Trenin, 2021). The tendency towards balancing dependence can also readily be seen in the EU’s efforts to develop its ‘open strategic autonomy’, the United States’ ‘reshoring’ of supply chains and technological ‘decoupling’, as well as China’s ‘Made in China’-strategy. The ‘New Industrial Strategy for Europe’, for example, declares that ‘Europe’s strategic autonomy is about

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reducing dependence on others for things we need the most’ (European Commission, 2020b, p. 13). To this aim, the European Commission published a survey in May 2021 on the ‘strategic dependencies’ affecting the EU, revealing 137 products where the EU can be considered highly dependent on imports (European Commission, 2021b). Similarly, the Biden administration, barely a month after taking office in January 2021, issued an executive order on ‘America’s Supply Chains’, based on the premise that ‘the United States needs resilient, diverse, and secure supply chains to ensure our economic prosperity and national security’.1 US government agencies in a number of sectors—from defence to health, from food to semiconductors—were instructed to report on the risks that may affect the supply chains on which the US relies as well as on gaps in domestic manufacturing capabilities, and the structure of supply chains for strategic assets. China’s main strategy for trade and technology—‘dual circulation’—also revolves around an effort to reduce foreign dependence and strengthen self-sufficiency (García-Herrero, 2021). This newfound urge to balance dependence puts pressure on the interdependent fabric of the global economy. Similar to the familiar notion of ‘balancing power’, balancing dependence creates a security dilemma as states seek to adjust their level of dependence in relation to similar efforts by others. The concern with reducing dependence by key economies triggers a reaction of broader and deeper measures towards economic autonomy by other key players in the global economy. While this reaction sometimes entails increasing the level of self-sufficiency, often it involves efforts to adjust the reliance towards economic partners deemed more reliable from a security perspective. Either way, as suggested by the surveys on strategic dependencies undertaken by the EU and the United States, states show more interest in understanding who their national economies depend on—and in trying to influence the network of dependencies. The notion of “friend and ally-shoring” introduced in the 2021 White House (2021) report on America’s supply chains adds new vocabulary to the set of principles that shaped the neoliberal economic order enshrined in institutions such as the World Trade Organization. As a consequence, the (neo)liberal order may start to unravel (see also the introduction to this volume).

1 Executive Order No. 14,017, 86 US Federal Register (February 24, 2021), p. 11,849.

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However, to what extent this unravelling takes place will not only depend on state action. The (neo)liberal order has given global business clout to push back on government decisions (for a seminal analysis, see Strange, 1996, p. 29). States will not enjoy free rein in subverting economic relations into the strategic realm. Companies will seek to limit the impact of governments’ actions over their businesses, while also attempting to induce governments to adopt measures—such as industrial policies and tax incentives—that hedge their position in a changing economic order. A priori it may thus be difficult to define how far states can go in merging economics and national security. States are varyingly constrained in their ability to pursue policies autonomously from domestic interest groups (see Gertz & Evers, 2020). From the perspective of balancing dependence, the nature of domestic business-government relations is of particular importance. Intuitively, state capitalist systems can be assumed to have a comparative advantage over market economic systems when it comes to enlisting companies to balance dependence. As Gertz and Evers (2020, p. 117) contend: ‘Close, cooperative relations between businesses and the government act as a force multiplier – state power increases when firms are aligned with state goals and eager and willing to work hand-in-hand with the government to achieve them’. By comparison, in liberal market economies, where business-government relations are more distant, policymakers will be constrained in using firms to advance state interests. Yet, even in state capitalist systems, enlisting companies to align with state interests is far from straightforward. As research by Kärkkäinen (2016) shows, China sometimes finds it difficult to control its corporate actors, even statecontrolled ones, and get them to pull in the same direction. With a view to shedding light on market reactions to states’ balancing dependence, we also introduce in this chapter the concept of ‘corporate geoeconomics’, with which we propose to describe how firms are trying to preserve a measure of autonomy in an economic environment marked by increased state (geoeconomic) intervention (see also Borchert, 2021). The chapter proceeds as follows. The next section develops a geoeconomic framework for analysing the transformation of global economic relations. It argues that the notion of balancing dependence provides a novel analytical device for understanding the current repurposing of economic policies. As states seek to strengthen economic autonomy, they increasingly start to balance dependence, thereby feeding a reaction of

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the same nature by other states that puts pressure on the interdependent fabric of the global economy. Thus, the subsequent section surveys the increasing convergence between economics and national security in the strategies of the major powers in the global economy, chiefly China, the European Union and the United States. But we also argue that an appropriate conceptualization cannot be circumscribed to a standard, state-centric geoeconomic framework. It needs some refinement in order to capture the distinctive elements of the current strategic context, namely the simultaneous economic competition and security rivalry between the world’s great powers as well as the deep-seated interdependence that was ushered in by the regimes of (neo)liberal globalization. For this reason, the third section looks at corporate reactions to the revival of geoeconomics in Europe and the United States. It shows how market players seek to shape and limit state intervention as well as adapt to it, pointing to the agency of also non-state actors in contemporary geoeconomics. The concluding section argues that geoeconomics is ultimately a multilevel dynamic in which states are looking to strengthen their economic autonomy in relation to both other states in the international system as well as corporate actors, and in which these corporate actors in turn are trying to preserve their own autonomy from state intervention in what we call corporate geoeconomics.

The Quest for Autonomy: A Geoeconomic Framework As an analytical framework, geoeconomics straddles the gap between international political economy (IPE) and international security perspectives (IS). While IPE deals with the ‘connections between economics and politics beyond the confines of a single state’ (Cohen, 2008, p. 1), a significant part of the IPE academic agenda is focused on explaining socio-economic development, not security dynamics. International security studies, in turn, almost exclusively focus on explaining security-related outcomes. IS concepts revolve around the use of military power without paying much attention to the strategic uses of economic power. This explains why also IS studies focusing on the topic of economic sanctions (Mastanduno, 1999) provide few insights for understanding how the global economy will operate when security considerations affect the functioning of normal market relations.

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The contribution we make by proposing the concept of balancing dependence stands at the interstice between these two scholarly traditions. First, it highlights that economic prowess is an attribute of power that supports a state’s level of autonomy. In this sense, our concept draws on the ‘power and plenty’ tradition, whose modern theorization can be ascribed to Jacob Viner (Viner, 1948). But it also recognizes that, given the current interdependent structure of the international system, conflicts directly involving major powers are more likely to take place in non-military contexts, such as in the economic realm. This also affiliates our framing with Edward Luttwak, for whom geoeconomics implies that states will seek to outdo others in the economic domain (Luttwak, 1990, p. 20). However, unlike the environment described by Luttwak, who focused on the US-Japan competition (Luttwak, 1993), the current international context is unprecedented given that key global economic partners—United States and China—are often also strategic or security rivals. Therefore, the geoeconomic framework of analysis needs to incorporate a security and strategic angle that did not exist in Luttwak’s conceptualization. As foreign policy practice, geoeconomics is now more aptly understood as ‘the geostrategic use of economic power’ (Wigell, 2016, p. 137), in which economic and security or strategic considerations intertwine and shift the logic that has underpinned economic relations during the (neo)liberal era introduced in the post-Cold War (Roberts et al., 2019). Our notion of balancing dependence thus points toward a novel analytical framework for studying geostrategic phenomena. ‘Balance of power’ is a central analytical device in traditional strategic studies. It is used to explain strategic behaviour, alliance statecraft and international order (Paul et al., 2004). By balancing against a threatening military power, states protect their territorial sovereignty and hinder hegemony. Yet, this concept cannot capture important novel dynamics in current strategic competition, which is being wielded foremost by economic means. Sovereignty itself is not really at stake in this new power political game. Rather, policymakers fret about ending up in a situation of economic dependence on an external power that could undermine the state’s autonomy, i.e. its ability to act independently. In contrast to sovereignty, which states either possess or not, autonomy denotes a relative attribute that states possess to varying degrees. ‘Vassal states’, while still formally sovereign, have had to yield their autonomy entirely to some other state. All states find themselves on a spectrum

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between autonomy and dependence in terms of their ability to act according to their own interests, free from external constraints or interference. As Hurrell (2013, p. 38) explains, autonomy thus refers to the degree of effective state independence, whereas sovereignty denotes ‘a state’s formal legal claim to independence irrespective of the degree to which it is able to implement that claim in practice’. The preoccupation with military power in much geostrategic scholarship and its concomitant focus on territorial occupation has led to a discarding of more subtle means by which a state’s autonomy can be curtailed by actions that stop short of endangering its sovereignty. Herein, the burgeoning geoeconomic scholarship provides a welcome correction, with its focus on subversive economic means of power politics specifically targeting the autonomy of another state instead of its sovereignty. In particular, this scholarship has highlighted binding2 and wedging3 strategies whereby external powers seek to curtail a target state’s effective room of strategic autonomy (see Tshkay, 2021; Wigell & Soliz Landivar, 2018; Wigell & Vihma, 2016). As a strategic practice, geoeconomics thus revolves around a struggle for autonomy, whether offensively by trying to enforce dependencies on others—and use those dependencies to manipulate their behaviour—or defensively by reducing such dependencies so as not to become a pawn in geoeconomic power politics. The uptick in state economic interventionism seen today is driven by this quest for autonomy. Occasionally, measures adopted by states to reinforce their autonomy might even negatively affect the interests of domestic industries, such as when the US government seeks to discourage Wall Street firms from increasing its engagement in China. As President Biden’s National Security Adviser, 2 Geoeconomic binding refers to the use of economic inducements to make target states economically dependent on the external power who gains political leverage. China’s BRI, for instance, has been portrayed as such a geoeconomic binding strategy, in which targeted countries gain short-term economic benefits at the expense of political concessions over the longer-term (Tshkay 2021; Wigell & Soliz Landivar, 2018). 3 Geoeconomic wedging refers to a policy of dividing a target country (or coalition) by applying the logic of ‘selective accommodation’, in which the external power offers economic inducements selectively to some targets, but not to others. By manipulating economic rewards and punishments in this way, the geoeconomic agents exert divergent pressures on these targets, causing disunity among them. Extant research on geoeconomic wedging mainly concerns Russia’s attempts to cause disunity in Europe, by the clever manipulation of energy prices and the funding of radical, populist and anti-EU political parties (Vihma & Wigell, 2016; Wigell & Vihma, 2016).

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Jake Sullivan, declared: ‘Why (…) should it be a US negotiating priority to open China’s financial system for Goldman Sachs?’ (Hale et al., 2021). Examples such as these show that the search for autonomy cannot simply be equated to protectionism. Offensive geoeconomics by actors such as the United States and China has contributed to this quest around the world and propelled more consideration for balancing dependence. The use of economic coercion by the United States under then President Trump, with the application of extraterritoriality in enforcing financial sanctions, has precipitated geoeconomic balancing intended to reduce vulnerability to such coercion. In response, China has sought to create alternative financial infrastructures to protect against US ‘weaponization’ of the global financial system. China has launched the China International Payment System as an alternative to the US-dominated global payment system SWIFT, and it is gearing up for the internationalization of a digital yuan as an alternative to the dollar (see Cheung, 2020). Even Europe has created an anti-coercion instrument to hedge against the risk of being strong-armed, including by the United States (Hackenbroich, 2020). Likewise, the use of economic inducement by China through especially its BRI has raised concern for ‘debt traps’ and economic ‘Finlandization’, and precipitating calls for geoeconomic balancing aimed to avoid vassalage (e.g. Blackwill & Harris, 2016; Tshkay, 2021). As with traditional geopolitical balancing, also geoeconomic balancing is associated with a security dilemma. In geopolitical balancing it relates to the risk of an arms race when states try to balance their own military preparedness in relation to the military capabilities of others (e.g. Jervis, 1978). In geoeconomics the balancing dilemma relates to the vulnerabilities arising from the dependence on foreign actors supplying resources critical for national security and welfare. In a context of accelerating great-power competition, reliance on foreign actors for the provision of goods that range from vaccines to food, from semiconductors to critical technologies is increasingly perceived as a source of vulnerability. This perception of ‘reliance on foreign actors as vulnerability’ thus triggers a reaction as states respond to each other’s efforts to balance dependencies by reducing their own level of dependence through measures aimed at strengthening economic autonomy. In this struggle for autonomy, the interdependent fabric of the current global economy risks coming apart. States seek to identify assets and capabilities they consider strategic and which warrant protection from foreign control. Even the

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EU, which has benefited from open trade and investment policies, has issued a host of new policy instruments ranging from FDI screening, an updated blocking statute, new foreign subsidies and procurement regulations, as well as several action plans to increase the EU’s technological autonomy (see Wigell et al., 2022). State attempts to strengthen autonomy by balancing dependence are not straightforward. Increased state intervention is likely to collide with the interests of corporate actors who have been leading the process of neoliberal globalization over the past decades and who prefer to keep the state at arm’s length from the market. These powerful non-state actors will see their own autonomy challenged by the increased state encroachment of strategic and security interests into the market, and by states attempting to enlist companies as interlocutors for their geoeconomic actions (see Gertz & Evers, 2020). As a result, companies are adopting different strategies to respond to state geoeconomics, which may range from trying to limit the use of geoeconomic instruments to actually helping enabling them, depending on their own particular interests. In this sense, our contribution also seeks to shed light on the role of economic market-led interdependence in constraining state’s action to safeguard their autonomy, thus offering an angle that seems to be unaddressed by the IPE literature on trade with adversaries (Gowa, 1994, p. 42). Companies should thus not be seen only at the receiving end of geoeconomic action. Companies have geoeconomic agency, which can be understood as corporate geoeconomics. According to Borchert (2021, p. 32), such a perspective can help explain ‘why technology proliferation is becoming so contested, as the business motive to serve clients can collide with governmental interests in preventing competitors from gaining access to certain technologies’. As states feel compelled to mobilize more resources for accelerating geoeconomic competition, and thus assume more control over domestic businesses, business-government relations are likely to become more contentious. Many businesses are pushing back against attempts to increase state leverage. Especially in liberal market economies, companies are often only reluctant partners in economic statecraft and use democratic infrastructure, such as partisan politics and the court system, to frustrate government efforts to enlist them in helping realizing their geoeconomic strategies (Gertz & Evers,

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2020). Other companies, on the other hand, may see opportunities for state capture in closer business-government relations. The notion of corporate geoeconomics adds a domestic dimension to geoeconomics as an analytical approach, beyond the prevailing statecentric perspective. The role of Innenpolitik in geoeconomics research has remained relatively unexplored territory (notable exceptions include Blackwill & Harris, 2016; Gertz & Evers, 2020). Yet, already Luttwak (1990, p. 128) underscored the role of business-government relations in determining a state’s geoeconomic policies and how ‘geoeconomic activity of the state will become a focal point of political debate and partisan controversy’.

Geoeconomic Balancing: Increasing State Control of Economic Interactions A suite of geoeconomic policies adopted or being considered in recent years provides evidence that states are carving out an expanding scope of economic areas from market rules. This flurry of geoeconomic decisions stands in stark contrast to states’ ‘policy of purposeful benign permissiveness regarding (…) the forces of globalization’ that has prevailed until recently (Kirshner, 2006, p. 4). Traditional geoeconomic measures, such as export controls, are being imposed on an increasing number of products that extend beyond the defence realm. The 2018 reform of US export control points to a step change by directing the US government to focus on ‘emerging and foundational technologies’,4 instead of adopting the traditional ‘backwardlooking’ approach to the technologies protected (Brown & Pavneet, 2018, p. 24). These broad concepts signal the intention of preventing foreign actors from building on US technological leadership to become leaders themselves. The same trend towards more rigorous control over access by foreigners to strategic assets is also visible with regard to investment screening mechanisms. Until recently, national economies would fight for foreign direct investments, to the point where states would not hesitate

4 United States Export Control Reform Act 2018, Section 1758, National Defense Authorization Act (NDAA) for Fiscal Year 2019, Public Law No. 115-232.

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to grant foreign investors the right to challenge national policies before international private arbitrators.5 Now, a growing number of restrictions seek to keep certain foreign investors from acquiring even minority stakes in assets considered strategic. UNCTAD reports that, from January 2011 to September 2019, at least 13 countries introduced new investment screening legislation while at least 45 ‘significant amendments’ to existing mechanisms were enacted (UNCTAD, 2019). Another break from the recent past is identifiable in governments’ attempts to actively redesign supply chains. The transition from the ‘statecentric Washington Consensus model of development’ of the 1990s to a ‘global-value-chain framework’ (Gereffi, 2014) meant that corporations defined how to organize their production geographically, based on costeffectiveness criteria—hence the global value chains sprawling across the world. Now, states are invoking strategic reasons to dent this liberty enjoyed by companies. Thus, for instance, Japan announced subsidies for the relocation of firms outside China (Reynolds & Urabe, 2020). The French government is reported to be considering financial support for the reshoring of the production of paracetamol (Abboud & Peel, 2020). And the US government is going out of its way to prevent Chinese companies from catching up with American and especially Taiwanese companies that lead in the production of semiconductors (Blank, 2020). While these examples do not necessarily mean the collapse of global value chains, they testify to the fact that states are increasingly attempting to induce companies to structure production networks in a geoeconomic fashion, as opposed to the cost-effective criteria that account for the current shape of global value chains. The EU and its member states are inching forward in the same direction. The European Union is working on new remedies to counter subsidized foreign investments (European Commission, 2021a). Furthermore, in a push to boost Europe’s ‘technological sovereignty’, the European 5 Until 31 December 2020, 1,104 investor-state arbitral disputes had been filed against 141 countries, increasingly against developed economies. In these disputes (also known as ISDS cases, for “investor-state dispute settlement”) foreign investors have attempted to sue host states for alleged economic harms emerging from governmental measures ranging from anti-tobacco legislation to environmental licensing practices. Despite the popularity attained by ISDS commitments in the 1990s, when they were touted as a mechanism to attract foreign investment, the past years have witnessed an increased backlash against such procedures. See UNCTAD, Investment Settlement Dispute Navigator, at https://inv estmentpolicy.unctad.org/investment-dispute-settlement.

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Commission is proposing measures to foster a European cloud service industry with a view to reducing Europe’s ‘technological dependencies in (…) strategic infrastructures (…) at the centre of the data economy’ (European Commission, 2020a, p.9). Furthermore, while the EU’s most senior competition official was making the case for member states to buy stakes in companies to stave off Chinese takeovers (Espinoza, 2020), the German government was doing precisely that—but to prevent a US government-led acquisition of a German vaccine-maker in 2020. ‘We do not sell our silverware’, quipped Peter Altmaier, Germany’s economy minister (Miller & Cookson, 2020). The fact that all of the geoeconomic measures described above took place in recent years is no coincidence. These measures are reactions to two interrelated events in particular: the impact of China’s development model on the global economy, itself heavily reliant on geoeconomic instruments and, to a lesser extent, the perception that market-driven globalization excessively based on interdependent, fragmented production poses risks that were disregarded until recently—as demonstrated by the shortages of medical supplies in the wake of the COVID-19 outbreak. Major economies are catching up to what they now perceive was China’s strategy for the past twenty years. In this view, instead of opening up to an interdependent global economy, China has managed its exposure to interdependence in order to gain capabilities in a wide array of economic areas, ranging from the production of active ingredients for pharmaceuticals to the development of a sophisticated technological infrastructure. A 2019 study by the McKinsey Global Institute reported that ‘China is becoming less exposed to the rest of the world, which, in turn, is becoming more exposed to China’ (McKinsey Global Institute, 2019, preface). Particularly under the current leadership, China has become more wary of the risks associated with too much interdependence. The concept of ‘national security’ now reflects the wide scope of industries that Chinese legislators wish to protect and preserve against inward foreign investment (Huang, 2021, p. 130). These fears have only intensified in the wake of President Trump’s policies towards China and Chinese companies (Gewirtz, 2020). China’s government is reportedly trying to wean itself off its reliance on foreign suppliers for ‘stranglehold technologies’, arguably in preparation for a more hostile world economy (Economist, 2020a). While (most) Western companies have certainly benefitted by relocating to China, Western governments are now faced with the spill-over

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of capabilities away from their economies. Through a number of statesupported policies, China has successfully displaced incumbents in, among other economic sectors, the dredging industry, shipping companies, ports, shipbuilding and maritime components, railways and rail supply industry, steel, construction and engineering and energy networks (Holslag, 2019, 97–136). Attempts by Western governments to balance dependence stem from this realization. Despite the increased polarization in US politics, one of the few topics identified as generating bipartisan support is the perception that China benefitted from largely unrestricted access to global markets without according similar conditions to foreign companies in its domestic economy (White House, 2020). Such political support enabled the US Senate to approve, in June 2021, a bill tabled by Senator Charles Schumer with a panoply of measures aimed at countering China (from financial support to third countries’ independence from China to industrial policy measures such as heavy investments in the US semiconductor industry) (Romm, 2021). In 2019, the European Union has also felt the need to review its stance towards China by recognizing the country to be a ‘systemic rival promoting alternative models of governance’ (European Commission & HRFASP, 2019, p. 1). Lack of reciprocity for foreign companies persisted over the years as a frustratingly unresolved irritant in bilateral relations with China, but economic ties with the country were still viewed favourably. The Chinese market was, and remains, an important source of revenue for a significant number of foreign businesses. This mixed appreciation of the Chinese market as both a source of threat and opportunities has been captured by many industry associations over the recent years (AmCham China, 2020; Federation of German Industries, 2019). It was instead the Chinese geoeconomic policies calling for ‘indigenous innovation’ (The State Council of The People’s Republic of China, 2006) and increased self-sufficiency (CGTN, 2020) (and the consequent discrimination in favour of Chinese companies) that raised the concerns of Western countries to a strategic level, going beyond the level of economic competition only. These policies cast the lack of reciprocity and the discriminatory treatment of foreign companies in China in a substantively different light.6 6 See for the United States: USTR (2018, pp. 4, 43, 147, 171); for the European Union: European Commission and High Representative of the Union for Foreign Affairs and Security Policy (2019, p. 5).

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Persistent corporate grievances compounded by government anxieties tilted the domestic political balance in Western countries towards a change of tack in dealings with China. China’s geoeconomic behaviour would increasingly be met with geoeconomic reactions in the shape of measures such as investment screening legislations, curbs on listings of Chinese companies in the US financial market and reinforced export control measures aimed at preventing Chinese companies from acquiring technologies detained by US companies. This dynamic whereby states balance their dependence in reaction to measures of a similar nature by other states gives concrete shape to what, until now, remained only a likely development in the writings of some analysts. Accordingly, Luttwak contended in 2012 that ‘China’s continuing rise (…) will inevitably be resisted by geoeconomic means – that is, by strategically motivated as opposed to merely protectionist trade barriers, investment prohibitions, more extensive technology denials, and even restrictions on raw material exports to China (…)’ (Luttwak, 2012, p. 42). The geoeconomic balancing does not necessarily point to the containment of China, nor does it determine that China is not entitled to pursue its own development model. Rather, it implies the recognition that China’s geoeconomic policies shift the game away from the market orientation that has prevailed until now. Most examples of the geoeconomic measures presented above seek to reciprocate China’s domestic restrictions and shield strategic assets from being accessed by Chinese public and private actors. Thus, what became the EU investment screening mechanism in 2019 had as one of its opening salvos a letter by the economy ministers of France, Germany and Italy to the European Commission expressing concerns ‘about the lack of reciprocity and about a possible sell-out of European expertise, which we are currently unable to combat with effective instruments’ (Reuters, 2017). A second factor driving geoeconomic balancing is a reversal of the prevailing perception of economic interdependence within developed economies, until recently viewed largely as a source of efficient allocation of resources. Shortages of face masks and other medical products to respond to the COVID-19 outbreak brought home to many policymakers the fact that market-led supply chain design had moved production too far from home (Farrell & Newman, 2020). The pandemic exposed the vulnerable side of interdependence that geoeconomic analysts had been warning about (Scholvin & Wigell, 2018).

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Even absent any deliberate intent to weaponize interdependence, it was the very structure of globalized interdependence—fragmented, but concentrated in a small number of sources—that sparked the calls for increased resilience in the supply of certain goods. According to a report by the McKinsey Global Institute, ‘[m]any low-value or basic ingredients in pharmaceuticals are predominantly produced in China and India’. The same report identified ‘180 products across value chains for which one country accounts for 70 percent or more of exports, creating the potential for bottlenecks’ (McKinsey Global Institute, 2020). The anxieties aroused by over-reliance on interdependence are directly associated with the fact that Chinese state-controlled companies are key nodes in many supply chains, thereby turning even products of modest technical sophistication into ‘strategic goods’, such as face masks. Of course, the immediate link that associates China with the malaise in respect of interdependence should not obfuscate the fact that the existing architecture of production networks—or Chinese companies’ position in it—is the direct result of corporate decisions, themselves enabled by political decisions within Western countries over recent years. A critical decision in this regard by the latter countries was the acceptance of China into the World Trade Organization (Blustein, 2019), which produced benefits not only to China, but also to the global economy. It is in this context of geoeconomic balancing that we should interpret efforts such as the Biden administration’s executive order on ‘America’s Supply Chains’7 as well as the EU surveys on the strategic dependencies that affect Europe (European Commission, 2020b) presented at the introduction of this article. Exercises such as these are a first step for policies aimed at safeguarding the level of autonomy enjoyed by states and might lead to some degree of decoupling, diversification of economic partnerships and an increase in local manufacturing. Irrespective of how such policies evolve, however, debates aimed at taking stock of dependencies affecting a given economy are emblematic of a trend whereby governments show an interest in assessing strategic vulnerabilities emerging from economic relations. Ultimately, balancing dependence is an exercise that unfolds in the domestic politics arena, taking into account the locally affected interests— as well as, of course, the international constraints that shape a country’s

7 Executive Order No. 14,017, note 1 above.

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foreign policy. This means there is no pre-determined result for this exercise. States might conclude, all factors weighed, that they are comfortable with the existing level of interdependence.

Corporate Geoeconomics: Market Reactions to Increased State Action Under liberal market capitalism, it is in a state’s strategic interest that companies are able to pursue their economic goals in an environment with minimal political interference. However, the current revival of geoeconomics puts a strain on the frequent convergence between the ‘national interest’ (strategic) and the ‘corporate interest’ (economic) that underpinned the neoliberal phase of globalization (Gilpin, 1975, p. 142; Krasner, 1978, p. 89). How are corporations reacting to states increasingly resorting to geoeconomic measures? Reactions from market players could be grouped under what we call corporate geoeconomics (see also Borchert, 2021). Companies usually seek to preserve their businesses—however, in a shifting strategic global environment over which they have limited control, this often requires adapting corporate strategy in order to achieve self-preservation. This is, of course, a dynamic context and it remains challenging to discern a clear path adopted by corporations in trying to preserve their businesses from the fallout of geoeconomic measures. With this caveat, we propose the following types of reactions from market players: (a) ‘business as usual’, in which companies try to limit or push back against state interference in economic relations; (b) ‘one company, two systems’, whereby companies seek to adapt in order to play on all sides of the strategic divide; and (c) ‘patriotic capitalism’ (Foroohar, 2018), where corporate actors either openly side with their governments or advocate the adoption of geoeconomic measures as a way of keeping their country’s leadership in a given sector. We look at each of these in turn. The first, and perhaps most natural corporate attitude to increased government action in the economic realm, is to try to keep a lid on state interference in economic transactions in an attempt to literally maintain business as usual. As an example of this stance, the Federation of German Industries (BDI) declared in a 2019 report that ‘German industry has no interest in a conflict-oriented economic, political and technological containment or decoupling from China’ (Federation of

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German Industries, 2019, p. 6). Similarly, in the US public consultation seeking inputs to define ‘emerging technologies’ to be subject to export controls, a number of responses either sought to discourage the imposition of such controls or argued for a strict definition of which technologies to target. Amazon, for example, contended that ‘export controls on these [emerging] technologies, unless carefully and narrowly drawn and truly essential to national security interests, would ultimately hurt U.S. companies and competitiveness globally’ (Amazon.com, 2019). The ‘business as usual’ approach is also couched in language that seeks to ‘depoliticize’ corporate activity: ‘We’re not a political organisation and we don’t want to be’, stated HSBC’s chief executive regarding the US-China strategic rivalry (Morris, 2021). Furthermore, under the ‘business as usual’ pattern of corporate geoeconomics are instances in which market players have pushed back against statist geoeconomic measures. Accordingly, US companies Cisco and Oracle rebuffed the Trump administration’s proposal to develop open source 5G software to compete against Huawei (Waters, 2020). Likewise, Toyota and other Japanese companies are reportedly not taking the subsidies offered by Japan to relocate their supply chains out of China, attracted as they are to the potential offered by the Chinese domestic market (Ryall, 2020). A second approach that can be discerned in market actors’ attitudes is to adapt their business models in order to be able to operate across existing strategic divides. Tesla is one of the companies that is betting on manufacturing in China, despite the escalating US-China geoeconomic tensions. Its Shanghai Gigafactory, which began production in 2019, anticipated sourcing 100% of its components from China by the end of 2020 (Global Times, 2020). Other companies also appear to be taking a ‘one company, two systems’ approach—certainly with an eye on the promising returns from the Chinese market (Fang, 2020)—in the hope that adapting their activities to the particular demands of each side of the strategic divide will allow them to continue their operations with minimal geoeconomic disruption (Helberg, 2020). A complicating factor in this picture of corporate attitudes is the salience of human rights violations by China, especially regarding the Xinjiang region. Mounting criticism in the West is challenging the ‘business as usual’ and the ‘one company, two systems’ attitudes, with companies like German Volkswagen being forced to take a stand. But if they do, they risk suffering retorsion from Beijing (Friedman & Paton,

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2021). This aspect of the strategic dynamic is certainly relevant and needs to be scrutinized in future research. A final type of corporate geoeconomics behaviour can be observed when companies portray themselves as ‘patriotic capitalists’. Market players emphasize the strategic nature of their sectors for their national economies, and often even for national security (Semiconductor Industry Association, 2019, p. 1), thereby siding with their national government but also seeking to benefit economically from it. One manifestation of this approach can be observed when companies plead with their home governments to adopt geoeconomic measures. These are often presented as necessary to preserve the national leadership in certain economic sectors or to level the playing field, all the while supporting these companies’ businesses. In 2020, the US Semiconductor Industry Association released a report advocating active state measures, such as tax incentives and investments in this industry ‘[b]ecause of the importance of semiconductor technology to our economy and national security’ (Semiconductor Industry Association, 2020, p. 3). This stance has been echoed by Google’s former CEO, Eric Schmidt, who advocates a number of public–private initiatives to ‘renew American leadership’ in the face of US competition with China (Schmidt, 2020). One example suggesting that this type of attitude might pay off is the passing of the US$ 52 billion subsidy package for the US semiconductor industry under the bipartisan United States Innovation and Competition Act in the US Senate (Semiconductor Industry Association, 2021). Another example includes cases in which a firm more openly takes sides in the geoeconomic dispute, such as Facebook’s case for its importance in supporting the American economy and values: ‘Facebook is a proudly American company’, as Mark Zuckerberg stated during a congressional hearing.8 Table 2.1 summarizes the strategies of corporate geoeconomics described above. A question to be explored in future research would be to scrutinize the determinants driving each type of corporate geoeconomic attitudes. A hypothesis to be tested is whether the level of freedom enjoyed by a company or industry to take sides in the geoeconomic struggle would be a function of its reliance on global markets, with Facebook (which does not 8 US House of Representatives Committee on the Judiciary—Subcommittee on Antitrust, Commercial, and Administrative Law, ‘Testimony of Mark Zuckerberg – Facebook, Inc.’, 29 July 2020.

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Table 2.1 Strategies of corporate geoeconomics ‘Business as usual’

‘One company, two systems’

‘Patriotic capitalism’

Companies seek to discourage measures that balance dependence for fear of ‘politicization’ of economic relations Companies realize they cannot control balancing dependence measures and seek to adapt their operations in order to play on both sides of the geoeconomic divide Companies embrace strategic competition and try to secure favorable positions economically, such as by tax incentives and industrial policies

operate in China) positioned in one extreme while manufacturers deeply integrated in Chinese supply chains and domestic market being at the other end of the spectrum. To be sure, corporate geoeconomic attitudes do not mean companies are relinquishing the pursuit of profits. Rather, they are seeking ways to continue to deliver profits, but under an environment that is more politicized. Traditional geopolitical risk management does not provide companies with an accurate compass for navigating this type of transformation. Geoeconomic actions affecting companies’ operations cannot be subsumed under ‘a coup, state intervention, the actions of local oligarchs, a change in the political fortunes of a key local partner, or a radical shift in public sentiment toward the company’ (Chipman, 2016). Rather, it is the very rationale of liberal market capitalism that is being reshaped as a result of frictions between major economic powers.

Conclusion: Geoeconomics as a Multi-level Dynamic This chapter argued that the logic underpinning the global economy since the aftermath of the Cold War is being transformed as major economies increasingly pursue more autonomy—and, in turn, renege on the marketled interdependence that inspired the regimes that shaped neoliberal globalization. As shown in this chapter, these major economies are actively seeking to balance the dependence of their national economies. In so doing, other states react by also adopting measures aimed at balancing their respective dependencies in a movement which ultimately undermines market-led global economic interdependence. It points to a revival

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of geoeconomics, both as a strategic practice and an analytical tool. The present chapter sought to make the case for such revival as well as to offer refinements to the conceptual framework of geoeconomics in order to better capture the current convergence between economic and security perspectives within the context of an unprecedented level of global economic interdependence. It is far from clear what the consequences from this geoeconomic turn will be for the global economy. We maintain that the resurgence of geoeconomics does not play out only at the level of relations between states. Instead, it is a multi-level dynamic: (i) at one level (which could be called state-state), states adopt measures to balance the dependence of their economies vis-à-vis other states, particularly those considered unreliable from a strategic perspective; (ii) at a second level, states seek to influence the behaviour of their national business communities in order to put into practice some measures aimed at balancing their dependencies. This can be seen in the (unsuccessful) US governments’ measures to discourage American companies from increasing their exposition to the Chinese economy. Conversely, China’s government does not seem to have found so much resistance against its inducements for Chinese companies to list their stocks in Hong Kong (Somasundaram, 2021); (iii) at a third level, as they engage in geoeconomic action, states seek to also influence the behaviour of foreign firms in order to either exclude foreign companies from their economies (and from accessing strategic capabilities), or to attract them and so contribute to the build-up of these capabilities (and thus decrease dependence on foreign suppliers). While the United States has adopted measures aimed at limiting the access of Chinese companies such as Huawei, WeChat and TikTok to the American market, China has been making overtures to important sources of strategic capabilities such as electric carmaker Tesla (McMorrow, 2019) and Wall Street firms (Economist, 2020b). At this level of geoeconomic interaction, strategic and economic interests of states and foreign companies will converge or diverge, leading potentially to counterintuitive situations in which the strategic interests of a state converge with those of foreign corporations (e.g. China’s interest in attracting US companies such as Tesla or Wall Street banks), yet diverge from the strategic goals of the host state of the same firm (e.g. the earlier quote by the US National Security Advisor questioning the American government’s interest in opening up the Chinese market for Goldman Sachs).

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Understanding geoeconomics as a multi-level phenomenon is critical to make sense of how the global economy will evolve in the current strategic context. The perspective offered by our approach places emphasis on the fact that, while major economies are leading the charge against market-led economic interdependence by balancing dependencies (and, in consequence, triggering a geoeconomic chain reaction by other economies), this does not mean they can single-handedly determine the direction of this process. In view of the dense network of economic interdependence created in the past decades of (neo)liberal globalization, the future shape and governance of the global economy also depend on the reactions by market forces. The evolution of this multi-level dynamic is a matter for future analysis, but the concepts introduced in this chapter— balancing dependence and corporate geoeconomics—might contribute to shed light on the logic underpinning this process.

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Open Access This chapter is licensed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/ by/4.0/), which permits use, sharing, adaptation, distribution and reproduction in any medium or format, as long as you give appropriate credit to the original author(s) and the source, provide a link to the Creative Commons license and indicate if changes were made. The images or other third party material in this chapter are included in the chapter’s Creative Commons license, unless indicated otherwise in a credit line to the material. If material is not included in the chapter’s Creative Commons license and your intended use is not permitted by statutory regulation or exceeds the permitted use, you will need to obtain permission directly from the copyright holder.

CHAPTER 3

European Strategic Autonomy: New Agenda, Old Constraints Scott Lavery, Sean McDaniel, and Davide Schmid

Introduction The past decade has seen a number of transformations in the global order. The continued rise of China, the weakening of the traditional leadership role of the United States and entrenched economic instabilities have produced intensified inter-regional competition and new patterns of

S. Lavery (B) Department of Politics and International Relations, University of Sheffield, Sheffield, United Kingdom e-mail: [email protected] S. McDaniel Future Economies Research Centre, Manchester Metropolitan University, Manchester, United Kingdom D. Schmid Department of History, Politics and Philosophy, Manchester Metropolitan University, Manchester, United Kingdom

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2022 M. Babi´c et al. (eds.), The Political Economy of Geoeconomics: Europe in a Changing World, International Political Economy Series, https://doi.org/10.1007/978-3-031-01968-5_3

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global turbulence (Lavery & Schmid, 2021; see also the other chapters of this volume).1 Many scholars have interpreted these changes to herald an increasingly ‘geo-economic’ world, within which the lines between national security and economic policy become increasingly blurred (Gertz et al., 2020; Luttwak, 1990; Roberts et al., 2019). Within Europe, these geoeconomic challenges have given rise to the idea that the EU needs to secure ‘strategic autonomy’ (Christiansen, 2020). While this term is highly contested, it has come to embody a general ambition to secure greater European independence in a volatile world economy and interstate system (SWP, 2019). This is fuelled by the sense, in Angela Merkel’s words, that ‘the times in which [Europe] could completely rely on others are long gone’ (FAZ, 2017). The principal aim of this chapter is to map the development of the European discourse on strategic autonomy over the past decade. In the first section, we explore the development of the concept from a narrow focus on defence and security policy, through to its diffusion into numerous policy domains, before tracing how a series of divergences have emerged between different member states and political actors in relation to the concept, leading to the often-noted ambiguity and malleability of the term. Strategic autonomy has therefore expanded from being a narrowly geopolitical vision to a comprehensive, albeit tension ridden, geoeconomic programme for Europe’s place in a changing global order. In the second and third sections, we explore these divergences empirically. Drawing upon over 250 French, English and German language documents from 2013 to 2021, including policy reports, think tank briefings and government papers from various stakeholders, we map the key divergences across different policy areas amongst key member states, economic interest groups and the European institutions.2 Our analysis focuses in particular on the developing relations between French and German actors, EU policymakers and other actors where relevant. We find 1 This chapter was written prior to Russia’s invasion of Ukraine in 2022. While the events there are still unfolding, we believe that the tension we identify in this chapterbetween ‘Atlanticist’ and ‘Europeanist’ visions of strategic autonomy-have shaped Europe’s response to the crisis. This is exemplified by the enduring primacy of NATO as a European security umbrella as well as the geoeconomic sanctions which the EU mobilised in response to the Russian invasion. 2 For a broader survey and empirical mapping of all 28 member states’ views on strategic autonomy, see the 2019 report by the European Council on Foreign Relations (Franke & Varma, 2019).

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that two key tensions have emerged in relation to the strategic autonomy agenda. The first relates to the division between those actors that favour retaining Europe’s close alignment to the US-led international order and those that want to see Europe take a stronger and more independent role in defence on the international stage. The second tension relates to the contrast between neo-mercantilists who advocate for the concept of strategic autonomy as a way to construct a more cohesive European economic bloc and neoliberals that are pushing to shore-up the EU’s liberal economic orientation, echoing previous conflicts over the shape of European capitalism (Van Apeldoorn, 2002). We argue that these contemporary divergences correspond to long-standing historical tensions built into the fabric of European integration between ‘Europeanists’ on the one hand and ‘Atlanticists’ on the other. A number of points follow from this empirical analysis. First, the ambiguous and contested character of strategic autonomy is in part a result of attempts to reconcile competing visions of Europe’s place in the world. Second, these tensions replicate long-standing patterns which have shaped the development of European integration historically. Third, these old constraints are likely to militate against the ambition to secure strategic autonomy in the context of the new geoeconomic challenges posed by the contemporary global order. The final section concludes and draws-out some wider reflections on what this means for Europe’s place in a changing global economy and inter-state system. It also considers the implications of our analysis for the burgeoning academic literature on geoeconomics.

European Strategic Autonomy: Development, Diffusion, Divergence The evolution of European strategic autonomy can be traced across three stages: from its early development in the sphere of European defence and security policy; through its subsequent diffusion across a wide range of policy areas; to a point where a series of marked divergences between actors on the meaning and utility of the concept came to the fore. In what follows, we trace how the concept evolved across these three axes before considering in more detail its contested application across a number of concrete policy areas.

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Development: Strategic Autonomy in Europe’s Defence, Technological and Industrial Base The concept of strategic autonomy first emerged on the European level in the early 2000s, with the launch of the Galileo space programme which aimed to create a European alternative to the US and Russian global navigation systems (DG External Policies, 2020). EU Transport Commissioner Jacques Barrot suggested in 2007 that ‘Europe needs Galileo … [it] is very important for the strategic autonomy of Europe’ (DW, 2007). It was in 2013 when the concept re-emerged and gained new impetus in the context of debates on European defence (European Council, 2014). European elites have long recognised challenges facing the European defence sector, including the fragmentation of Europe’s defence, technological and industrial base (EDTIB), the duplication of defence systems and dependence on third countries for providing critical inputs (European CEPS, 2013; Parliament, 2020). It was in response to these concerns that the December 2013 European Council first deployed the term strategic autonomy. The Council argued that Europe needed to develop a more ‘integrated, sustainable, innovative and competitive defence technological and industrial base (EDTIB)…[in order to]…enhance its strategic autonomy’ (ibid.). The Foreign Affairs Council echoed this language in 2015, underlining the point that developing the EDTIB would bolster European security while also bringing economic benefits, contributing to ‘jobs, growth and innovation across the EU and…Europe’s strategic autonomy’ (European Council, 2015). The development of strategic autonomy discourse gained further impetus under the Commission of Jean-Claude Juncker and High Representative of the Union for Foreign Affairs, Federica Mogherini. In 2015, the Commission announced the launch of two pilot schemes which preceded the creation of the European Defence Fund (EDF), a e13 billion programme aimed to facilitate coordination of European defence research capabilities and to strengthen the EDTIB (European Commission, 2018). A series of subsequent interventions, including the 2016 EU Global Strategy document, emphasised that ‘a sustainable, innovative and competitive European defence industry is essential for Europe’s strategic autonomy and for a credible Common Security and Defence Policy (CSDP)’ (EUGS, 2016, p. 45). The original idea of European strategic autonomy was therefore rooted in two related objectives: to reduce Europe’s external dependence on

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third countries while simultaneously enhancing Europe’s internal coordination mechanisms in ways which would enhance its capability to act in the world. While in its original formulation this related specifically to defence issues, the logic of self-sufficiency and building-up internal capacities remained in place as the idea of strategic autonomy expanded into other policy areas. Diffusion: Industrial Strategy, Finance, the Euro and COVID-19 Between 2014 and 2021, there was an increasing diffusion of the concept of strategic autonomy beyond the domain of defence, such that it became increasingly mobilised in relation to a broader range of policy issues and sectors, as outlined in the timeline in Table 3.1. This diffusion was propelled by two structural shifts in the global context. The ‘shocks’ of 2016—the UK’s vote for Brexit and the election of Donald Trump in the United States—raised questions about Anglo America’s commitment to the institutions of liberal internationalism and created a space within which European leaders could project a more assertive international policy stance (Besch, 2016). Emmanuel Macron, for example, noted at the time that the Trump presidency represented a break from the US’ traditional support for the EU, which required a more assertive position with respect to its foreign policy and defence issues (Economist, 2019). These sentiments were echoed by Ursula Von Der Leyen, who pledged in 2019 to run a ‘geopolitical Commission’, capable of responding to the challenges of an increasingly polarised and unstable world (European Commission, 2019b). The continued rise of China in the post-2008 period and its pivot in 2015 to the ‘Made in China 2025’ (MIC25) strategy further consolidated concerns that the EU was falling behind in terms of technological and industrial leadership in key sectors vis-à-vis emerging economies (SWP, 2020a). The Commission’s, 2019 China Strategy argued that it would be necessary to ‘foster industrial cross-border cooperation, with strong European players, around strategic value chains that are key to EU industrial competitiveness and strategic autonomy’ (Commission, 2019a). The diffusion of strategic autonomy during this period can be seen across four policy areas, in relation to the question of industrial strategy, European financial markets, the internationalisation of the euro and the COVID-19 pandemic. The European Commission’s (2020a) landmark A New Industrial Strategy for Europe report provides clear examples

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Table 3.1 A timeline of European strategic autonomy Date

Event

2007

The concept of strategic autonomy is first used in relation to the European Galileo space programme France’s Defence White Paper references strategic autonomy as a national level issue (Ministère des Armées, 2013) European Council (2014) first uses the concept in December 2013, in relation to the European Defence and Technological Industrial Base (EDTIB) The 2016 EU Global Strategy (EUGS, 2016) mentions strategic autonomy five times, focussing principally on its defence and security implications while also emphasising associated economic benefits and the importance of multilateralism Macron (2017) gives a major ‘Initiative for Europe’ speech at the Sorbonne on the goal of European sovereignty and sets out his aim for strategic autonomy by linking together different issues including defence, ecology, the economy, food sovereignty and technological infrastructure Macron gives a wide-ranging interview with The Economist (2019) and declares NATO to be ‘brain dead’ European Commission (2020a) publishes A New Industrial Strategy for Europe, which has a sub-section dedicated to strategic autonomy and emphasises its relation to FDI screening, digital infrastructure, the EDF and integration of the defence-industrial base and pharmaceutical strategy A Roadmap for Recovery is announced by President of the European Council Charles Michel and President of the Commission Ursula Von Der Leyen. Lays out EU response to COVID-19 and longer-term vision. Mentions strategic autonomy in relation to industrial strategy, in particular support for SMEs and FDI screening (European Council, 2020) ‘Open Strategic Autonomy’ is used by Sabine Weyand, Director General for Trade, European Commission. This exemplifies a shift around 2019 to prefix Strategic Autonomy with ‘open’ (EEAS, 2020) Macron gives an interview to Le Grant Continent (2020) setting out his vision of strategic autonomy and how the ‘Paris Consensus’ can replace the neo-liberal ‘Washington Consensus’ Dispute between German Defence Minister Annegret Kramp-Karrenbauer and Macron over strategic autonomy and its implications for the future of the transatlantic alliance (Le Grand Continent, 2020; Politico, 2020c)

April 2013 November 2013

June 2016

September 2017

November 2019 March 2020

April 2020

September 2020

November 2020

November 2020

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of this. The report states that: ‘Europe’s strategic autonomy is about reducing dependence on others for things we need the most: critical materials and technologies, food, infrastructure, security and other strategic areas…[which] provide Europe’s industry with an opportunity to develop its own markets, products and services which boost competitiveness’ (ibid., p. 13). Reducing Europe’s external ‘dependence’ on third countries here remains as a key objective but the range of possible ‘dependencies’ has expanded beyond questions of defence. In connection to this, initiatives such as the special state aid regulations for Important Projects of Common European Interest (IPCEI) are intended to promote projects in key technological areas such as data infrastructure and batteries, as part of a broader focus on achieving ‘technological sovereignty’ (European Parliament, 2021). In relation to the euro, Josep Borrell, High Representative of the EU for Foreign Affairs and Security Policy, stated that, “to increase the EU’s strategic autonomy, an excessive dependence on the dollar is one of our weaknesses…the EU should foster a greater use of the euro in international transactions” (Borrell, 2021). Notably, the ECB has also deployed the concept in its publications, noting that expanding global usage of the euro can contribute to a wider agenda of securing strategic autonomy in the international monetary system (ECB, 2020). The Capital Markets Union Action Plan similarly underlined the importance of developing deep and liquid European financial markets in order to support ‘strategically-open autonomy in an increasingly complex global economic context’ (Commission, 2020b, p. 2). Again, the logic of deepening European-level coordination mechanisms and internal capacities is identified as a key precondition of securing an independent European role within the global economy. With the world engulfed by the COVID-19 pandemic, the idea of strategic autonomy was again mobilised to refer to the need for the EU to secure its independence in terms of the production of vital supplies related to public health (European Council, 2020). The diffusion of the idea from defence to a far wider range of issues therefore culminated in the concept becoming a key framing device in terms of Europe’s COVID-response. By 2021, the concept of strategic autonomy has therefore become established as a prominent theme in European policymaking and extended far beyond its original formulation in relation to questions of defence (European Council, 2020).

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Divergence: Strategic Autonomy as a Contested Concept The diffusion of the idea of strategic autonomy was not, however, straightforward or uncontroversial. As the use of the concept has grown, it has provoked negative reactions and has exposed a series of divergences between different European actors regarding the meaning and implications of the concept. Most notably, German and French views on strategic autonomy began to differ, coalitions of Northern and CEE member states formed seeking to soften the agenda and various business groups spoke out seeking to limit the protectionist overtones of strategic autonomy. As a result, the concept has undergone a series of permutations as advocates sought to neutralise criticism and weld together a diversity of views. Indeed, a number of reports describe the ‘fuzzy’, malleable and vague nature of strategic autonomy (see DGAP, 2021a; Sénat, 2019). This is exemplified by the recent turn to discussing the need for ‘open’ strategic autonomy, which is meant to signal that the approach does not negate a commitment to multilateralism or a liberal approach to global economic governance (EEAS, 2020). Other formulations have proliferated too. Macron (2017) has foregrounded the question of French and European sovereignty, even expanding the concept so that it incorporates civilizational questions of European Enlightenment and progress (Le Grand Continent, 2020). The Commission itself has deployed the phrase ‘open strategic autonomy’ (Commission, 2020b). The vagueness of the term should not, however, be interpreted simply as the product of intellectual or ideological incoherence. Rather, we can better understand the fraught development of strategic autonomy as a product of a battle between long-standing competing visions of Europe’s place in the world, and attempts to reconcile these competing perspectives that have been at the heart of the project of European integration for decades.

Europe Versus the Atlantic? The ambition of securing European strategic autonomy is not new. Throughout the post-war period, European elites aimed to carve out a space of relative European autonomy while aligning to US global power (Lavery & Schmid, 2021). In the immediate post-war period, the United States played an instrumental role in Western European reconstruction (Lundestad, 2003; Panitch & Gindin, 2012). This took place within an

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Atlantic framework, underpinned by institutionalised trans-Atlantic cooperation embodied in the Marshall Plan, NATO, the formation of the OEEC and successive GATT trade rounds (Lundestad, 1998, p. 52). However, the reconstruction of Western Europe simultaneously gave shape to an alternative regional bloc which had the potential to rival the United States and its Atlantic framework. In order to better understand the divergences which characterise the strategic autonomy agenda, it is helpful to contextualise the programme in terms of these longer-term historical antinomies. In the following sections, we trace how the European challenge to Atlanticism has been historically expressed through two key and overlapping axes, one geopolitical and one geoeconomic. The first relates to traditional issues of defence, foreign policy and geopolitics and centres around Europe’s position within the Atlantic security framework. The second geoeconomic axis relates to questions of political economy and the degree to which Europe should be open to global market forces. Historically, forces supporting the Atlanticist and neoliberal visions of Europe’s place in the world have generally prevailed over their Europeanist rivals (Van Apeldoorn, 2002). There are good reasons to think these familiar patterns will continue to constrain the European strategic autonomy agenda.

A Geopolitical Europe? The first tension which characterises contemporary discourse and policy on strategic autonomy relates to the contrast between two distinct approaches to Europe’s security and defence policy. The Europeanist approach, championed by France and popular in EU policy making circles, calls for a bolder and more independent European security and defence policy that develops Europe’s autonomous capabilities in military and foreign affairs and reduces the continent’s dependence on NATO and on the security umbrella of the United States (SWP, 2019). The Atlanticist approach, espoused by Northern and Central and Eastern European (CEE) countries, favours the continuation of the established model of transatlantic security cooperation. Tensions between the Europeanist and Atlanticist positions run through the entire lifespan of European integration. In the 1960s, national governments led by France questioned Europe’s dependence on American military protection (Ryner & Cafruny, 2016, pp. 177–178). President de Gaulle pursued a strategy of national

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independence which involved the withdrawal from NATO’s command structure and called for an autonomous Europe stretching ‘from the Atlantic to the Urals’ (Ryner & Cafruny, 2016; Ryon, 2020). This Europeanist vision contrasted with the persistently Atlanticist orientation of the UK, Germany, the Netherlands and Northern European countries (Lundestad, 2003). While the ambition for European geopolitical autonomy failed to materialise—and European assertiveness became increasingly muted during the ‘relaunch’ of integration in the 1980s— tensions over the Atlantic question were never entirely resolved. After the end of the Cold War, amidst growing uncertainty in both Europe and the United States over the future of NATO, these tensions resurfaced in relation to the establishment of what was to become the EU’s CSDP (Menon, 2016, pp. 220–221). At Britain’s insistence, Europe’s nascent defence and security policy was explicitly conceived as strengthening the European pillar within NATO—an alignment which was confirmed in the 2007 Lisbon Treaty and reinforced by the accession of CEE states with a strong Atlanticist orientation. The Shocks of 2016 The contrast between Europeanist and Atlanticist orientations within European security and defence policy resurfaced with the election of Donald Trump. The new administration sought to redefine the US’s global role, expressing antipathy towards the European project and frustration at the limited contribution of its member states to NATO’s military budget. In this context, European leaders became more vocal about the need to adopt a more assertive and independent posture in relation to foreign and security policy. This was articulated most clearly by the newly elected President Macron who, as part of his broader vision of a re-energised European project, called for the strengthening of European defence capabilities and radical overhaul of military procurement so as to secure ‘industrial and technological autonomy’ (Ministère des Armées, 2017). In the light of the intergovernmental character of the policy areas concerned, Macron sought to enlist Berlin in a ‘new partnership’ which would serve as the driving force for further European integration (SWP, 2021). The drive towards a geopolitical Europe quickly translated into a range of different initiatives which were explicitly framed around strategic autonomy. In the area of defence coordination, progress was made

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in specifying the criteria for the Permanent Structured Cooperation (PESCO) as a keystone in Europe’s CSDP. The European Defence Industrial Development Programme (EDIDP) and the EDF were established and new joint military procurement projects were launched as part of a broader agenda of reducing Europe’s reliance on US technology and developing an autonomous military-industrial base (DGAP, 2020). The momentum behind these initiatives however quickly dissipated as Macron’s drive for European strategic autonomy was met with increasing suspicion and resistance by member states and received limited support from Berlin (SWP, 2021 p. 26). Countries like Poland, the Czech Republic, Lithuania and Sweden expressed concerns that the push for strategic autonomy would weaken the transatlantic alliance and reduce the US’s presence on the continent—an outcome they see as detrimental to their national security (DGAP, 2021b). Rifts also started to appear in the Franco-German partnership in regard to the rationale and means of securing greater autonomy in defence and security. The view in Paris, in line with the traditional Gaullist aspiration for strategic independence, is that European defence should develop into a pillar that is complementary to, but autonomous from, NATO (Economist, 2019)—a means by which to project European influence in neighbouring regions and assist France in its operations in Northern Africa (SWP, 2019, p. 12, 2021). Germany, on the other hand, sees cooperation in foreign and security policy chiefly as a political project intended to strengthen relations between EU member states and give new impetus to European integration (SWP, 2020b). Rather than an alternative to NATO, Berlin still understands Europe’s CSDP as strengthening the European pillar within the transatlantic alliance and ‘defusing the US criticism that European states do not contribute enough to NATO in terms of military budget’ (ibid.). This difference in outlook translates into a difference in the preferred means of securing coordination. As noted in a report by the German Institute for International and Security Affairs (SWP, 2019), whereas Germany prioritises ‘inclusivity and legitimacy’—looking to secure the consensus of all member states and to proceed within EU structures—France is ready to push ahead in smaller groups of willing participants and ‘sees little to gain from discussing these questions and processes among all twenty-seven EU member states’. The case of EI2—a European security initiative driven by France in parallel to PESCO but outside the EU framework—is therefore emblematic of the French approach according to which ‘the “European” in European

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strategic autonomy does not necessarily have to involve the EU’ (SWP, 2021). Push-back on Strategic Autonomy The different approaches to security coordination in Paris and Berlin and growing opposition from CEE and Northern European member states have translated into growing contestation of the project of strategic autonomy. Because of Macron’s strong role in articulating and promoting the concept, strategic autonomy is increasingly viewed by European supporters of NATO as the latest instantiation of the long-running French agenda of reducing the influence of the United States (SWP, 2019, p. 6). Polish Prime Minister Morawiecki, for instance, warned the European Council Summit in 2021 that ‘if misunderstood by our allies’, the concept of strategic autonomy ‘might negatively affect transatlantic relations’—a concern shared by other countries such as Lithuania and Sweden (Politico, 2021). In German political circles, where enthusiasm for the idea of a more autonomous Europe quickly waned after the initial shock of 2016, the concept is increasingly seen as unnecessarily divisive and even ‘toxic’ (Major & Mölling, 2020). The contested nature of strategic autonomy came to public light in November of 2020, when the German defence minister Annegret Kramp-Karrenbauer commented that ‘illusions of European strategic autonomy must come to an end: Europeans will not be able to replace America’s crucial role as a security provider’ (Politico, 2020c). Macron replied a few days later in an interview that he ‘profoundly disagree[d]’ with the German minister and that [Europeans] need to ‘continue to build [their] independence for [themselves], as the US does for itself and China does for itself’ (Le Grand Continent, 2020). The controversy revealed the extent to which the concept of strategic autonomy remains caught between different geopolitical visions. In a subtle but telling linguistic choice, upon taking over the rotating presidency in July 2020, Germany has largely steered clear of the term, preferring instead to frame its new ‘Strategic Compass’ initiative around the concept of the ‘capacity to act’ (DGAP, 2021c; FRS, 2020). Berlin’s hope is that a more pragmatic, less ambiguous formulation can sidestep the conflicts that strategic autonomy has become mired in and open a ‘best of both world’ path between Atlanticism and Europeanism.

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A Geoeconomic Europe? The strategic autonomy agenda has also revealed rival geoeconomic visions, which can be summarised as a conflict between Europe’s neomercantilists and neoliberals. The tensions between these blocs has been a long-standing feature of Europe’s political economy. In response to the economic crises of the 1970s, key industrial sectors and political actors promoted a neo-mercantilist strategy which aimed to construct a strong and unified European home market, protected by a high external tariff, which would act as a protective shield against foreign competition as well as a launchpad for integrated European champions (Van Apeldoorn, 2002, pp. 77–80). This vision was counterbalanced by a neoliberal alternative, which supported deeper integration with the world market and which was supported by internationalised business interests and states favouring the liberalisation of trade and investment, including Germany and the UK (Van Apeldoorn, 2002, pp. 79–81). The relaunch of European integration in the 1980s did not result in the straightforward triumph of neoliberalism, however. Neo-mercantilism was one element underpinning French-backed visions of ‘social Europe’, formalised in the Delors’ Commission’s 1985 White Paper. Indeed, some believed that even the creation of the Single Market would lead to a new form of ‘Fortress Europe’, with a strong and free internal market matched with protectionist measures externally in order to protect ‘EU champions’ (see Hanson, 1998). The debate between the more protectionist proclivities of the neo-mercantilists and the free trading preference of neoliberals has therefore been at the heart of the European integration debate for decades (see Van Apeldoorn, 2002). It is now finding new expression in the context of rising geoeconomic pressures and the European debate on strategic autonomy. Neo-mercantilist Defence Procurement Geoeconomic logics can be discerned in the fusion of European defence policy and wider questions regarding Europe’s industrial competitiveness. The 2017 French defence review, for example, makes clear that strategic autonomy in the area of defence requires industrial and technological autonomy and the resources to ensure operational autonomy. It calls for the development of a ‘dedicated capital fund’ to ‘protect French companies possessing special technological assets or expertise from takeovers by

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foreign funds’ (Ministère des Armées, 2017). This complements similar French initiatives, including the increase to the Research and Technology defence budget and proposals to control foreign investment into the defence sector (see DGAP, 2020). While France has been keen to stress its conception of strategic autonomy at the European level does not challenge NATO’s standing, President Macron has taken particular aim at the economic strings attached to the Alliance. He has argued that Europe’s reliance on American military hardware under NATO is ‘a lose-lose approach for both European countries and the United States…European actors must invest much more for themselves’ (Macron, 2021). These ambitions have generated support within the EU institutions, reflected in the Juncker Commission’s establishment of the EDF. The EDF has a clearly protectionist element to it given that only EU-based firms or subsidiaries can apply for funds through the scheme. Germany, on the other hand, has been far more hesitant on the issue of developing Europe’s strategic autonomy in relation to defenceindustrial linkages. First, Germany is seen to lack ‘a strategic rationale for its defence industry’ and still depends on loose government-industry coordination in this area (DGAP, 2020, p. 8). Second, Germany’s reticence to distance Europe from the aegis of US security is matched by its hesitancy to sign up to a more European-focused defence-industrial strategy with France. As a result, there is concern amongst German industrial leaders that greater cooperation with France could spell problems for Germany’s industrial sector, given the much more prominent role played by the French state in orchestrating industrial strategy and the close ties between French political and industrial leaders (DGAP, 2020, p. 10). Finally, beyond the interests of German industry, there is also an ideological objection to what is perceived to be the weakness of French dirigisite interventionism, which will generate ‘products of lower quality’, compared with German preferences for free market dynamics (ibid.). Trade and Industrial Strategy The tension between the neo-mercantilist proclivities of the EU institutions and France and other more economically liberal states is further represented in a wider array of industrial issues. European institutions have, by and large, embraced the notion of strategic autonomy in relation to industrial strategy. The European Commission’s (2020a) A New Industrial Strategy for Europe report outlines the way in which the bloc is

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seeking to enhance the competitiveness of European firms and ensure the continent’s strategic autonomy. The strategy has both an outward facing and an internal element to it. Outwardly, the report highlighted the need for new mechanisms to screen incoming investment in strategic sectors, which was duly implemented in 2019 with the EU FDI screening framework, designed to monitor third country investment (aimed primarily at China) in critical infrastructure in Europe, allowing Member States and the Commission engage in a structured dialogue about proposed investments. This follows calls from President Macron for such a strategy, going back to his 2017 election programme (Macron, 2017). Internally, there has been a focus on reviewing EU Competition rules to ensure they are ‘fit for purpose’ (European Commission, 2020a, pp. 5–6). There is broad alignment between France and Germany on some aspects of the strategic autonomy agenda. For instance, the French and German economics ministries called for greater leeway in European competition law and even a loosening of state aid rules, in order to ensure a ‘regulatory global level playing field’ whereby European firms could compete with (Chinese) state-backed firms on the international stage (Franco-German Manifesto, 2019). Germany has backed more investment protection measures, in the light of concerns around Chinese state-led investment in German critical infrastructure (Babi´c & Dixon, 2022). France has, however, consistently been the more assertive and ambitious actor with regard to this prospect. President Macron has, for example, advocated a ‘European Commercial Prosecutor’ to oversee EU trade agreements and better uphold sanctions against countries that violate agreements, as well as the strengthening anti-dumping procedures (focused primarily on China and India) and tightening up rules against tax optimisation (largely US based) (Macron, 2017). There are nonetheless a number of serious impediments to this neomercantilist approach. In 2019, France launched a so-called GAFA (Google, Apple, Facebook and Amazon) tax domestically, following unsuccessful attempts to pursue a similar policy at the European level after it was blocked by several countries including Ireland and the Netherlands. For France, taxing these companies is intimately bound up with the notion of strategic autonomy, with finance minister Bruno Le Maire stating: ‘France is a sovereign country, its decisions on tax matters are sovereign and will continue to be sovereign’ (Reuters, 2019). For Ireland, on the other hand, a more aggressive taxation of US digital firms could seriously threaten its growth model (see Regan & Brazys, 2018). Ireland’s

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fears that the EU’s drift towards protectionism are seen to lie behind the use of the oxymoronic ‘open strategic autonomy’, a term first used by the Irish European Trade Commissioner Phil Hogan (European Commission, 2020c). Germany appears caught between these two impulses. There has been mounting pressure placed on Germany from a range of both rich, Northern member states and other smaller countries to distance itself from the strategic autonomy concept. Trade ministers from Sweden, Denmark, Germany, Finland, the Netherlands and the Czech Republic (the so-called Stockholm Six) met in February 2020 to consider how they might counter French-led initiatives (Politico, 2020a). Germany was urged to ‘reawaken’ it’s more ‘liberal instincts’ and encouraged to advocate for ‘open markets’ (ibid.). Somewhat surprisingly, German industrialists do not appear strongly supportive of strategic autonomy either (although see: BDI, 2019). Eric Schweitzer, president of the German Chamber of Commerce and Industry (DIHK), has warned in the light of the COVID-19 pandemic that strategic autonomy ‘must not be misused to open the gates to protectionism’ (DIHK, 2020). The European Roundtable of Industrialists has echoed these concerns, stating that the pursuit of strategic autonomy should not lead to protectionism coming in via the backdoor, for example, in relation to overly zealous interpretations of national security when implementing screening of FDIs (ERT, 2021). Germany thus finds itself somewhat caught in this tussle; while it has made some moves to support aspects of strategic autonomy in industrial strategy, it is not wholly comfortable with all elements of a strategy seen as being driven by France and the EU institutions. Pandemic Preparedness and Supply Chain Resilience The COVID-19 pandemic has added extra impetus to the debate around strategic autonomy by exposing vulnerabilities in EU supply chains. The EU and France have quickly set out plans to tie its conception of strategic autonomy in industrial policy to building a more resilient supply of critical goods. The Commission’s Industrial Strategy report argues that ‘pharmaceutical strategy’ is a key aspect of Europe’s strategic autonomy, with the pandemic exposing Europe’s reliance on foreign supply of necessary medical and pharmaceutical goods (European Commission, 2020a, p. 14). Again, France has played a leading role in developing this neomercantilist perspective nationally and has sought to project it onto the

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European stage. In September 2020, France established the office of the High Commission for ‘the plan’ (HCP), a reference to its post-War economic planning body that was in existence until 2005. One of its central aims is to investigate the ‘weaknesses’ in French society exposed by the pandemic that ‘call into question our sovereignty, our independence and the interests of our country’. Primarily, this relates to ‘risks of shortages’ that ‘reveal our country’s dependence on distant supply chains’, which leave France ‘depending on decisions about which we have not taken’ (HCP, 2020). The Commission has outlined a large number of inter-connected critical sectors seen as necessary for securing ‘the continuity of the life of the nation’, including defence, cybersecurity, energy, the agri-food sector and pharmaceuticals (ibid.). Similarly, German State Secretary of the Federal Foreign Office, Miguel Berger, has made the case for ‘health sovereignty’ in the provision of medical equipment and medicines in the light of the COVID-19 pandemic, tying this issue to a wider set of concerns over technology, security and economic sovereignty (Auswärtiges Amt, 2020). Once again, the discussion around strategic autonomy in the light of COVID-19 has provoked opposition from some quarters. Some liberal member states appear concerned that the pandemic may act as a catalyst for ‘ever-growing protectionism’ in the EU, as Finnish European Affairs Minister Tytti Tuppurainen put it (Politico, 2020b). The idea of a more ‘strategic’ industrial strategy has also unsettled some member states for more immediate, material reasons. Grouping under the name ‘friends of the Single Market’, a coalition of 19 countries including Austria, Ireland and Poland has voiced concern that strategic autonomy could serve to simply empower Franco-German industry at the expense of their own firms (ibid.). This concern highlights a long-run tension within European integration over the nature of economic development and the potential incompatibility of supranational notions of a ‘European’ strategic autonomy within a political and economic project still de facto characterised by national territorial units.

Conclusion Is the strategic autonomy agenda likely to deliver? This apparently ‘new’ agenda faces a series of entrenched old constraints. The contemporary debate between advocates of a more cohesive European economic bloc and those committed to an open international orientation echoes debates

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that have rumbled on at the heart of the European project for decades between neo-mercantilists and neoliberals. France as well as actors within the Commission continue to support a more interventionist EU with clear neo-mercantilist logics underpinning its conception of how the EU can shape its external economic environment. Germany continues to head up a grouping of other rich and open member states, including countries like the Netherlands and Ireland, as well as organised business groups committed to retaining Europe’s liberal global orientation. In terms of geopolitics, past history suggests that European autonomist aspirations are eventually reinscribed within the transatlantic security framework. These constraints continue to militate against attempts to push ahead with Europe’s autonomous ambitions. Joe Biden’s official visit to Europe in June 2021, when the US President and EU officials reaffirmed their commitment to ‘transatlantic partnership’, hints at the possible dilution of the strategic autonomy agenda: an ‘open’ programme, compatible with liberal international order and complementary to US leadership. Notwithstanding these attempts to relaunch the transatlantic pillar of global order, a wider range of structural processes—the de-centring of globalisation, the rise of alternative state capitalisms, sustained economic turbulence, all against a background of rising geoeconomic competition— mean that strategic autonomy is likely to remain a recurrent feature of European discourse and policy debates. Despite its tensions and ambiguities, an underlying logic at the heart of strategic autonomy is discernible. European strategic autonomy seeks to reduce a whole range of external dependencies, in relation to defence and security questions, raw material supply, international monetary arrangements and wider industrial issues. At the same time, it aims to improve internal coordination mechanisms to ensure that Europe has the capacity to achieve these objectives, as exemplified by its various attempts to coordinate European-level action, such as the EDF, the New Industrial Strategy, IPCEIs and FDI screening mechanisms. The combination of these approaches, its advocates hope, will carve out a space of relative autonomy for Europe in a world characterised by increased tensions between and geoeconomic competition with the United States and China. The above analysis has the following implications for the growing literature on geoeconomics. First, a key premise of this literature is that the world economy is increasingly characterised by multi-polarisation and the consolidation of rival regional blocs within the United States, China and Europe. Our analysis provides an empirical account of how geoeconomic

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logics have become inscribed within European capitalism over the past decade. Second, our analysis suggests there has been a broadening of the strategic autonomy agenda from narrow geopolitical questions to a wider set of geoeconomic issues. As we have shown, this shift has been driven by reconfigurations in the wider global economy and state system, such as the ‘shocks’ of Brexit and Trump and the continued rise of China. Third, our account of how the strategic autonomy agenda is shaped by the long-running conflict between neo-mercantilist and neoliberal orientations points to the central role of historical analysis in clarifying contemporary geoeconomic tensions. The task of future research will be to trace the further institutional development of the strategic autonomy agenda and the EU’s attempts to add to its geoeconomic capabilities whilst not losing sight of the long-standing structural constraints which it is likely to face. Acknowledgements Thanks to the editors of the volume—Milan Babic, Adam D. Dixon and Imogen T. Liu—for bringing this together. We benefited from the panel they organised at the 2021 European Consortium of Political Research (ECPR) conference and from comments made by participants at the Euromemo 2021 conference. Scott Lavery thanks The Leverhulme Trust for their financial support via an Early Career Fellowship.

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Menon, A. (2016). Still flattering to deceive: The common security and defence policy. In H. Zimmerman & A. Dür (Eds.), Key controversies in European iontegration (pp. 220–226). Palgrave. Ministère des Armées. (2013). White paper on defence and national security 2013. Ministère des Armées. (2017) Defence and national security strategic review 2017. Panitch, L. & Gindin, S. (2012). The making of global capitalism: The political economy of American empire. Verso. Politico (2020a, February 11). Free-trading Stockholm six counter French protectionism. https://www.politico.eu/article/free-trading-stockholm-six-counterfrench-protectionism/ Politico. (2020b, October 20). Europe wants strategic autonomy—It just has to decide what that means. https://www.politico.eu/article/europe-trade-wantsstrategic-autonomy-decide-what-means/ Politico. (2020c, November 2). Europe still needs America. https://www.pol itico.eu/article/europe-still-needs-america/ Politico. (2021, February 26). EU leaders, eyeing autonomy, get noisy on defense. https://www.politico.eu/article/eu-leaders-eyeing-autonomy-getnoisy-on-defense/ Regan, A., & Brazys, S. (2018). Celtic Phoenix or Leprechaun economics? The politics of an FDI led growth model in Europe. New Political Economy, 23(2), 223–238. Reuters. (2019, July 19). Let’s not resolve digital tax dispute through threats, France tells Trump. https://www.reuters.com/article/us-france-tax-lemaireidUSKCN1U613L Roberts, A. C., Moraes, H., & Ferguson, V. (2019). Toward a geoeconomic order in international trade and investment. Journal of International Economic Law, 22(4), 655–676. https://doi.org/10.1093/jiel/jgz036 Ryner, M., & Cafruny, A. (2016). The European Union and global capitalism: Origins, development, crisis. Palgrave. Ryon, E. (2020). European strategic autonomy: Energy at the heart of European security? European View, 19(2), 238–244. Sénat. (2019). Défense européenne: le défi de l’autonomie stratégique (Rapport D’information No. 626). SWP. (2019). European strategic autonomy: Actors, issues, conflicts of interests (SWP Research Paper 4). German Institute for International and Security Affairs. SWP. (2020a). Strategic rivalry between United States and China causes, trajectories, and implications for Europe (SWP Research Paper 4). German Institute for International and Security Affairs. SWP. (2020b). Strategische Autonomie Europas: Das deutsch-französische Missvertàndniss. SWP Kurz gesagt. German Institute for International and Security Affairs.

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SWP. (2021). Frankreichs Aussen- und Sicherheitspolitik unter Präsident Macron: Konsequenzen für die deutsch-französische Zusammenarbeit. SWP-Studie 4. German Institute for International and Security Affairs. Van Apeldoorn, B. (2002). Transnational capitalism and the struggle over European integration. Routledge.

CHAPTER 4

European Foreign Policy Think Tanks and ‘Strategic Autonomy’: Making Sense of the EU’s Role in the World of Geoeconomics Jaša Veselinovicˇ

Introduction In 2005, Javier Solana, the EU’s first High Representative for the Common Foreign and Security Policy, was celebrating the ‘magnetic force’ of the European model being more vital than ever with the integration project acting as the ‘main vector of peace and democracy right across the world’ (Solana, 2005). In the immediate aftermath of the 2004 Eastern enlargement, Solana and many other European policymakers were convinced that their polity embodies the end of geopolitics as a modality

J. Veselinoviˇc (B) SCRIPTS, Berlin Graduate School for Global and Transregional Studies, Freie Universität Berlin, Berlin, Germany e-mail: [email protected]

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2022 M. Babi´c et al. (eds.), The Political Economy of Geoeconomics: Europe in a Changing World, International Political Economy Series, https://doi.org/10.1007/978-3-031-01968-5_4

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of conduct in world politics. A good decade and several economic and political crises later, Ursula von der Leyen is leading a ‘geopolitical Commission’ attempting to fashion itself into a foreign policy actor more adept for a world of great power competition, weaponised interdependence and a weakened transatlantic axis. One part of these attempts is learning ‘the language of power’, as Josep Borrell, Solana’s institutionally more powerful successor, has put it (Borrell, 2019). The language that Borrell is increasingly speaking is one of European strategic autonomy, which in recent years expanded from a narrow conception of autonomy in defence (and related industries) to a geoeconomic understanding of European autonomy which, among other things, includes increasing the international role of the Euro as a foreign policy tool (Borrell, 2021b). I argue that European foreign policy think tanks have been central in shaping this shift in European foreign policy and are a theoretically productive, meso-level entry point for examining its content and social purpose (Eriksson, 2015). Both Brussels- and national capitals-based think tanks are positioned at the crossroads of and navigate different fields—academia, politics, business and media. Dependent on but at the same time distancing from these fields, they are at the centre of the knowledge power-nexus. Another characteristic of their place in the knowledge ecology of European foreign policy-making is that they operate in and co-constitute the transnational space (Bajenova, 2019). They moderate and ‘translate’ debates and concepts between Brussels’ supranational institutions and national governments that have the most power in this intergovernmental policy area. The coordinating function of think tanks convening elites, (re-) articulating interests and developing a common worldview in a fragmented world of European foreign policy is vital in the current era characterised by numerous shocks which have lately compounded into a fully-fledged foreign policy identity crisis (Guzzini, 2012). By emphasising the role of think tanks, I understand foreign policy formation as a fundamentally contested process. The contested construction and implementation of strategies by foreign policy actors is thereby situated in historically specific domestic and international conflicts as coconstructed by hegemonic ideologies and policy discourses (Teschke, 2020). This broadly neo-Gramscian and non-reductive understanding of foreign policy does not deny the causal effectiveness of the geopolitical balance of power or requirements of capital accumulation. Still, it emphasises that the formulation of foreign policies that respond to and

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reproduce structural imperatives of capitalism and geopolitics is inflected through the worldviews of policymakers. In the first part of this paper, I discuss the theoretical underpinnings of my approach to foreign policy formation and the place of think tanks in it. I then define think tanks and trace their gradual institutional embedding into European foreign policy-making. As I show, think tanks are not just a source of optional outside expertise but have become a constitutive and taken-for-granted part of policymaking with an important coordinative role in this fragmented policy area. In the third part, I illustrate the potential of my approach by tracing the evolution of the concept of strategic autonomy using qualitative content analysis of think tank publications and official policy documents. I show that think tanks and individual think tankers have been closely involved in producing the EU’s main strategic document, the 2016 European Global Strategy (EUGS). They have helped spur and moderate consequent debates on strategic autonomy that have redefined the concept from its narrow meaning of favouring state support for European defence industries to a hegemonic and geoeconomics-permeated foreign policy discourse covering an ever-greater array of issues (see also Lavery, McDaniel and Schmid, in Chapter 3). In the conclusion, I reflect on the potentials of approaching EU foreign policy in the era of geoeconomics from the perspective of think tanks and explore avenues for further research.

Theorising Geoeconomic Foreign Policy The European Commission’s attempted transformation into a geopolitical and geoeconomic actor raises questions about the theoretical underpinnings of the EU’s foreign policy. The recent wave of renewed debate on the rise of geoeconomics registers a specific—and progressively stronger— shift in the conduct of post-2008 global politics. It appears that the ‘admixture of the logic of conflict with the methods of commerce’ announced by Luttwak in the early 1990s is coming true now (Luttwak, 1990, p. 19). Some authors see this as a change in international economic order from a post-Cold War neoliberal order towards a new geoeconomic order (Roberts et al., 2019). Others instead emphasise the policies of great powers driving this shift (Blackwill & Harris, 2016). Geoeconomics has always been an important aspect of international politics (Luttwak, 1990, p. 20), so the focus on this modality of strategic conduct in recent Luttwak-inspired Realist accounts refers not to it being unprecedented

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but above all to its increased visibility. Geoeconomics and geopolitics are ‘two conceptually distinct yet interrelated and often simultaneous types of strategies’; they are ‘two sides of the same coin’ (Barauchy, 2018, p. 15). While related, these two strategies follow two different logics of power. On the one hand is the political, territorial logic of multiple nation-states engaged in a zero-sum struggle for relative gains in the anarchical international system. On the other hand, the logic of economic competition governs the world of transnational economic activity where absolute gains by firms and states are possible and desirable. Approaches that start by positing two externally related logics of power may successfully show that the interaction between political and economic interests in the international sphere is a complex one, but they ultimately remain indeterminate (Pozo-Martin, 2006). Foreign policy as practice is reduced to ‘acting out’ the logic of anarchy or logic of capital in structural-functionalist terms. However, ‘the question is never what state managers or capitalists ought to do or ought to have done according to an ideal-typical logic, but what they actually did’ (Teschke & Lacher, 2007, p. 570, their emphasis). The starting point for this paper then is a non-derivative understanding of foreign policy making as conscious and innovative praxes, which mediate and shape the course of capitalist international history in specific ways that enables us to see the unity of the two logics and analyse their complex intricacies without reifying either of them (Teschke & Cemgil, 2014). Examining how the two logics are mutually constituted through state activity requires focusing on policymakers since the state as such cannot act. Instead, it is policymakers acting in its name and always in relation to a broader balance of forces within and beyond a given state (Jessop, 2018; Wight, 2004). The interests and agency of policymakers cannot be postulated theoretically. Instead, we should examine the embeddedness of policymakers in a broader field of forces and their relation to the overall class structure where state and capital are internally related through processes of (capitalist) class formation (van Apeldoorn, 2014). This is not to dispute that in their historically concrete forms the logic of anarchy and the logic of capital exert structural pressures, but how policymakers react to these pressures cannot be straightforwardly read off the context itself. If interests are not transparent, the burden of explanation shifts from structural analysis of geopolitical and capitalist imperatives towards assessing how agents interpret, navigate and creatively alter this

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context, which includes the setting of hegemonic discourses (Teschke, 2020). Such an approach to foreign policy analysis requires a comprehensive analysis beyond the scope of this chapter. However, the focus on ideas and the role of hegemonic discourses in making sense of interests is necessary to understand the changing foreign policies of the EU. This is especially true for periods such as the present moment when the worldviews of European policymakers and hegemonic discourses through which they used to make sense of their practice do not seem to correspond to the changing global order (see the introduction to this volume). However, in identifying and studying these shifting worldviews, we should go beyond the policymakers as individuals and study the wider discursive field they (and think tanks) are part of. The existing literature on European foreign policy is a rather long way from such an understanding. On the one hand, the Critical Political Economy approaches to European integration where one would expect such an engagement focus primarily on European socio-economic governance (Bieler & Salyga, 2020; van Apeldoorn & Horn, 2019). On the other hand, existing EU studies are focused on the internal dynamics of European integration and are not well-suited to analyse profound global shifts (Lavery & Schmid, 2021; Rosamond, 2016). Literature on European foreign policy as a specific area of EU integration is similarly preoccupied with the formal question of the precise balance between the intergovernmental and supranational aspects of European foreign policy (Bickerton, 2011). A large body of work on the extraterritorial projection of EU norms, rules and institutions concerns itself with the effects (and lack thereof) of European foreign and, more broadly, external policies (Aydın-Düzgit, 2014; Damro, 2012; Orbie, 2006; Whitman, 2011). However, what is missing is a genuinely social theory of policymaking, which builds on but goes beyond the micro focus of practice approaches (Adler-Nissen, 2016; Kuus, 2014; Lequesne, 2015) and relates policymaking to the wider balance of forces while recognising the importance of worldviews. I argue that a focus on think tanks is a fruitful but consistently overlooked entry point for such an understanding of European foreign policymaking. In contributing to attempts at constructing a new consensus, think tanks act as ‘permanent persuaders’ (Gramsci, 1971). Through their original, i.e. politically innovative thinking, think tanks synthesise, construct and articulate strategies in often contradictory ways. These

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functions stem from the fact that think tanks are dependent on yet constantly distancing themselves from different social fields (Medvetz, 2014). Through careful examination, this semi-autonomy has the potential to reveal the underlying social purpose—the always partial and interest-laden socio-economic content of a particular strategy (Bieler & Morton, 2018; Plehwe, 2015). As I show next—by first defining think tanks and then presenting a historical sketch of their gradual incorporation into European foreign policy-making—a focus on the activity of these organisations also has the benefit of circumventing the formal question of just how much power do supranational EU institutions have compared to member states.

European Foreign Policy Think Tanks: Development, Functions and Significance Think tanks are notoriously difficult to conclusively define since they perform and, in the process, blur different roles spanning from research, advocacy and dissemination of policy ideas to convening stakeholders and legitimating knowledge (McGann & Weaver, 2000; Salas-Porras & Murray, 2017). This chapter employs a minimal definition of think tanks as ‘organisations which claim autonomy and attempt to influence public policy by mobilising research’1 (Kelstrup, 2016, p. 10). Based on the idea that hybridity is the norm rather than an exception (Dialer & Füricht-Fiegl, 2014), Medvetz examines think tanks as an ‘interstitial field’ operating between the academic, corporate, media and political fields (Medvetz, 2012). Think tanks are hence not isolated organisations providing independent expertise, but networks that are more or less dependent on the resources and the legitimation of one or more of the source fields (Plehwe, 2015). Defined by in-betweenness, their constant need to navigate the requirements of different fields in which they are embedded, think tanks perform transfer functions from academic to political, media and business spheres, and the other way around. As such, think tanks exist in 1 The ‘claim to autonomy’ condition means that I exclude consultancies. They sometimes have significant research capacities which, however, are put in the direct service of their customers. Political foundations at both European and national levels, while producing policy-relevant knowledge, are excluded on similar grounds—the absence of claim to intellectual autonomy.

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a condition of ‘dependent independence’ from these fields, dependent upon resources and status from them, but also working to establish and maintain independence precisely to present themselves as the purveyor of independent policy-relevant expertise (Landry, 2020; Medvetz, 2014). While think tanks are, by definition, non-state actors, this does not necessarily mean that they are only a supplementary addition to the policy process (Pautz, 2011). Policymakers often use expert knowledge precisely for its legitimising function as an ‘outside’ input (Boswell, 2008). Instead of taking the outsider position of think tanks at face value, the involvement of think tanks in the policy process must be studied as an evolving historical process constituting a specific knowledge ecology (Mulgan, 2006) or a knowledge regime (Campbell & Pedersen, 2014). The origins of the first foreign policy think tanks, such as the New York-based Council on Foreign Relations and its British sister organisation Chatham House go more than a hundred years back (D. E. Abelson, 2014). The path of European think tanks of interest here begins in the post-war period. In parallel with Kelstrup’s periodization, the evolution of European foreign policy think tanks can be stylised into three waves (Kelstrup, 2018). The think tanks of the first wave were established in the 1950s and 1960s and reflected the interests of European Community member states. Think tanks such as L’Institut Français des Relations Internationals (IFRI) in France, the German Stiftung Wissenschaft und Politik (SWP) and Institut für Europäische Politik (IEP), or Istituto Affari Internazionali (IAI) in Italy and Egmont in Belgium were not only majority publicly funded but were seen as semi-official extensions of respective foreign ministers performing a type of ‘second-tier diplomacy’ (Kelstrup, 2018, p. 356). The second wave of think tanks dealing with (not exclusively) foreign policy dates back to the ‘golden age’ of European integration in the mid-1980s and 1990s (Missiroli & Ioannides, 2012). Brussels-focused think tanks such as the Centre for European Policy Studies (CEPS), Friends of Europe (FoE) and European Policy Centre (EPC) emerged during a period of major institutional and political reform (Boucher et al., 2004) and contributed to the formation of the Brussels policy community (Missiroli & Ioannides, 2012). Finally, the third wave of post-2000 think tanks is characterised by transnationalisation and increased networking among think tanks. This is reflected in the founding of think tanks such as the European Council for Foreign Relations (ECFR). Headquartered in London, it has offices

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in Berlin, London, Madrid, Paris, Rome, Sofia and Warsaw. Many firstwave think tanks have also opened offices in Brussels (IFRI in 2005 and SWP in 2009) and were joined by some US think tanks that have established ‘satellite hubs’ there (e.g. the German Marshall Fund in 2001 and Carnegie Europe in 2007). This period has seen a dramatic decline in public funding for think tanks, including the older first-wave ones (Kelstrup, 2018, p. 361). Think tanks thus have to engage in more intensive fundraising where the overwhelming majority of donors to supranational think tanks are multinational corporations, with diplomatic missions and trade groups serving as a distant second source of membership revenue (Rastrick, 2021, p. 289). The third wave too has been closely intertwined with the EU’s institutional developments in the area of foreign policy. While still strongly intergovernmental, the Lisbon Treaty gave Brussels-based institutions more power (Howorth, 2010; Sus, 2019), raising the demand for input from think tanks (Eriksson, 2015). An important linker in this respect is an in-house think tank, the Parisbased European Union Institute for Security Studies (EUISS). This EU agency founded in 2001 acts as an ‘interface between the EU institutions and external experts /…/ to develop the EU’s strategic thinking’ (EUISS, 2021). This brief historical overview illustrates that think tanks as a networking location, and a source of ideas are an integral part of the knowledge ecology of European foreign policy-making. Developing in tandem with and responding to growing EU capacities in this policy area, think tanks are not an optional add-on to the policy process. Since the EU had no permanent bureaucracy, the inclusion of and reliance on think tank expertise has been more flexible (Rieker, 2013). The transnational activities of think tanks often preceded and fed into formal establishment and strengthening of supranational EU institutions and competencies in this area (Missiroli & Ioannides, 2012; see also Schilde, 2017). A critical aspect of the “in-betweenness” characteristic for think tanks in the area of foreign policy is therefore not just their negotiation of the four fields but also the vertical dimension; by mediating between national debates and interests and the supranational political arena, think tanks operate in and co-produce an essentially transnational space (Bajenova, 2019).2

2 Here, transnational does not denote a specific level akin to the domestic or supranational one. It is precisely a phenomenon—created and reproduced through, among

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Rather than engaging in advocacy like their more openly partisan American counterparts, European foreign policy think tanks are ‘networkcentric’ platforms (Rastrick, 2021, p. 282), whose success depends on the art of responsiveness to political and economic demand and the ability to sell ideas (Dialer & Füricht-Fiegl, 2014). Being a platform does not mean that they are a passive and neutral infrastructure for the agency of other actors to play out (cf. Cross, 2011). Their profile and output are significantly more ‘academic’ than that of some of the more campaigning-oriented think tanks active in Brussels. Nevertheless, rather than contributing directly to policy content, their impact is more significant in shaping the policy debate (Eriksson, 2015; Manners, 2015). The influence of think tanks is only very rarely reflected one-to-one in a final policy document. In their attempt to arbitrate the interests and worldviews of their audiences, their impact is more incremental and ‘atmospheric’ (Stone, 2013, p. 85). Think tanks recycling, synthesising, reinterpreting ideas through their continuous repetition and repackaging are therefore not a ‘bridge’ between knowledge and power but are better thought of as the crystallisation of the knowledge power-nexus (Stone, 2013). Their foreign policy expertise cannot be read simplistically as a unidirectional amplifier of any one set of interests. Rather, it represents an active attempt at (re)articulating their audiences’ more or less competing interests. The (in)compatibility of different state, capital or sectoral medium- and longterm interests is not known in advance, especially not in periods of perceived political and strategic uncertainty. It is precisely through the process of think tanks (but not only) exploring and redefining strategies that the “objective constraints”, the divergence of interests and potential asymmetric compromises between social forces crystallise (see Brand et al., 2021). This coordinating function is critical in the fragmented field of European foreign policy. From this perspective, the fact that the world of European foreign policy think tanks sometimes gives the impression of a ‘travelling circus’ where ‘more or less the same people meet over and

other things, practices of think tanks—extending across, and thereby linking as well as transcending, different (territorial) ‘levels’ (van Apeldoorn 2004, p. 144).

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over again’ (Eriksson, 2015, p. 511)3 loses its pejorative undertone, since it is precisely this socialisation function of think tanks that is so important. Think tanks often emphasise their mediating function by reference to ‘furthering debate’ or ‘bringing together stakeholders’. ECFR, for example, states that they represent a ‘strategic community of current and former heads of state, senior political leaders and influencers at both the national and European level’ who, through their networks and collective engagement, ‘help to Europeanise national conversations on EU foreign policy priorities and dilemmas’ (ECFR, 2020, p. 17). Similarly, IFRI explains that member companies ‘actively participate in IFRI’s debates and events alongside the best experts and observers on the international scene and contribute to the influence of French expertise in international relations’ (IFRI, 2020, p. 19). CEPS expounds in their reports that corporate and institutional members ‘provide expertise and practical experience and act as a sounding board for the feasibility of CEPS policy proposals’ (Blockmans & Russack, 2015, p. 19). In sum, I argue that by focusing on think tanks as the centre of the power-knowledge nexus acting in the transnational space of European foreign policy making, we can examine the emerging worldviews guiding the EU’s reorientation. Approaching this issue from the perspective of think tanks benefits from going beyond an analysis of seemingly insular national debates and instead focuses on attempts to transcend them. At the same time, think tanks do not only consider the positions of national governments but try to synthesise them with the interests of (fractions) of European capital, which are a key audience and source of funds. While a full analysis of the EU’s ‘geopolitical turn’ that such an understanding requires is beyond the scope of this chapter (see Lavery et al., this volume), I will illustrate the potential benefits of focusing on think tanks by charting their role in the ‘career’ of the concept of strategic autonomy (Pautz, 2011, p. 430).

3 This assessment is shared by Steven Blockmans the head of CEPS’s EU foreign policy unit: ‘Here at EU level, organizing events, doing the rounds of receptions is a lot of tanking but not necessarily a lot of thinking’ (quoted in Gilroy, 2019, p. 94).

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Strategic Autonomy: From Subsidising the Defence Industry to Imagining a Geoeconomic EU From the perspective of European foreign policymakers, the period of the long aftermath of the financial and Eurozone crisis interspersed by the events in the Crimea, Brexit, the election of Donald Trump—all against the background of, first BRICS-fuelled multipolarity and now Chinacentred great power rivalry—is experienced not as a transition to a new order, but above all as a profound dis-order (Christiansen, 2020; see also Babic, 2020). The meaning of what ‘Global Europe’ is supposed to be and act like has been profoundly questioned and gradually redefined. In the post-Cold War period and particularly after the 9/11 attacks, EU foreign policy has been (self-)defined as a transformative force for good possessing ‘normative power’ (Laïdi, 2008; Manners, 2006). The opening sentence of the EU’s previous foreign policy strategy document, the 2003 European Security Strategy (ESS), claims that ‘Europe has never been so prosperous, so secure nor so free’ (EUHR, 2003, p. 3). The opening lines of the 2016 European Global Strategy (EUGS), by contrast, note that ‘we live in times of existential crisis, within and beyond the European Union. Our Union is under threat’ (EUGS, 2016, p. 13). Trump’s undermining of the transatlantic relationship further compounded this sense of crisis, and the EU went from aiming to shape the world in its own image, to defending itself against the world (Morillas, 2018). This shift and the politics of the current European Commission in particular have been characterised by the rise of strategic autonomy as the hegemonic foreign policy discourse covering a growing number of policy areas (Schwarzer, 2021). Here, I periodize this development and a concomitant, think tank-facilitated redefinition of strategic autonomy from a narrow defenceindustrial concept to a broader geoeconomic understanding into three stylized phases with the adoption of EUGS in 2016 as a key milestone. As is often noted, the origins of strategic autonomy as a (defence) concept are quintessentially French. Replacing the more straightforward Cold War maxim of Gaullist ‘national independence’, strategic autonomy first appeared prominently in the 1994 White Paper, where it denotes the independence and freedom of political action (Mauro, 2018). The concept gradually became embedded in French strategic thinking, where it meant the capacity for autonomous military action independent of the United States. The extent of autonomy from the United States has been a more or less explicit source of tension in all EU-level attempts at

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devising common defence policies. Strategic autonomy as a concept first appeared in an official EU document in 2010. It featured more prominently in the conclusions of the European Council in December 2013, where strategic autonomy was linked to a more integrated and competitive defence technological and industrial base (European Council, 2013). However, tracing this gradual concept adoption by only focusing on the highest intergovernmental fora misses years-long debates within the transnational informal groups preceding it. The Venusberg report (The Venusberg Group, 2007) authored by defence experts and think tankers brought together by Bertelsmann Stiftung, for example, argued in favour of Europe as a more autonomous strategic actor. The rise of strategic autonomy as an EU concept began in earnest through the adoption of the EUGS. In the years preceding its adoption, think tanks were among the first ones to call for a thorough update of the 2003 ESS, which would include outside experts (Biscop, 2011). The first step towards a new strategy was the decision by foreign ministers of Sweden, Poland, Italy and Spain to task think tanks in their capitals to author a report that would serve as a starting point for the new strategy (Fagersten et al., 2013).4 The report was produced in cooperation with more than 20 other European think tanks and was widely read and circulated both in Europe and the United States (Eriksson, 2015). In its suggestions that the EU ‘be prepared to undertake autonomously the full spectrum of civilian and military missions in the strategic neighbourhood’ (Fagersten et al., 2013, p. 12), strategic autonomy remained firmly linked to the realm of security and defence, thus foreshadowing the EUGS. This pre-EUGS report and the debate around it provided the initial impetus utilised by the incoming High Representative of the Union for Foreign Affairs and Security Policy Federica Mogherini. Reportedly frustrated by the purely reactive nature of European foreign policy, she announced during her hearing in the European Parliament her intention of initiating a process of strategic reflection. Later, Mogherini confirmed that this entailed a brand new strategy (Tocci, 2016). However, the lengthy process of discussing and drafting the documents was firmly in the hands of Nathalie Tocci, then deputy director of the Istituto Affari 4 The think tanks in question were the Istituto Affari Internazionali (Rome), Polish Institute of International Affairs (Warsaw), Real Instituto Elcano (Madrid) and the Swedish Institute of International Affairs (Stockholm).

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Internazionali. In her role as Mogherini’s special advisor in charge of ‘think tank outreach’ (Politico, 2015), Tocci and a small team around her, which included the head of EUISS Antonio Missiroli, organised the process which was from the start meant to include think tanks (Mogherini in Missiroli, 2015, p. 5).5 The decision to include think tanks aimed to overcome the Commission’s rigid procedures and avoid the intergovernmental features of the Common Foreign and Security Policy (Barbé & Morillas, 2019). The seven initially planned conferences organised by think tanks ballooned to more than 50 events covering every member state, with foreign ministries of each member state co-organising at least one such event. This two-year process was accompanied by numerous think tank publications, including a EUISS website featuring regular discussion pieces by think tankers (Missiroli, 2016). It is no big surprise then that once finished, think tanks welcomed the EUGS (Tocci, 2016). Carnegie Europe Director even called it ‘an unusually thoughtful and rich EU document’ (Techau, 2016). EUGS refers several times to strategic autonomy (2016, p. 9). In line with previous high-level invocations, strategic autonomy is most directly referred to regarding the defence industry. The strategy states that ‘the EU will systematically encourage defence cooperation and strive to create a solid European defence industry, which is critical for Europe’s autonomy of decision and action’ (ibid.). But the EUGS expands the notion of strategic autonomy beyond state support for the defence industry. In a somewhat restrained passage, it is stated that the strategy ‘nurtures the ambition of strategic autonomy for the European Union’ (p. 3). Therefore, an ‘appropriate level of ambition and strategic autonomy is important for Europe’s ability to promote peace and security within and beyond its borders. We will therefore enhance our efforts on defence, cyber, counterterrorism, energy and strategic communications’ (p. 7). The first discussions of the document in academic literature focused less on strategic autonomy than on the two other central concepts: resilience and principled pragmatism (Dijkstra, 2016; Juncos, 2017; Wagner & Anholt, 2016). Strategic autonomy also does not feature in the first-year review of the strategy (EEAS, 2017). However, it was invoked as one of the main objectives when the European Defence Fund (EDF) was launched in July 2017 (European Commission, 2017). As Martins 5 For a detailed account of the process that resulted in the EUGS see (Morillas, 2019; Sus, 2021; Tocci, 2017).

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and Mawdsley (2021) show, strategic autonomy in defence is a narrative and policy programme long advocated for by the defence industry.6 However, the shift from primarily associating strategic autonomy with tighter integration and subsidising of the defence industry towards a more all-encompassing EU autonomy has been shaped by think tanks. A broader (but vague) understanding of strategic autonomy advanced in the EUGS found its staunchest proponent in French president Emmanuel Macron. In his ‘Sorbonne speech’ at the outset of his mandate, Macron laid out the idea of ‘European sovereignty’. There, strategic autonomy in defence is presented as a first step, but he expands the notion of European sovereignty to include development policies, ecological transition and the establishment of European champions in digital technology (Macron, 2017). Earlier that year, German chancellor Angela Merkel said that faced by Trump, Europe must take ‘our fate into our own hands’ (BBC, 2017). This combination seemed to signal a new wave of enthusiasm for European integration, and think tanks were quick to ride it. In a co-authored paper soon after Macron’s Sorbonne speech, the German SWP and French IFRI came out strongly in favour of strategic autonomy, which they operationalised into political, operational, and industrial autonomy. They also called for permanent strategic dialogue that would overcome the differences in the strategic cultures of the two states (Kempin & Kunz, 2017). The integrationist elan soon fizzled, but the debates about the ever-expansive notion of strategic autonomy persisted. Faced with an unrelenting trade war, a more assertive China and evermore ‘dangers’ everywhere, the views on the purpose of the EU’s strategy had shifted. Preference for strengthening resilience abroad through the policy of principled pragmatism, which was initially the dominant reading of EUGS, came to be seen as too soft and ambiguous for a world of great power rivalry. In references to EUGS, strategic autonomy came to the fore (Bargués, 2021; Sabatino et al., 2020). In a series of think tank recommendations to the incoming Commission in the Fall of 2019, strategic

6 See for example reports by the ARES Group (e.g. Arteaga et al., 2016). The Arma-

ment Industry European Research Group was created in 2016 by The French Institute for International and Strategic Affairs (Iris). This forum for the European armament community brings together top experts from across European universities and think tanks. Its steering committee includes representatives of large European armament firms, including Airbus Group, Nexter Group, Thales and MDBA.

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autonomy was redefined in a more geoeconomic manner. CEPS, for example, warned against joining the United States in futile attempts to limit the development of China and instead argued for EU strategic autonomy in these matters as well as in the area of digital technologies (Gros & Blockmans, 2019). ECFR’s Mark Leonard and Carl Bildt pointed above all to the need of rewiring European foreign policymaking so as to be able to exercise strategic sovereignty (Leonard & Bildt, 2019). Speaking very much the language of geoeconomics, another report by ECFR states that ‘to prosper and maintain their independence in a world of geopolitical competition, Europeans must address the interlinked security and economic challenges other powerful states present – without withdrawing their support for a rules-based order and the transatlantic alliance’. And, ‘most fundamentally, the EU needs to learn to think like a geopolitical power’ (Leonard & Shapiro, 2019, p. 5).7 This line of reasoning has been very much reflected in the new Commission. At the outset of her mandate, Ursula von der Leyen promised to lead a geopolitical commission that defends multilateralism as a more assertive global actor, with a ‘stronger and more united voice’ (Von der Leyen, 2019, p. 18). Josep Borrell, Mogherini’s successor, has been the most explicit on the point of the EU having to ‘learn the language of power’ (Borrell, 2019, p. 6). Borrell surrounded himself with three well-established think tankers as special advisers: Nathalie Tocci is the director of IAI, Daniela Schwarzer was until April 2021 the director of DGAP, and Federico Steinberg is an analyst at Elcano in Madrid. The intensification of contact with think tanks goes beyond Borrell personally. The above mentioned ECFR report was commissioned by various Member States and the EEAS’ Policy Planning with the latter’s head praising the spare-partnering with think tankers (Delphin, 2021, p. 47). Borrell frames his thinking in a realist manner, explaining that ‘the geopolitical upheavals we are witnessing today underline the urgency with which the European Union must find its way in a world increasingly characterised by raw power politics. We Europeans must adjust our mental maps to deal with the world as it is, not as we hoped it would be’ (Borrell, 2021a, p. 22). In conceiving Europe as a ‘top-tier geostrategic actor’, the 7 As part of this post-European Parliament elections push for debating strategic autonomy, ECFR conducted a survey in several member states and produced a widely discussed report (Franke & Varma, 2019) on divergences and commonalities in understandings of strategic autonomy.

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EU has to ‘combine [its] resources in a way that maximises their geopolitical impact’ (ibid.). Borrell argues that his expanded notion of strategic autonomy that goes beyond security and defence has become particularly acute after the experience of the COVID-19 pandemic. Again very much speaking the language of geoeconomics, Borrell notes that the Covid-19 crisis has revealed the fundamentally asymmetrical nature of interdependence and the vulnerability of Europe. Science, technology, trade, data, investments are becoming sources and instruments of force in international politics. (Borrell, 2020)

Since such a conception of strategic autonomy is also aimed at building internal cohesion, Borrell quickly points out that his worldview does not mean distancing from the United States. On the contrary, ‘the EU needs to achieve this kind of autonomy, while at the same time strengthening our alliances and preserving our commitments to multilateralism and openness’ (Borrell, 2020). It is all about ‘cooperative autonomy’, the goal of which is ‘not to act against, but rather to act with our partners. Only as second best will the EU opt to act alone’ (Tocci, 2021, p. 25). After starting as a narrow defence industry-centred concept and being tentatively expanded in the EUGS, by 2021, strategic autonomy has become the hegemonic policy discourse, a lens through which an increasing range of EU policies are discussed and appraised. Daniela Schwarzer, Borell’s special advisor, warns that at the present EU’s ‘geopolitical moment’, narrowly conceived foreign policy is increasingly irrelevant and should be brought together with other specialist policy areas. She refers in particular ‘to technology and industrial strategies at the European level, but also economic and monetary policy’ and notes that ‘European funds poured into research, development, climate, and technology have been too small to give the continent enough of an edge internationally’ (Schwarzer, 2021). European foreign ministers have also been approaching strategic autonomy in these expanded terms. A paper discussed in December 2020 lists ‘digital, space, oceans/maritime; energy; connectivity; economic and cooperation instruments; bio-tech’ as areas ‘particularly relevant for the EU’s strategic autonomy’ (Eder, 2020). As the Head of strategic policy planning at the EEAS notes when discussing the debates leading up to the ECFR report, the prevailing view among planners from the foreign ministries was ‘that the EU needed to approach strategic autonomy not just through the narrow prism of

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security and defence but in a more comprehensive way, covering also economic and financial aspects as well as critical sectors and systems such as digital, space and energy’ (Delphin, 2021, p. 47). This mirrors concerns by European industry, which, particularly after the pandemic, increasingly refer to strategic autonomy to justify calls for ‘pan-European industrial alliances’ in ‘key industrial sectors’ (BDI et al., 2020, p. 3).

Conclusion This paper has argued that the emerging but still conflict-ridden geoeconomic consensus as embodied in the hegemonic discourse of strategic autonomy has been facilitated and shaped by European foreign policy think tanks. While they are not solely (or even primarily) responsible for the EU’s geopolitical shift, their position at the intersection of different fields, embeddedness in EU foreign policy making and their (re)articulation of competing interests makes them a productive entry point for an analysis of this shift. In terms of theoretical contributions, focusing on foreign policy think tanks enables a more social, meso-level approach to European foreign policy that takes seriously and historicises the role of worldviews. Contrary to many approaches to geoeconomics, it does not depart from pre-posited logics of power but instead focuses on the agency of policymakers attempting to navigate and creatively transform geopolitical and economic constraints. Analytically, focusing on think tanks as those actors that help policymakers make sense of their endeavours acknowledges the essentially intergovernmental nature of European foreign policy. However, such an approach focuses on the perspective of those actors whose starting point and purpose is to work across or transcend those divisions. Empirically then, a think tank-focused analysis of the rise of strategic autonomy as the hegemonic organising concept of European foreign policy in the new age of geoeconomics reveals the pre-history of transnational debates on strategic autonomy that gets overlooked if we only focus on official EU or member states documents. The empirical illustration of the ‘career’ of strategic autonomy in this chapter shows that think tanks are tightly embedded in foreign policy communities at both national and EU levels and have played a key role in shaping this new consensus. They have facilitated the expansion of the concept from a narrow field of the defence industry to a more all-encompassing and more ‘Europeanized’ grand-strategic concept. Think tanks’ embeddedness in

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networks of power and reliance on corporate funding furthermore offers a way of examining the coalitions of national and capital interests behind these attempts at new strategic synthesis. This latter aspect, however, merits further research. While think tanks offer a useful entry point, their links with specific social forces must be mapped more systematically and their specific definitions of strategic autonomy more closely examined. The same holds for precise contours of think tanks’ involvement in national and supranational foreign policy making, which, while shown to be significant, deserves a more nuanced analysis. This would entail more detailed empirical research that would qualify the extent and mechanisms of the dependent independence exercised by think tanks. I argued in this chapter that the influence of think tanks is ‘atmospheric’ rather than direct and exercised within narrow elite circles, closed to (or remote from) the public. Although broad public engagement is usually not the primary goal of foreign policy think tanks, another avenue for future research would be to study their involvement in mass and social media debates. Lastly, in line with the theoretical approach I proposed at the beginning, changing EU strategies must be embedded in and linked to a more holistic analysis of shifts in the global political economy and the concomitant reconfiguration of social forces. Focusing on the activity of think tanks in this process is also relevant for analysing the strategies of other state actors in what is perceived to be an ever more geostrategic political environment. In it, the distinction between the economic and the political seems to be progressively blurring. The resulting tendency towards increasing coordination and alignment between the state and capital has been the premise of think tank activity all along. Placed in between these fields, think tanks offer a starting point for meso-level theorising of geoeconomics, and geoeconomic strategizing that avoids overly structuralist explanations while at the same time contextualising the agency and worldviews informing it in the shifting domestic and global balance of social forces. Acknowledgements I would like to thank the participants of the section on geoeconomics at the 2021 ECPR General Conference, especially the discussant Luuk Schmitz for the constructive feedback. I am also grateful to Imogen T. Liu, Milan Babi´c, Adam D. Dixon, Urban Jakša and Dieter Plehwe for their valuable comments and encouragement. All errors are mine.

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Research for this chapter is part of the Cluster of Excellence ‘Contestations of the Liberal Script’ (EXC 2055, Project-ID: 390715649), funded by the German Research Foundation (DFG).

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Teschke, B. (2020). War and international relations. In M. Musto (Ed.), The Marx revival (1st ed., pp. 302–319). Cambridge University Press. Teschke, B., & Cemgil, C. (2014). The dialectic of the concrete: Reconsidering dialectic for IR and foreign policy analysis. Globalizations, 11(5), 605–625. Teschke, B., & Lacher, H. (2007). The changing ‘logics’ of capitalist competition. Cambridge Review of International Affairs, 20(4), 565–580. The Venusberg Group. (2007). Beyond 2010: European grand strategy in a global age (Venusberg Report). Guetersloh: Bertelsmann Stiftung. Retrieved December 20, 2021, from https://www.emmanouilidis.eu/dow nload/2007_Venusberg_Beyond_2010.pdf. Tocci, N. (2016). The making of the EU global strategy. Contemporary Security Policy, 37 (3), 461–472. Tocci, N. (2017). Framing the EU global strategy: A stronger Europe in a fragile world. Springer. Tocci, N. (2021). Towards European cooperative autonomy. In R. Haar, T. Christiansen, S. Lange, & S. Vanhoonacker (Eds.), The making of European security policy: Between institutional dynamics and global challenges (pp. 38–52). Routledge. van Apeldoorn, B. (2004). Theorizing the transnational: A historical materialist approach. Journal of International Relations and Development, 7 (2), 142– 176. van Apeldoorn, B. (2014). Geopolitical strategy and class hegemony: Towards a historical materialist foreign policy analysis. Spectrum: Journal of Global Studies, 6(1), 1–20. van Apeldoorn, B., & Horn, L. (2019). Critical political economy. In W. Antje, T. A. Boerzel, & R. Thomas (Eds.), European integration theory (pp. 195– 215). Oxford University Press. Von der Leyen, U. (2019). A Union that strives for more. My agenda for Europe: Political Guidelines for the Next European Commission, 2019—2024. European Commission. Retrieved December 20, 2021, from https://ec.europa. eu/info/sites/default/files/political-guidelines-next-commission_en_0.pdf Wagner, W., & Anholt, R. (2016). Resilience as the EU global strategy’s new leitmotif: Pragmatic, problematic or promising? Contemporary Security Policy, 37 (3), 414–430. Whitman, R. (2011). Normative power Europe: Empirical and theoretical perspectives. Springer. Wight, C. (2004). State agency: Social action without human activity? Review of International Studies, 30(2), 269–280.

CHAPTER 5

The EU as a Geoeconomic Actor? A Review of Recent European Trade and Investment Policies Clara Weinhardt, Karsten Mau, and Jens Hillebrand Pohl

Introduction Geoeconomics has become a key term in scholarly assessments of global economic politics. While it remains contested, the term commonly stands for the presumed tendency in international relations to use economic policy instruments to pursue foreign policy goals related to security or

C. Weinhardt (B) Faculty of Arts and Social Sciences, Maastricht University, Maastricht, The Netherlands e-mail: [email protected] K. Mau School of Business and Economics, Maastricht University, Maastricht, The Netherlands J. Hillebrand Pohl Faculty of Law, Maastricht University, Maastricht, The Netherlands

© The Author(s) 2022 M. Babi´c et al. (eds.), The Political Economy of Geoeconomics: Europe in a Changing World, International Political Economy Series, https://doi.org/10.1007/978-3-031-01968-5_5

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geopolitics (cf. Blackwill & Harris, 2016, p. 9). A central idea is that the increase of economic interdependence does not necessarily facilitate cooperation, as liberal internationalists purport (Keohane, 1984; Keohane & Nye, 2017), but also leads to security externalities that make countries more vulnerable to potentially hostile or otherwise harmful behaviour of other countries (Aggarwal & Reddie, 2021, p. 139). Considering emerging economic and political powers—notably China—governments increasingly use economic policy to defend their national security and other non-economic interests (Roberts et al., 2019). Some scholars see a shift away from multilateralism, as global economic politics are increasingly perceived as a “zero-sum” rather than a “positive sum” game (ibid.). While nuances differ, these scholars share a realist understanding of world politics: countries seek to increase their own power position at the expense of strategic competitors. Gertz and Miles explicitly define geoeconomics as “the economic dimension of great power competition” (2020, p. 119). Much of this recent literature on the proclaimed geoeconomic turn in global politics has, however, been developed with the US–China rivalry in mind (Roberts et al., 2019; Farrell & Newman, 2019; Gertz and Miles 2020). Despite the EU’s status as one of the world’s major economic actors, its role in the geoeconomic turn remains underresearched. Meunier and Nicolaidis recently claimed that Europe also uses “economic statecraft to compete on a level-playing field when the breakdown of multilateralism has fragmented the world into regions and rival powers” (2019, p. 103). Indeed, at the EU policy level, there is a notable increase in initiatives that seemingly follow a geoeconomic rationale, such as the recent EU Investment Screening Regulation (“ISR”).1 However, empirical research that systematically assesses how Europe positions itself against the context of a proclaimed geoeconomics shift in practice is missing. One reason for this may be that the empirical application of the literature on the geoeconomic turn so far entails a bias towards cases of offensive rather than defensive policy: most examples illustrate how states use economic interdependence offensively to further their foreign policy goals. Geoeconomic literature has yet to pay an equal amount of attention to the ways in which states may defend themselves against the use of weaponised interdependence by other states. Yet, as Gehrke notes, the 1 Regulation (EU) 2019/452 of the European Parliament and of the Council of 19 March 2019 establishing a framework for the screening of foreign direct investments into the Union.

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“EU is primarily a defensive, rather than offensive actor in the context of geoeconomic competition” (2020, p. 1). Against this background, this chapter reviews recent European trade and investment policies that presumably follow a defensive geoeconomic rationale. Instead of taking the EU’s role as a geoeconomic actor for granted, we critically unpack the challenges that Europe faces as it seeks to reduce its strategic vulnerability to economic dependence on others. Conceptually, our approach is a multidisciplinary application of political science, legal, and economic methods. The joint starting point is the conceptualization of the proclaimed geoeconomic shift in international economic relations, understood as “marked by a greater focus on relative—rather than absolute—economic gains” (Roberts et al., 2019, p. 657). Empirically, to explore our understanding of Europe’s (dis)ability to position itself as a geoeconomic actor, we focus first on the ISR, which regulates how Member States scrutinize and block critical Foreign Direct Investments (FDI) by non-European entities. Our second case looks at European FTAs with non-European partners. An important feature in these FTAs is the inclusion of Most-Favoured-Nations (“MFN”) clauses, which protect each party to the FTA from the possibility that the other party negotiates more a favourable FTA with a third country. The ability of the EU to enforce these clauses to reap relative gains is yet unexplored. Our third case concerns Europe’s response to the BRI, a major infrastructure investment project launched by China in 2013. It takes the division across Member States that either endorse or reject the BRI as a starting point to assess whether the absence of a defensive EU policy leads to relative losses (rather than gains) vis-à-vis China or other non-trade-related risks. In terms of methods and sources, we combine qualitative research, including the analysis of framing based on EU documents and two expert interviews,2 as well as legal analysis of the instruments, with quantitative analysis. The latter draws on findings reported in empirical (mainly economic) research and on an own assessment of the Member States’ differential degree of involvement in the BRI.

2 The phone interviews were conducted with members of the Directorate-General for Trade at the European Commission, in December 2019 and in January 2020. Both interviews were anonymized.

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Our findings are, first, that the EU’s own framing of what makes a policy initiative “geoeconomic” varies widely, and does not always correspond to the legal design or economic implications of a given initiative. Second, we find across all cases that institutional challenges undermine the EU’s ability to position itself as a geoeconomic actor. Lastly, the case of Europe’s reaction to the BRI reveals that Member States may pursue interests that conflict with EU policy initiatives—even if outcomes are welfare enhancing for some sectors. These findings shed new light on recent debates about the position of the EU in a geoeconomic context. They question the extent to which the EU will be able to “use economic statecraft to compete on a levelplaying field” (Meunier & Nicolaidis, 2019, p. 103), without reforms to the existing institutional set-up. In the following, the chapter first presents an overview of discussions on the EU as a geoeconomic actor, followed by the case studies and a concluding section.

The Geoeconomic Turn in World Politics and the EU’s Response Much of the recent literature on the so-called geoeconomic turn in world politics focuses on the United States and its competition with China. Few scholars assess the EU’s position from a geoeconomic perspective. Instead, debates focus more generally on how the EU has sought to reposition itself in a changing geopolitical context (Christiansen 2020). In particular, scholars discuss how the EU responded to the changing geopolitical context in the past decade(s) with the pursuit of what is termed (open) strategic autonomy. While the EU has traditionally sought “autonomy through alignment” within an US-led world order, the present phase of global disorder led to calls for an alternative strategy that pursues autonomy more independently of the United States (Lavery and Schmid 2021). The idea of strategic autonomy of the EU originated in the security realm (Smith, 2018), and was inscribed into the EU’s Global Strategy (2016), but has since then been broadened to capture other policy areas, including economic relations (see also Schmid et al., this volume). What does the EU’s proclaimed pursuit of strategic autonomy entail in the economic realm? On the one hand, it is geared towards reducing external economic dependencies on others. On the other hand, it is about building internal capabilities, both related to economic capabilities (e.g.

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through industrial policies) and through improved internal coordination within the EU to fend off what is perceived as a geoeconomic threat (e.g. the ISR). Along these lines, the EU’s New Industrial Strategy (2020) presents initiatives to promote strategic autonomy, which either classify as defensive “efforts to retain existing critical resources and strategic assets”, or efforts that are geared towards building capabilities by “secur[ing] critical capabilities and supplies in strategic areas where such resources and assets are lacking” (Pohl, 2020, p. 153). The application of strategic autonomy to the economic realm resonates with the concept of geoeconomics. It is not identical, however, in the sense that it emphasizes a more defensive, rather than an offensive, position towards economic interdependence. Instead of using economic interdependencies—and the dependence of others on oneself—to offensively pursue strategic goals, strategic autonomy is more geared towards reducing dependencies on others to avoid being subject to the geoeconomic initiatives of others (Koeth, 2021, p. 3). Yet, it remains contested how exactly the EU should pursue strategic autonomy as a (geo)economic actor. This is in part because of the tradeoffs involved in doing so: reducing economic dependencies on others may make sense for strategic reasons, but could entail direct economic costs, for instance, if foreign investments are prevented.3 The resulting tension between economic and non-economic foreign policy goals is acknowledged in recent attempts at the EU level to rebrand strategic autonomy as open strategic autonomy.4 Lavery, McDaniel, and Schmid (this volume) portray the conflict over how to frame and interpret this concept in EU foreign policy as a struggle between neo-mercantilists and economic liberals that have different visions for Europe’s place in the world. It so far remains unclear whether and why this (contested) shift at the policy level has contributed to building the EU’s capabilities as a geoeconomic actor in the twenty-first century. Meunier and Nicolaidis claim that Europe can use “economic statecraft to compete on a level-playing 3 That non-economic policies may have economic costs is nothing new. Policies restricting economic activity for purposes of environmental protection or the eradication of forced labour, for example, also inflict economic costs. Such costs may be economically justified if they serve to reduce externalities. 4 With regards to EU–China relations, EU High Representative Joseph Borrell, for instance, acknowledged that reducing economic dependence may not in all instances be feasible or desirable, when stating that “[w]e are too interdependent to decouple economically from China” (Borrell 2020, September 9, p. 9).

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field when the breakdown of multilateralism has fragmented the world into regions and rival powers” (2019, p. 103). They prominently refer to the ISR and the new public procurement instrument as examples of rather successful geoeconomic policy initiatives. Others have been more cautious in their assessment. They mention how a lack of unity between the European Commission and the EU Member States shapes, and potentially limits, European power as a geoeconomic actor (Gehrke, 2020, p. 1; Christiansen 2020 on EU-China relations). Olsen introduces the “EU’s geoeconomic paradox” (2020, p. 43), which emphasizes how highly independent private-sector actors at the domestic may present a challenge to the EU’s geoeconomic ambitions. He concludes that “EU governments hold little direct influence over the management of the very material basis underpinning the geoeconomic interventions for which political demand is rising” (ibid.). This existing literature thus remains not only scarce, but also divided in their assessment of the EU’s capabilities as a geoeconomic actor. Against this background, we investigate more systematically, whether and how the EU acts in a geoeconomic sense. The following case studies examine, first, the existence of a geoeconomic rationale of a given policy initiative, including the EU’s own framing thereof; second, the relative (economic) gains at stake; and, third, whether the EU is able to implement a given policy initiative, and if not, what constraints it faces. In doing so, we do not presuppose that the EU should act in a geoeconomic way, but instead seek to explain what stands behind its own claims to position itself as a geoeconomic actor that pursues (open) strategic autonomy. The examples have been chosen to illustrate the differing nature of offensive versus defensive geoeconomic tools (and the absence of a unified response/’non-tool’ in the case of BRI) and the reality that such tools often are framed as potentially serving both offensive and defensive ends. Compared to other potential examples, such as restrictive measures (economic sanctions), they are a cleaner illustration of economic statecraft, as they are economic policy tools by design, which are used for non-economic ends. Further potential examples are currently not fully operational (e.g. the new EU foreign subsidy regime or the anti-coercion instrument).

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The EU Investment Screening Regulation Investment screening on national-security grounds seems like an intuitive example of a geoeconomic instrument in the sense of being a potential tool of economic statecraft. Yet it remains to be examined how exactly EU countries might use investment screening to further objectives that are not purely economic (i.e. “security-related”, “geopolitical”, or “geostrategic”) and what economic consequences this entails. We argue that while economic costs seem justifiable, its effectiveness as a defensive geoeconomic instrument is hampered by the limited competence granted to the European Commission regarding its implementation. Investment Screening as a Geoeconomic Instrument: Framing and Legal Framework Investment screening allows a country to selectively prohibit inward foreign investments5 that adversely affect its national-security interests or other important national interests (“adversarial capital”). Investment screening differs from ad hoc government interventions (Segal, 2021). Investment screening itself is not a novelty (Muchlinski, 2007), and many countries have operated such for decades (OECD, 2020). More recently the use of, and attention given to, national security as an argument for restricting foreign investments has increased (Aggarwal & Reddie, 2021; Jackson, 2020, February 14). This signals a geoeconomic framing of such instruments. With China’s recent emergence as a credible geopolitical rival, the frequency of use and scope of investment screening mechanisms have greatly increased across the globe (Danzman, 2021). In Europe too, investment screening mechanisms received increased attention and powers in line with its new framing as a geoeconomic instrument (Hindelang & Moberg, 2020).6 The ISR marks the beginning of a common approach to investment screening within the EU. 5 Although investment screening can cover any type of inward foreign investments, most investment screening regimes target only foreign direct investments (FDI) and sometimes significant foreign portfolio investments. Investments deemed insignificant are usually excluded. 6 Most of the Member States of the EU now maintain general investment screening mechanisms. Some sector-specific investment screening systems exist in almost all EU Member States. Since 2020, the EU has a fully applicable framework in place for coordinating Member States investment screening mechanisms.

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While the ISR is not a screening mechanism itself, it is the first attempt to bring the Member States’ investment screening mechanisms under a common framework under the EU coordination. The EU itself, acting through the European Commission, is at the heart of the ISR’s cooperation mechanism. While the Commission cannot block investments, it is able to analyze foreign investments and recommend Member States to take action. Currently, 18 Member States have investment screening mechanisms, a number that has increased since the ISR came into effect. The remaining Member States nevertheless must have contact points and the ability to actively participate in the cooperation mechanism. In framing EU investment screening under the ISR as a new instrument of European statecraft, it is important to keep in mind how investment screening functions both in practice and in theory. First, in legal terms, investment screening is a defensive geoeconomic instrument. By controlling inbound foreign investments, it is a tool to manage the effects of the geoeconomic actions of other countries. Although it has been argued that the ISR could be seen as political leverage to ensure reciprocal investment opportunities for EU outward investments (Schill, 2019), its direct concern remains the influx of adversarial capital into the EU. Second, it is the discretionary application of executive powers which allows investment screening to be used as an effective tool of economic statecraft. Finally, what makes investment screening not just a flexible policy tool, but one that can be used for geostrategic objectives, follows from the purposes set out in its legal framework: to block investments that are “likely to affect security or public order” (Article 4, ISR), including as determined by its effects on critical infrastructure, critical technologies and dual-use items, supply of critical inputs, access to sensitive information, and the freedom and plurality of the media.. The ultimate scope is given by the concept of “security” (and “public order”) remains fluid. Since security is not a legal term, but one whose material content is most authoritatively defined politically, its inclusion as key criterion in the ISR signals a legislative intent to preserve a wide margin of executive discretion (Pohl, 2020). This is reaffirmed by the limited practical possibility for foreign investors whose investments have been blocked to pursue legal remedies (Hagemeyer, 2020). The link to security considerations is also made explicit in the way in which the EU has so far framed the ISR. In the words of Executive Vice-President Valdis Dombrovskis, the ISR seeks to “safeguard

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key European assets and protect collective security” (European Commission, 2020, October 9). The EU furthermore emphasizes that the ISR “ensures that while remaining open to investment, the EU is equipped to protect its essential interests” (European Commission, 2021, June 22). He further emphasizes that “If we want to achieve an open strategic autonomy, having an efficient EU-wide investment screening cooperation is essential” (ibid.). In the context of the COVID-19 pandemic, the EU further emphasized that ISR seeks “to prevent a sell-off of strategic EU assets in the current crisis” (EU News, 2020). This reflects a concern among Member States about a loss of strategic technological knowledge towards China (Zwartkruis & de Jong, 2020, p. 451). There is a fear of Chinese investments in “EU companies that have technological knowledge that China can use to upgrade its industry” (ibid., p. 453). Notably, official statements also suggest that the geoeconomic rationale of the ISR is not only understood in line with such “traditional” securityrelated concerns. Instead, it is also deemed relevant to use the ISR to promote economic reciprocity, i.e. equal market access opportunities for the EU and its economic partners. When referring to “transactions [that] may put our collective security or public order at risk”, the Commission services, for instance, emphasize that “[t]his is especially the case when foreign investors are state owned or controlled, including through financing or other means of direction” (European Commission, 2021, June 22, para. I.1). This resonates with what Lavery, McDaniel, and Schmid (this volume) see as a neo-mercantilist, rather than a liberal, perspective of Europe’s role in the world. Economic Implications of Investment Screening in the EU What are potential economic implications of the ISR, and how do they relate to the EU’s proclaimed geoeconomic objectives? The principal economic critique of the ISR is that, although officially framed as originating from a purely strategic political rationale, it could also be a product of rent-seeking behaviour. In any case, it is likely to entail economic efficiency losses and scope for future rent-seeking and collusion that might allow incumbent market leaders to secure monopoly profits by undermining foreign competition. The ISR might also become costly if protected industries cannot attract sufficient non-EU investments. On the other hand, given that the EU is one of the world’s most open regions to FDI inflows and it is unclear how large the economic costs of the ISR

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will be, concerns about losses from “excessive protectionism” might be exaggerated. Next to these possible costs, there might also be economic benefits, if the ISR secures high standards for critical infrastructure (including food and energy supply, and communication). This can have a positive impact on the investment climate due to higher economic and legal certainty. Moreover, the ISR might prevent that frontier technologies are costlessly transferred out of the EU, post-acquisition. This might occur, for example, if an investment includes the acquisition of intellectual property (IP) and thereby the rights for its future use. If the EU is in a technologically leading position, keeping decisions on how and where to use their IP in Europe could preserve its own (potentially offensive) geoeconomic capacities and be in line with the geoeconomic rationale of the ISR. The economic costs of the ISR could, hence, be justified it if it generates positive externalities that compensate these potential losses. The Implementation of Investment Screening in the EU With investment screening in principle being able to serve as a geoeconomic instrument, how useful is the ISR for the purpose of implementing EU geoeconomic policy? This question has two parts: (1) it needs to be addressed what a useful application of investment screening as a geoeconomic instrument would look like; and (2) it remains to be evaluated whether there are any structural or functional limitations preventing the EU from using investment screening as an instrument to act geoeconomically. As to the first part, to be a useful defensive tool, investment screening must be capable of preventing foreign acquisitions of critical military or dual-use resources (strategic assets) with a view to deny, restrict, or place conditions on their continued availability to the host state (Moran, 2009), and by so doing obtain diplomatic leverage. However, the concept of security has over time expanded beyond the ability to prevent, withstand, and recover from the threat of armed confrontation to cover a range of other types of hostile or otherwise harmful potential behaviour of others. Such hybrid threats include political warfare, cyberwarfare, lawfare, and economic warfare (Hoffman, 2007; Reichborn-Kjennerud & Cullen, 2016, February 26). It is thus unsurprising that the scope of investment screening extends far beyond military or dual-use infrastructure, technologies, and supplies. Adversarial capital may also be invested

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to obtain political influence through the ability to deny, restrict, or place conditions on the continued availability of any economically critical resource or through access to sensitive information. In addition, such investments may serve to obtain market power, to undermine the geoeconomic diplomacy of the host state, to gain access to personal data for purposes of data-mining activities and big-data intelligence gathering, or to establish a media platform for disinformation purposes (Leonard et al., 2019, June 25). The usefulness of investment screening mechanisms as geoeconomic instruments depends on their effectiveness in defending against the full range of such hybrid-threat scenarios. As to the second part, at the implementation level, the ISR enables the EU to identify and assess both traditional and hybrid security threats. Nevertheless, investment screening could not justify arbitrary discrimination or disguised restrictions of the free movement of capital. Rather, to block an investment there must be a genuine and sufficiently serious threat to a fundamental interest of society and, moreover, those grounds must not serve purely economic ends and must comply with the general principles of EU law (Hindelang, 2009). EU law provides a robust system of judicial review that provides safeguards against abusive application of the ISR. Apart from having a right to legal recourse against investment screening decisions, private-sector actors are not assigned any role under the ISR. There is no right to petition investment screening authorities to investigate a foreign investment or investor. The risk that private-sector actors would engage in rentseeking behaviour, such as by being able to direct investment screening against commercial rivals and to pursue private interests unrelated to EU interests, remains but does not arise specifically from the design of the ISR. The EU’s ability to use the ISR as a geoeconomic instrument is significantly restricted by the fact that the European Commission is not empowered to authorize, prohibit, or impose conditions on, foreign investments under the ISR. Its coordinating role is challenging as it depends on the ability and willingness of Member States to share sensitive information on FDI (Zwartkruis & de Jong, 2020). Such powers remain exclusively reserved for the Member States. The European Commission is limited to delivering opinions to which the Member States are obliged to take into consideration (Pohl, 2021). The role of the European Commission is thus to actively work together with the Member States to forge common positions (cf. BRI case). This is obviously a far cry

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from being able to control the use of investment screening as a geoeconomic instrument and represents the principal challenge for the EU to act geoeconomically in defending against inward investments of adversarial capital. Interim Conclusions The ISR can in principle be operated as a defence against geopolitically motivated foreign investments. Such investments can take many forms, which is why investment screening is and must remain a flexible tool. Economic costs are also likely to be negligible compared to the potential security-related gains. Rent-seeking in connection with investment screening is not excluded, but nor is it facilitated by the design of the ISR. However, the ISR’s effectiveness as a geoeconomic instrument is hampered by the limited competence granted to the European Commission.

The EU’s Use of Most-Favoured Nations Clauses in Its Free Trade Agreements7 While MFN clauses are common in EU FTAs, they have received little scholarly attention. So far, they have not been studied as geoeconomic policy instruments. We argue, however, that the rationale for the inclusion of MFNs in EU FTAs follows a geoeconomic emphasis on relative gains vis-à-vis strategic competitors. Their economic implications, however, remain unclear and their implementation remains sketchy, which undermines their effectiveness. The Geoeconomic Rationale of MFN Clauses in Free Trade Agreements: Framing and Legal Framework In the post-World War II era, the MFN principle had traditionally not been used for geoeconomic purposes. Instead, it has come to serve as a cornerstone of the multilateral trading system. The general MFN clause of Article I of the General Agreement on Tariffs and Trade (GATT) obliges

7 Note that this case study draws on Bohnenberger and Weinhardt (2022).

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regime members to “immediately and unconditionally” extend marketopening concessions to “all other contracting parties”. In this way, the MFN clause prevents WTO member states from discriminating others: all market access concessions offered to one member state are immediately extended to all others. The rationale for using MFN has only changed in the past decades, as it became a common practice to include MFN clauses in Free Trade Agreements. This development was facilitated by the general rise of FTAs that are negotiated outside of the multilateral realm of the WTO. In contrast to the multilateral level, their use in bilateral settings reflects primarily a geoeconomic rationale (Bohnenberger and Weinhardt 2022). This is because MFN clauses can be used strategically to protect FTA members against economic competitors: If any of the partners were to offer better market access to another party in the future, these new concessions would need to be passed on to the members of existing FTAs with an MFN commitment. They thus help to “lock in” a privileged trade relationship and reflect the intention to secure relative gains vis-à-vis strategic competitors. Given that the multilateral trade negotiations continue to be blocked, it is likely that the trend to include MFN in various FTA chapters will continue and possibly intensify in the future (Interview 2, EU trade official). In principle, MFN clauses hold both the potential to serve as an offensive geoeconomic policy instrument—securing better market access in the future, but also a defensive one: to protect against relative losses vis-àvis strategic competitors that may conclude a (better) FTA with an EU trading partner in the future. This dual reasoning was echoed in the interviews. An EU trade official claimed in an interview that “the EU now includes MFN clauses in many of its FTAs to ensure its competitors cannot negotiate better market access” (Interview 1, EU trade official, by phone, 19.12.2019). In negotiations of the EU-Korea FTA, for instance, the EU included MFN in the services and investment chapters to ensure that European companies would not be treated any worse than their US competitors (Interview 1). Another EU trade official similarly emphasized that the MFN clause should be actively used to protect the EU from its trading partners such as the United States and China (Interview 2, EU trade official, by phone, 14 Januray 2020). The EU-Mercosur FTA, for instance, contains MFN clauses that apply to public procurement, which would guard the EU against a scenario in which Mercosur countries offer better access to China in the future. This turns MFN clauses in FTAs into

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a potential instrument in the sense that it can be used to maximize relative gains vis-à-vis strategic competitors. When considering the legal framework governing their use, MFN clauses are a readily available policy instrument. The EU enjoys exclusive competence to act in the area of the EU’s common commercial policy, which includes the conclusion of FTAs, with only certain limitations, such as the inclusion of certain investment-related provisions. In contrast to the ISR, MFN clauses related to trade in goods and services belong to the areas where the European Commission can act without the need for involvement of the Member States. Economic Implications MFN clauses in EU FTAs are a relatively common empirical phenomenon, which renders it important to assess whether their economic implications are in line with their proclaimed geoeconomic rationale. The European Union is—next to the United States, Japan, and Canada—among the major trading nations that most frequently include MFN clauses in their FTAs. A substantial amount of the chapters on services trade and investment in EU FTAs, for instance, include MFN clauses (see Table 5.1). Beyond these chapters, MFN clauses can also apply to trade in goods, public procurement, or other regulatory measures like taxation and the protection of intellectual property rights. Indeed, most EU FTAs contain MFN clauses in some form (Magntorn, 2018). Table 5.1 MFN clauses in services and investment chapters of EU FTAs (Based on Bohnenberger and Weinhardt, 2022) Country

Number of FTAs (only base treaties without amendments or accessions)

Services (with services chapter/with MFN clause)

Investment (with investment chapter/with MFN clause)

EU

>80a

46a /16

16/11

Source Own compilation based on DESTA data. Note on coding the data: services chapters are counted if they are coded as ‘2’ in DESTA, which equals “Substantive provisions liberalizing trade in services”. Investment chapters are counted if coded as ‘4’, which equals a standalone investment chapter “Beyond services” a Counting the number of EU agreements is tricky as it includes all sorts of regional integration, association, and partnership agreements with a trade component (Bohnenberger and Weinhardt 2022).

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The economic implications of wide-spread MFN clauses in EU FTAs are difficult to generalize and would require a case-by-case evaluation. MFN clauses cannot per se guarantee any particular volume of market transactions (absolute gains) or even market shares (relative gains) to negotiating parties. Instead, they ensure that the absolute intensity with which countries trade or otherwise economically interact is determined by conventional forces of demand and supply that would also be at work in freely operating markets. To this end, MFN clauses are a tool to promote trade/treaty multilateralism, as they become part of everincreasing numbers of bilaterally negotiated agreements. They do not create or prevent any directly economic dependencies that could be attributed to an underlying geoeconomic strategy. Only if the inclusion of MFN clauses reveals as an effective tool to promoting deeper trade/investment agreements between negotiating parties, such dependencies can result as an indirect effect by facilitating the inclusion of additional privileges and concessions that would otherwise not have been part of a treaty. The Implementation of MFN Clauses in EU FTAs: Living up to Their Purpose? The practical implications of existing MFN clauses in EU FTAs are often unclear and, partly as a result, their potential to act as a geostrategic tool remains largely untested. The implementation of MFN clauses in EU FTAs seems very limited. One indication is that there are so far no legal disputes regarding the enforcement of MFN obligations in bilateral or regional FTAs (Interview 1, EU trade official). While some of the FTAs that include MFN clauses might simply be too recent, this nonetheless suggests uncertainty regarding their actual implementation. According to an EU trade official, there is no precedent for the application of an MFN clause in any of the EU FTAs (Interview 2, EU trade official). This lack of actual use raises questions about their effectiveness as a strategic tool to secure relative economic gains against competitors. To what extent does this lack of implementation of MFN clauses reflect the particular challenges that the EU faces as it seeks to act in a geoeconomic way? With regard to private-sector actors, rent-seeking or simply competing interests do not seem to play a role. For MFN clauses in investment chapters, this is simply a matter of design: rent-seeking seems excluded by the fact that they are designed to be enforced by private

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investors. Thus, there is no misalignment of interest if private-sector actors pursue investment claims under a FTA investment chapter. As for MFN clauses in trade chapters, there could be a rent-seeking problem, if firms put pressure on the EU not to push for implementation of an MFN clause to weaken economic competitors. However, the problem behind the low levels of implementation of MFN clauses seems to be primarily one of missing information rather than rent-seeking: firms may not even know if they miss out on market opportunities under MFN clauses that are not implemented. This is partly explained by a lack of systematic monitoring at the EU level of trade partners’ compliance with MFN obligations (Interview 1, EU trade official; Interview 2, EU trade official).8 As a result, private-sector actors may not even now know when their rights to more favourable market access conditions are not respected, which in turn explains the lack of dispute settlement cases over MFN clauses in EU FTAs. As one interviewee speculates, we might “see no cases [because] we do not know about better market access granted elsewhere” (Interview 2). Conversely, divergence between Member State interests does not seem to be an impediment for the implementation of MFN clauses. One reason for the lack of systematic monitoring is the complexity of such an undertaking, which would entail close monitoring of the commitments that trade partners make to third countries. Especially for services and other areas of regulatory complexity, this would be quite difficult to establish across the board. In other words, MFN clauses might exist on paper, but neither the traders that might potentially benefit from them, nor their governments can comprehensively monitor trade partners’ liberalization commitments with third parties. Another reason could be that the FTA MFNs are not considered important for the EU vis-a-vis a particular third country. This would, however, only hold for FTAs with smaller economies—and not, for instance, regarding those with Canada, South Korea, or Japan. Interim Conclusions To sum up, these findings indicate that while the EU frames the use of MFN clauses in FTAs as geoeconomic instruments, the absence of clear economic trade-offs and remaining implementation challenges make them rather ineffective. 8 Not that as concerns investment MFNs, it is the responsibility of the investor to monitor MFN compliance and take action if necessary.

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Europe’s (Non-)response to China’s Belt and Road Initiative The BRI is a transcontinental infrastructure development plan promoted by the Chinese government since 2013. It consists of numerous projects involving countries on almost all continents. The so-called Eurasian Land bridge Corridor is the part of the BRI that connects China with the EU via direct railway connections. This case study takes the lack of a unified European response to the BRI as a starting point to assess whether the engagement of individual Member States with the BRI indeed has economic implications that resonate with existing perceptions of geoeconomic risks at the EU level. China’s Belt and Road Initiative and the Geoeconomic Rationale of Europe’s Divided Response: Framing and Legal Framework At the EU level, the BRI reveals as an ambiguous issue. A joint statement after Chinese President Xi Jinping’s first visit to the EU in 2014 declared vaguely that both parties will seek to “develop synergies” between their respective transport and infrastructure policies and “to explore common initiatives along these lines” (European Commission 2014, March 31). In the meantime, a divided European response has been driven by both EUlevel initiatives and Member States’ individual engagements with China on the BRI. At the EU level, the EU-Asia connectivity strategy (2018), the communication on “EU-China – A strategic outlook” (2019) and the recent announcement of EU Foreign Ministers to launch the EU’s own infrastructure plan (Emmott & Siebold, 2021, July 12) stand out. At the same time, several Member States—including Italy as a G7 member (see Table 5.2, Appendix, for an overview)—embraced the BRI and signed bilateral Memoranda of Understanding (MoUs) with China that envisage its joint promotion. Other Member States are wary to actively support the BRI and prefer a unified EU-level response. With regard to the EU’s own framing of cooperation with China on the BRI within Europe, there exists no formal assessment of its risks and opportunities at the EU level (ECA, 2020, p. 48). What is notable, however, is that the communication on “EU-China – A strategic outlook” (2019) portrayed China not only as a “cooperation partner”, but also as an “economic competitor” and as a “systemic rival promoting alternative models of governance” (ECHR, 2019, March 12, p. 1). This framing

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signals that economic cooperation with China—including via the BRI— may carry political risks. The EU’s recent own infrastructure initiative explicitly seeks to promote a “principled” EU model—which is understood to contrast with the BRI approach (Emmott & Siebold, 2021, July 12). In general, a key political risk associated with BRI investments in Europe is, similar to the ISR case, the fear that “Chinese investments in sensitive/strategic assets in Europe may affect security/public order” and undermine European unity (ECA, 2020, p. 35). The economic implications of the BRI are, moreover, framed as risks factors for the EU. In particular, the BRI is commonly linked to the theme of “economic reciprocity” and “a level playing field” that featured prominently in the EU’s New Industrial Strategy (2020). Along these lines, all ambassadors from EU Member States to Beijing—except for Hungary—signed a statement in April 2018 saying that the BRI “runs counter to the EU agenda for liberalizing trade and pushes the balance of power in favour of subsidized Chinese companies” (Heide et al., 2018, April 17). This framing clearly reflects concerns about relative gains for China vis-à-vis Europe. Yet, no uniform framing exists at the European level since some Member States, especially in Eastern Europe, welcomed the BRI, while others—notably France—remain highly critical of what is seen as a “one-way” road towards “hegemony” and political dependence on China (statement by President Macron, quoted in Carnegie, 2018, October 18). The reasons for the ambivalent response at EU level relate both the legal framework, but also divergent Member State interests. At the legal level, the response to the BRI touches upon issues where the European Commission and Member States both hold competences. While the European Commission holds exclusive competence in areas such as competition rules, in areas such as energy and transport both can pass laws, which makes a unified approach difficult. National security, moreover, is an exclusive competence of the Member States (ECA, 2020, p. 33), which makes it difficult to arrive at a shared assessment and unified approach regarding potential security risks associated with engagement with the BRI. The reason for this is to be found in the institutional arrangements governing the Common Foreign and Security Policy (CFSP), which is based on the principle of intergovernmentalism. This means in practice that each Member States retains an individual veto on CFSP matters. Any policy coordination on an EU level therefore requires unanimity among the Member States to reach decisions in the

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Council of the European Union, although once agreed, certain aspects can be further decided by qualified majority voting. This hampers the EU’s ability to act geoeconomically in the field of CFSP, starkly illustrated in the case of the EU’s response to the BRI. Moreover, this division seems to reflect a differential evaluation of the BRI across member states based on economic interests (Pomfret, 2019). Economic Implications: International Trade and Economic Asymmetry in EU-China Relations? Does the engagement of individual Member States with the BRI indeed have economic implications that would strengthen China as an “economic competitor” and further tilt the “level playing field” in favour of China? One way to assess the economic implications of BRI-engagement of EU Member States is to analyze how it affects patterns of international trade. As an infrastructure project, the BRI has direct implications on trade costs (De Soyres et al., 2019), which imply lower prices and efficiency gains, but also through shorter delivery times and access to a wider range of product varieties. The EU’s economic position relative to competitors outside the BRI network will be improved (Li et al., 2018; Mau & Seuren, 2022). Economic adjustments and new specialization patterns within the network will lead to mutual gains among participating countries, but their relative size and distribution are difficult to predict. Overall, the BRI promises classical efficiency gains from trade for European economies. Improved market access in China and other Asian economies leads to economies of scale and higher accountability and planning security for the organization of decentralized production processes and supply chains. These gains will materialize in industries where rail transport offers a profitable alternative to conventional long-distance transportation modes. As shown in Table 5.2, countries signing BRIrelated Memorandas of Understanding with China also report related investment inflows and construction projects, as well as economic specialization in industries that are likely to benefit from new railway connections.9 Countries lacking sound economic fundamentals, strong institutions, and appropriate governance to prevent corruption and public 9 The latter is inferred by a higher revealed comparative advantage (RCA) score of these countries. The construction and exact interpretation of this measure is explained in the Appendix.

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procurement failures are, however, less likely to benefit (Ruta et al., 2019, June 18). There are little gains to be expected in terms of knowledge or technology transfer, given that EU economies are technological leaders among the BRI economies. China is likely to benefit more in this respect and be able to promote economic development in many of its less developed inland regions. The BRI may therefore strengthen China’s overall economic position relative to the EU in this regard, and possibly emerge as an economically equally important partner for Europe than the United States and other advanced economies are. Similarly, as Europe will be able to secure market shares in China and several other Asian economies it might be able to strengthen its strategic economic position both in absolute terms and also relative to any non-BRI economies. In general, however, trade-related economic effects remain rather marginal and are therefore unlikely to present a geoeconomic risk for the EU. Assessment of Risks of Economic Dependence Associated with the BRI While a functioning and modern infrastructure can facilitate countries’ ability to extract benefits of the BRI, their high financial costs—requiring public expenditure and debt—entail the risk of turning into unsustainable investments. The resulting economic integration of the Eurasian landmass will consequently entail also increased scope for geoeconomic policy and a “weaponization of interdependencies” (Farrell & Newman, 2019)— e.g. related to the reliability of the BRI railway networks or a reliance of some EU Member States on Chinese funds for infrastructure investments. While the former remains speculative, the latter aspect is important regarding geoeconomic risks associated with increased economic dependence on China: Next to the several direct and indirect (mostly positive) economic effects, participation in the BRI is also costly. It requires largescale investments that are often combined with financial commitments towards China. The World Bank (Ruta et al., 2019, June 18) report highlights this as an important macroeconomic risk factor, especially for developing countries. Also, European economies report increasing foreign investment and capital inflows from China. According to recent estimates

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by Horn et al. (2020), debt stocks towards China in five non-EU WestBalkan economies amount to about 7.5% of their GDP on average.10 This can create significant dependencies—not only financially—which call for a high level of scrutiny and alertness, according to several observers, due to China’s lending practices and general cultural distance to Europe (e.g. Mardell et al., 2018, June 26; Gelpern et al., 2021, March 31).11 A potential political risk that results from increased engagement with the BRI thus is the (unilateral) reliance of some EU Member States on Chinese funds for infrastructure development. Indeed, data from the China Global Investment Tracker (AEI, 2021) suggests that the BRI plays a major role in China’s investment activities in Europe. About half of Chinese FDIs transactions under the BRI stem from SOEs rather than private business (ECA, 2020, p. 22). However, total flows remain fairly small compared to Europe’s aggregate volume of foreign investment inflows. OECD (2021) statistics suggest that China’s share in cumulative FDI inflows during the period 2013–2019 accounted for less than 2.1% of total inflows in an average EU member state. Only three countries report shares of 5% or higher (i.e. Portugal, Hungary, and Sweden). For comparison, FDI inflows from the United States ranged at 7% on average so that the scale China’s overseas investment activities are still comparatively minor. Interim Conclusion Altogether, while the BRI might generally constitute a powerful channel for geoeconomic policymaking in Chinese interests including in Europe, the engagement of individual Member States with the BRI does not appear to live up to the framing of the BRI as a geoeconomic risk. The main reasons are that the economic importance of the BRI as a trade channel is relatively minor. The same holds for its investment volumes, even though they might grow in the future and the assessment might depend on where such investment takes place (see first case on IRS). In 10 Numbers are based on own calculations using information from the China Debt Stock Database (Horn et al., 2020). Non-EU West-Balkan economies refer to Albania, Bosnia-Herzegovina, Northern Macedonia, Montenegro, and Serbia. 11 Gelpern et al., (2021, March 31) document Chinese lending practices, terms, and conditions based on a unique set of original contracts between Chinese state-owned enterprises and government borrowers in various developing and emerging economies.

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fact, the BRI could turn out as a catalyst for improved European access to markets across Asia and actually strengthen its political bargaining position in this region. Only small and/or financially vulnerable EU economies might be more exposed to the threat of economic dependence on China.

Conclusion This chapter has revisited three EU trade and investment policies to assess its capabilities as an actor in a geoeconomic context: the Investment Screening Regulation, the use of Most-Favoured Nations clauses in FTAs, and Europe’s (non-)response to China’s Belt and Road initiative. We find that the EU’s ability to act in line with its geoeconomic ambitions varies across the cases but remains relatively low. Implementation levels do not correspond to the geoeconomic ambitions voiced at the policy level, as demonstrated both by the ISR and the MFN cases. We also find that these challenges are driven in particular by institutional factors that set the EU apart from countries such as the United States and China. Both the ISR and the BRI cases illustrate that the lack of competence of the European Commission to act with sufficient autonomy from the Member States in matters of foreign investments is undermining the EU’s ability to position itself as a defensive geoeconomic actor—albeit this may be less necessary concerning the BRI. Moreover, the EU’s own framing of the geoeconomic rationale of a given policy initiative does not only vary but is not always in line with the legal design or economic implications of a given initiative. More traditional security-related foreign policy goals co-exist with neo-mercantilist framings of the need to establish a “level playing field”, in particular visà-vis China. Yet, what is conceived as a geoeconomic initiative or threat does not necessarily turn out to be one in practice: neither the use of MFN clauses in FTAs is likely to yield significant relative economic gains, nor does the engagement of individual Member State’s with China’s BRI necessarily constitute a geoeconomic threat—as long as participating European countries remain financially independent. These findings shed new light on recent debates about the position of the EU in a geoeconomic context. In contrast to Meunier and Nicolaidis (2019), our findings suggest that the EU faces additional challenges related to its institutional set-up that may at times impair its ability to “use economic statecraft to compete on a level-playing field” (Meunier &

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Nicolaidis, 2019, p. 103). The discrepancy between the policy level and the implementation levels, moreover, at times also reveals a misconception about what constitutes a geoeconomic threat (e.g. BRI case) and a suitable instrument to address it (e.g. MFN case). Lastly, more research is needed to complement the existing literature’s focus on offensive geoeconomic instruments (Farrell & Newman, 2019) to also capture defensive ones. Acknowledgements We are thankful for comments and suggestions on earlier versions of this article by Luuk Schmitz and the editors of this volume. This work was supported by Studio Europa [Fundamental research grant for early career scholars].

Appendix See Table 5.2 Table 5.2 EU member and neighbouring countries and their BRI involvement Country

Austria Belgium Bulgaria Croatia Cyprus Czech Republic Denmark

“de-jure” involvement signed MoU on BRI collaboration

2015 2017

de-facto involvement BRI-related Chinese direct investment or construction contracts volume (million USD)

share of total

230

1.00

130 690 170 860

1.00 1.00 1.00 1.00

RCA in RTA industries

weighted sum

11.1 7.4 15.6 12.6 3.3 17.3 6.8

(continued)

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Table 5.2 (continued) Country

“de-jure” involvement signed MoU on BRI collaboration

de-facto involvement BRI-related Chinese direct investment or construction contracts volume (million USD)

Estonia Finland France Germany Greece Hungary Ireland Italy Latvia Lithuania Luxembourg Malta Netherlands Poland Portugal Romania Slovakia Slovenia Spain Sweden United Kingdoma Albania Bosnia-Herzegovina Montenegro North Macedonia Serbia Belarus Ukraine

share of total

2018 2015

4,500 2,400

1.00 1.00

2019 2016

23,200 110

0.95 1.00

2019 2018

4,680 440

1.00 1.00

2015 2018 2015 2015

2,150 4,430 810

0.79 0.98 1.00

2,180

1.00

1,960 1,220 650 9,600 1,890 3,280

0.88 1.00 1.00 0.97 1.00 0.93

2017 2017 2017 2015

RCA in RTA industries

weighted sum

12.0 11.9 8.6 12.1 5.5 13.8 2.8 12.4 7.0 10.2 3.5 5.2 5.0 14.1 11.8 16.4 15.8 15.8 7.5 8.7 6.2 22.7 11.3 20.4

Note Authors’ compilation-based information retrieved from www.beltroad-initiative.com (accessed 14 July 2021) and data from the China Global Investment Tracker (AEI, 2021). Investment data restricted to period 2013–2020. Investment volumes are expressed in million US dollars. RCA reflects weighted sum of employment-based industry-level RCAs, where weights reflect fraction of RTA subsectors in NACE Rev.2 level industries. Bold numbers indicate above EU-median RCA a United Kingdom formally left the EU as member state on 31 January 2020

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CHAPTER 6

Geoeconomics and National Production Regimes: On German Exportism and the Integration of Economic and Security Policy Kai Koddenbrock and Daniel Mertens Introduction1 Increasingly open conflict in the global political economy has triggered profound shifts in both policy and rhetoric around the intersection of economic openness and security. The re-affirmation of a ‘national interest’, especially when associated with ‘strategic sectors’ and ‘critical infrastructure’, seems to have cut across most advanced capitalist economies, 1 This chapter was finalized one month before the Russian invasion of Ukraine. The tendencies in German foreign (economic) policy we analyze in this chapter have become even more pronounced since then. We are now witnessing a shift towards more military spending and active attempts to secure energy and raw materials, for example gas, in Africa.

K. Koddenbrock University of Bayreuth, Bayreuth, Germany e-mail: [email protected] D. Mertens (B) Osnabrück University, Osnabrück, Germany e-mail: [email protected]

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2022 M. Babi´c et al. (eds.), The Political Economy of Geoeconomics: Europe in a Changing World, International Political Economy Series, https://doi.org/10.1007/978-3-031-01968-5_6

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challenging conventional perceptions of how liberal capitalism ought to work (Csurgai, 2018). While much of the broader debate emerging from this setup has focused on the role of great power politics in the international economic order (Pisani-Ferry, 2021), it has also provided entry points to reconsider, first, the split between the study of economic and security policy, and second, the importance of specific national production regimes for understanding variation within the contested global political economy. This chapter is an attempt to use these entry points and provides a more integrative understanding of geoeconomics. Our choice of departure for such an endeavor is a reappraisal of the German political economy. Adopting what we call a geoeconomic lens allows us to trace shifts and dynamic interlinkages between, first, the German government’s economic policy, second, its security policy, third, its national production regime, and, fourth, changing power relations in the world market and global order. The main reason for this choice is that Germany has traditionally had a very conscious separation between foreign economic and security policy. Public support for foreign economic policy was high but was not for muscular security policy. Correspondingly, analysts have long thought of the country as a civilian power that promotes collective international action on the basis of multilateralism and sovereignty transfers, but regularly opposes the deployment of military force, to the extent it is able to (e.g., Harnisch and Maull, 2001). At the same time, being an extroverted economic powerhouse, others have stressed notions of Germany as a geoeconomic power par excellence (Kundnani, 2011), which can leverage its market power based on a central position in global economic relations—as exemplified by its continuously high-ranked economic complexity production profile and its status as the third largest exporter globally (OEC, 2021). Certainly, German governments have not shied away from using its clout to shape the European Union according to its interests and to turn Eastern Europe into an appendix of the German export industry. Yet outside the EU, consecutive German governments have let foreign economic policy be the sum of private corporate actions abroad. In particular, the relationship to Asia, Latin America, and Africa has mostly been dominated by private commercial relationships. Although these were often tied in with official foreign aid and trade agreements, economic, and security concerns largely remained in separate discourses and administrative clusters. With China in ascendance and global supply chains disintegrating, however, pressure mounts to increase governmental support for ensuring

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market access and trade as well as providing political coordination for German capital to remain competitive (Germann, 2021; Schneider, 2021). Recent debates within NATO about increasing contributions have further questioned the post-war consensus on Germany as a soft or civilian power, which had only reluctantly started to join the ranks of interventionist military powers in the mid-1990s in former Yugoslavia. Indeed, banking on NATO security provision, Germany has more than halved military spending relative to GDP since reunification in 1990 (Szabo, 2016, p. 142). But as NATO orientation also shifts toward the IndoPacific, established policy paths become more difficult to sustain. In other words, as the dominant European economic force with a dilapidated military, Germany now faces novel strategic challenges and shifting alliances with the three major continental blocks it engages with: The Americas, Africa, and Asia. Among the core capitalist economies, the degree to which these challenges affect Germany is particularly large because of its outstanding dependence on global markets. German corporations’ interactions with the world market play a relatively more important role than in most other countries worldwide. The sum of imports and exports relative to overall GDP in 2020 stood at 82%, nearly 60% points more than the US (at about 26%) and more than 20% points more than France (58%) and the UK (55%) (World Bank, 2021).2 Economic exchange with the rest of the world is thus a critical issue for the German economy, whose vulnerability creates a sense of urgency in political debate. At the same time, proposals to protect these exchanges and foreign trade with military means, however, have led to fierce contestation from the German public.3 The peaceful allure of trade has so far been more digestible to the public and very profitable to the export sector. In a more confrontational world, in which private property rights are not necessarily secure and crucial inputs for a ‘greener’ accumulation strategy are located in the Global South, this ease is waning.

2 See: https://data.worldbank.org/indicator/NE.TRD.GNFS.ZS, last accessed January 15, 2022. 3 For instance, in 2010 former German President (and prior head of IMF) Horst Köhler resigned from office after public outrage over him saying that Germany’s export dependence might require military deployment to ensuring free trade routes, given increased piracy off the Somalian coast.

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Approaching these specific challenges to a national production regime through a geoeconomics lens requires synthesizing literatures. In the study of economic relations, political science has followed a peculiar division of labor that has often pitted the analysis of national economic institutions and domestic strategies of accumulation against the inquiry of transnational economic order and global capitalism. A similar dividing line has marked International Relations scholarship with its traditional interest in the roles of ‘power versus plenty’ as drivers of foreign policy (Viner, 1948), in which the integrated consideration of economic and security dynamics has seen only cyclical highs. On both accounts, astute observers have called for greater efforts at synthesis (Mastanduno, 1998; Nölke, 2011). The study of Germany lends itself neatly to such efforts, as both in Comparative Political Economy (CPE) and International Relations (IR), it has commonly contributed to conceptual advancement. In CPE, this has been most visible in paradigmatically denoting Germany as ‘non-liberal’ or ‘coordinated capitalism’ with a specific set of pathdependent institutional relations underpinning world market integration (Hall & Soskice, 2001; Streeck & Yamamura, 2001). This view has recently returned in new guise via Post-Keynesian inspired notions of the export-led growth regime (Baccaro & Pontusson, 2016). In IR, these notions find resonance in the distinct foreign economic policy regime that marks the German ‘trading state’ (Rosecrance, 1986; Staack, 2000). For the study of geoeconomics, we deem such synthesis promising as it connects different levels of analysis. While not falling prey to the illusion of the unitary actor ‘Germany’ often used in IR, it highlights the role of social and institutional relations undergirding the German exportist regime, whose outlook and destiny, however, is decidedly global. Against this background, this chapter seeks to make a theoretical and an empirical contribution to that conundrum between levels of analysis on the one hand and economics and security on the other. Theoretically, we respond to Julian Germann’s criticism that the ‘narrative of Germany as a geo-economic power is built around an empty theoretical core’ (2018, p. 591). By building in particular on the work of Gilbert Ziebura (1990), we locate geoeconomics as the hinge between the study of national modes of production, or growth regimes, and the integrated study of foreign economic and security policies to further our understanding of the global political economy. In this way, geoeconomics can serve as a conceptual lens to connect domestic with international, unit-level with system-level politics, to open new ways for cross-disciplinary engagement (Vihma,

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2018). Empirically, the chapter disentangles how the German growth regime, with its specific nexus of finance and production, is exposed to and adjusts within global power shifts. To this end, we proceed as follows. The next section details our understanding of the conceptual role geoeconomics can play to integrate domestic and international, economic, and security policies. We then move on to engage the German export regime and subsequently reflect on the concomitant shifts in the institutional setup of foreign economic and security policies in Germany. The final section concludes.

Bridging IR, IPE, and CPE Divides: Exploring Geoeconomics as a Concept The synthetic study of economic and security relations is poised to follow trends in the geopolitical ordering of the world, as Mastanduno (1998) has aptly analyzed for the US context in the twentieth century. Certainly, for most of the past three decades, IR, IPE, and CPE perspectives have largely operated along disciplinary divides—a separation that is counterproductive to understand the broader transformations of world order we are witnessing, as highlighted by both feminist and Marxist-inspired perspectives bridging economy and security (Sjoberg, 2015; Martin de Almagro & Ryan, 2020; Ten Brink, 2014). As the contestation of the global order has increased over the past 15 years (Babic, 2020), disciplinary cross-fertilization seems needed more than ever. Thus, one of the questions that drive this paper is how we can deepen such analytical overlaps to bridge critical divides in IR, IPE, and CPE, and to what extent we can utilize them to approach empirical observations through the ‘lens’ of geoeconomics. In Luttwak’s (1990) influential formulation, geoeconomics is an agentcentered, statecraft-focused concept in which economic means become the preferred means of conflict and competition. By coining the concept of geoeconomics as analytical lens, we seek to go beyond the merely agential and policy-oriented use of this term. We do so by enriching it with an historical institutionalist and materialist understanding of longstanding domestic growth regimes and world market conditions that impact on governments’ ability and incentives to engage in economic and political competition (for compatible approaches see Schneider, 2020 and Germann, 2021). For us, this lens comprises foreign and security policies, as well as these policies’ domestic and global material conditions, aiming

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(Foreign) economic policy

Security policy

Geoeconomics as lens

National production regime

World market

Fig. 6.1 Geoeconomics as lens: four analytical pillars (Source Authors’ own)

at the accumulation of wealth and status through market control in the global economy (cf. Moisio; 2019; see Fig. 6.1). Thus, it requires the analysis of macro-structures, the forging of regional blocs and alliances as well as the more granular study of the relations between finance, business, and the state (cf. Hall, 2014). Julian Germann’s work on explaining German policymakers’ curious choice of entrenching austerity provides some of that synthesis. Germann (2018) explains this choice of austerity as the result of the logic of export dependency and the need to react to different growth cycles in the US, UK, and China. What we believe is missing in his account is a greater acknowledgment of security policy and alliance politics. Filling this gap requires focusing on the larger geostrategic alliances and blocs Germany is dealing with in times of geostrategic reorientation. This kind of synthetic analysis—a geoeconomic analysis avant la lettre—can be found in Gilbert Ziebura’s World Economy and World Politics, 1924–1931: From Reconstruction to Collapse (1990). Covering an earlier ‘interregnum’ that led to national socialism and world economic crisis at the time, Ziebura argued that the world economy faced structural challenges that were dealt with politically in two dominant ‘systems’: The ‘Washington’ and the ‘Versailles’ system. The US as the emerging hegemon had to ably steer and work with both systems to extend its global hegemony. In the case of the Versailles system engagement with the main European powers took place through capital exports (mostly by private banks) and diplomatic initiatives such as the Dawes Plan to solve the issue of war debt. Currency problems continued to be acute as exchange rates remained volatile in the face of a return to the gold (exchange) standard with the heavy social

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adaptation costs this entailed. Overall, however, the world economy’s structural challenge—ultimately one of under-consumption and overaccumulation—could not be pacified or solved throughout the 1920s, neither between the US, China, and Japan in the Washington system nor between the US, Germany, France, and the UK in the Versailles system. Only another huge economic crisis and world war enabled temporary stabilization under US hegemony and a number of cooperative mechanisms from NATO to Bretton Woods to increase policy coordination in the West post–1945. Ziebura’s work is instructive for today’s global structural challenges and the foreign policy analysis a geoeconomics perspective entails because it allows to take macro-structures into account without losing sight of specific organization, agents, and even politician’s personalities. A similar kind of macro–micro, economics, and security synthesis has been apparent also in the work of Adam Tooze, both in Wages of Destruction on the Nazi-economy (2007) and in Crashed on the global financial crisis (2018). These books similarly insist on the importance of structures of the world economy and the role of currency and finance in mediating and shaping them without losing sight of strategic questions of security policy. While Ziebura had highlighted the disruptive role of exchange rate volatilities and capital flows, Tooze’s work speaks to a world in which exchange rate swings between the major economic powers have become much less severe—also thanks to the introduction of the Euro—but borders to capital flows have been removed all over the world, commercial banks have extended their reach much further across the globe, and new actors such as investment funds and asset managers have begun to dominate the scene that produce new kinds of destabilizing effects in a multipolar world order. Taken together, Ziebura and Tooze show us how to focus the geoeconomics lens more thoroughly on ‘the (geo)political re-organisation of global capitalism’ (Alami et al., 2021, p. 995) through the integration of security policy and the role of crucial societal actors in negotiating that re-organization. While some of the most innovative approaches to the current global political economy and novel strategies of statecraft, such as Farrell and Newman’s work on ‘weaponized interdependence’ (2021), have also suggested to emphasize relations between statecraft and commercial actors, our proposition holds that combining state and nonstate agency needs to reflect both bloc alliances and national institutional specificities in a multiscalar political economy. We contend that German

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exportism and its contested ‘civilian power’ trajectory can serve as a mostlikely case for illustrating the value of this perspective as it recalibrates its foreign (economic) policy in light of its accumulation strategy.

Germany: Between an Exportist Growth Model and Novel Global Dependencies In both CPE and IR, the crisis tendencies of the 2010s have instilled more reflection on the nexus of economic and security policies, not least with a view to Germany. In CPE, Wade Jacoby’s notion of ‘Surplus Germany’ has acknowledged the Federal Republic as a ‘security-exposed, trade-dependent, status-quo power’ that runs the risk of overreliance on its surplus, which is reinforced by a complacent policy-mix (Jacoby, 2020). In IR, Hans Kundnani has proposed to move beyond the ‘civilian power’ notion to understand Germany more clearly as a ‘geoeconomic power’ since ‘it [has come to] increasingly define its national interest in economic terms’ and use ‘economic power to impose its own preferences on others.’ ‘In a sense, this has actually further strengthened Germany’s identity as a trading state,’ in which large manufacturers and energy companies exert influence on foreign policy toward China, Iran, and Russia (Kundnani, 2011, pp. 36–37). Kundnani’s use of the term geoeconomics is different from ours because he doesn’t deploy the term as a lens but uses it as a qualifier of state action, an approach pioneered by Luttwak. For Kundnani, a geoeconomic power is a state that uses a wider set of foreign economic means to pursue wealth and status. Both Wade and Kundnani’s views, although emerging from different disciplinary debates, suggest, then, that there is a mutually reinforcing process of constituting foreign economic and security policies on the one hand, and of export dependence and accumulation strategies on the other, that more forcefully capture the institutional specificity at the domestic level. In the case of Germany, this is best reflected upon by highlighting its exportist regime. As a regime, exportism relies upon a number of institutional features and political strategies that are directed at achieving and maintaining a current account surplus, often by suppressing domestic demand. A current account surplus means that Germany exports a larger sum of value in goods and services than it imports. This implies that in contrast to import-dominated economies relatively more companies produce for export markets than domestic markets and thus depend on the receptiveness of these markets for their profits. As Fig. 6.2 shows, the Federal

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Fig. 6.2 Germany’s current account balance, 1951–2020, three-year moving average (Source Bundesbank until 1990 for West Germany; World Bank since 1991; own elaboration)

Republic of Germany has had a current account surplus for most of its existence, with the major exceptions of 1979–1981, following currency revaluation pressure, and the 1990s, following reunification. As is widely acknowledged, the current account surplus—starkly increasing in the 1980s already—achieved unprecedented heights after completing European Monetary Union. This current account surplus is largely driven by a surplus in the trade of goods (in contrast to the minor role of services) and bolstered by income from abroad, such as from foreign direct investment and foreign portfolio investment. Correspondingly, the German exportist regime traditionally built upon safeguarding the stability and relative undervaluation of the national currency (e.g., through restrictive central bank policies) as well as securing market access for produced goods and services and the integration of global supply chains (for instance, through export finance instruments, development aid, and economic diplomacy) (Höpner, 2019; Kreile, 1977; Nölke, 2020). However, the viability and persistence of export orientation hinge on the kind of goods and services produced (e.g., manufactured goods vs. commodities) and an associated industrial organization. In

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fact, most specialization in export goods displays long path dependencies, is often driven by the imperatives of world market integration, and is undergirded by specific corporate structures and organizational types (Chandler, 1984; Weber et al., 2021). Trade is usually concentrated among large firms; the German export model is second only to the US in its reliance on large corporations for exports (cf. OECD trade by enterprise characteristics database). It is these companies that carry much of the private sector’s political clout and also dominate the crucial industry associations, which are central to Germany’s political economy. Apart from the relative importance of large corporations for German exportism, two further features of the export structure are relevant for our perspective. One is the geographical distribution of trade, because it matters for the foreign economic and security policies that regulate economic relations. The other is the kind of goods that are critical for Germany’s position in world markets, impacting the requirements for the system’s reproduction in terms of competitive pressures and commodity supplies. The geographical distribution of imports and exports (Fig. 6.3) shows the German trading state to be dependent on three large blocs: The US, the EU (plus UK), and China, which has become the second

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Fig. 6.3 Germany’s most important trading partners, import and export, 2020 (Source Federal Statistical Office; own elaboration)

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most important export destination for German goods, and the largest trading partner for imports. The composition of trading goods in Fig. 6.4 further reveals the central role played by vehicle production, followed by machinery and chemicals/chemical products. This resonates with the fact that Germany is still one of those ‘advanced industrial economies’ that heavily depend on the value added from manufacturing, but also signals a set of global dependencies that range from supply chain security via energy and raw material imports to market access requirements. In a more ‘unwieldy, complex and antagonistic’ global economic order (Babi´c et al., 2021, p. 2, introduction to this volume), such dependencies increasingly require political management. Subsequently, we zoom into the political dynamics associated with the German exportist regime, illustrating our approach to geoeconomics and how it sheds light on the recalibration of economic and security policy.

Computer, electronic and optical products, 109,51

Basic pharmaceutical products and preparations, 88,26

Motor vehicles, trailers and semitrailers, 187,1 Basic metals, 54,63

Other, 145,91

Other transport equipment, 44,63

Electrical equipment, 85,23

Machinery and equipment n.e.c., 174,54

Chemicals and chemical products, 111,28

Food products, 56,27

Rubber and plastic products , 44,24

Metal goods, 40,26 Pulp, paper and...

Textil e and clothi ng...

Glass, cerami cs,...

Fur nit u...

Fig. 6.4 Germany’s export goods composition, 2020, in billion Euro (Source Federal Statistical Office)

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Surplus Germany and Its Institutional Repercussions on Foreign Economic and Security Policy One central political dynamic to consider using a geoeconomic lens is the relation between state and non-state, commercial actors. As Kundnani (2011, p. 41) noted in his influential article on Germany as a geoeconomic power: The relationship between the German state and business would seem to be an example of what Luttwak calls ‘reciprocal manipulation’. German companies lobby the German government to make policy that promotes their interests; they in turn help politicians maximize growth and in particular employment levels – the key measure of success in German politics. This co-existence is particularly intense between the state – especially the economics ministry – and exporters, which have provided nearly half of German GDP and two-thirds of Germany’s total GDP growth over the past decade. This disproportionate contribution of exports to growth means that German politicians are particularly dependent on exporters. However, because much of this growth has come from exports to economies such as China and Russia, where the state dominates business, exporters are also conversely dependent on the German government.

In a similar vein, Szabo (2016, p. 143) refrains from calling Germany a mercantilist power, maintaining that, instead, ‘the state follows the private sector rather than guiding it. Firms act as de facto instruments of geo-economic states and create a set of material incentives for policymakers, with commercial motivations underpinning great power politics.’ Relations with Russia are a case in point, where an emerging coalition of exporters and energy companies have contributed to the soft stance toward the Putin government in questions of security policy (Abdelal, 2013; Goldthau & Sitter, 2020; Szabo, 2016). The building of the pipeline North Stream 2 underlines this analysis but the novel support for economic sanctions against Putin adopted after the 2014 annexation of Crimea may indicate a round of geo-economic soul-searching in the German foreign policy establishment, likely to be deepened by the socalled traffic light government in power since 2021. In fact, the particular German approach to secure wealth and export profits by banking on NATO and adopting a soft approach to military aggression and human rights violation by important trade partners may also be in question

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because this arrangement is under pressure from both the auto-centric development model of China and domestic shifts in political power. The US focus on steel tariffs and an even stronger domestic market orientation signals another challenge while a potential disintegration of the EU, still the largest market for Germany, would be disastrous (Lavery & Schmid, 2021). The trend toward a more muscular use of sanctions with important trading partners is not the only indication that the old German hands-off private approach to foreign economic policy is changing. Several recent political and institutional initiatives point into the same direction4 : The Indo-Pacific Strategy and the new managing unit within the Federal Foreign Office, 2021), the two German Raw Materials Strategies in 2010 and 2021 (Schmid, 2021) as well as the Industrial Strategy 2030, issued by the Ministry of Economic Affairs in 2020. All these initiatives have been mirrored on the European level, even though not without contestation (see Lavery et al., this volume). Equally important, they have been much in line with the preferences of German industry. Business sector lobbying for more strategic use of economic power and the security of key resources has indeed been increasing. There are, however, notable differences between large corporations and interest groups for the ‘Mittelstand’ as well as the automobile vs. the chemical industry depending on their varying integration with US and Chinese markets (Germann, 2021). For instance, Stefan Mair, one of the leading lobbyists of the German Industry Association BDI bemoans that while ‘Germany possesses considerable economic power, it is barely aware of it—or at least is not making itself aware of it’ (Mair, 2018). In relations to Russia and China security policies have started to gain in importance in contrast to the entirely economic approach until the early 2010s. This does not only relate to a greater engagement in sanction policies but also to military exercises. For instance, in November 2021, a German frigate was deployed to the Indo-Pacific, joining Japanese, but also British, Dutch, French, and US warships for the first time in 20 years,

4 In terms of a gradually emerging consensus about shifting foreign policy, observers have especially pointed to a 2013 position paper coordinated by think tanks Stiftung Wissenschaft und Politik and the German Marshall Fund titled ‘New Power New Responsibility’ (SWP and GMF, 2013) that argued Germany should step up its geopolitical weight in line with its economic power (see, e.g., Kronauer, 2015).

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Table 6.1 Germany’s largest export companies 2019 1. 2. 3. 4. 5. 6. 7. 8. 9. 10.

Volkswagen Group (car/truck maker): US$538.9 billion, up 1.4% from 2018 Daimler (car/truck maker): $326.6 billion, up 1.1% BMW Group (car/truck maker): $271.3 billion, up 12.4% Siemens (industrial conglomerate): $171 billion, up 4.7% Bayer (diversified chemicals): $137.7 billion, up 48.5% BASF (diversified chemicals): $101.3 billion, up 2.4% Linde (diversified chemicals): $86.6 billion, up 112.3% Merck (pharmaceuticals): $84.4 billion, up 94.6% Fresenius (medical equipment, supplies): $75.2 billion, up 14.3% ThyssenKrupp Group (industrial conglomerate): $40.4 billion, down -0.7%

Source https://www.worldstopexports.com/germanys-top-10-major-export-companies/

signaling allegiance to the transatlantic power bloc vis-à-vis China. At the same time, as Schwartz and Blyth (2021, p. 25) note, former Chancellor Merkel’s 2020 decision to allow Chinese telecoms firm Huawei access to Germany’s 5G network, despite US opposition, was heavily conditioned by Germany’s continuing export dependence on China via its auto sector. As such, the ability of such states to wean themselves of exports towards less beggar-thy-neighbor forms of growth should be treated as an open question.

The same is true for the energy intensive mode of production and its dependence on Russian gas. Yet, FDI into Russia has not only relied on large export-oriented corporations such as Linde, Siemens, and Volkswagen, but also on SMEs going abroad.5 Table 6.1 summarizes the material basis of this constellation as it displays both export goods composition and the most important MNCs headquartered in Germany, as well as its base in manufacturing. This implies heavy exposure not only to export markets, but also to longer supply chains that are characteristic for automobile, machinery, and chemical industries. In particular, Germany is almost completely dependent on imports when it comes to metals, energy commodities, and minerals. These are essential for the digital and ecological transformation of industrial production and thus will warrant greater 5 See, German-Russian Foreign Trade Chamber May 29, 2021 (https://russland.ahk. de/infothek/wirtschaftsdaten/detail?tx_news_pi1%5Bnews%5D=48545&cHash=dae8933ff 885eddbae609e1474f01840).

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attention from policymakers within a geoeconomic approach to secure international competitiveness. This peculiar challenge to German exportism is, however, difficult to address. On the one hand, Germany remains the ‘embedded hegemon’ in the European Union (Crawford, 2007), which means that it has to coordinate within a power bloc with diverse (particular French and Central and Eastern European) interests as well as stringent rules.6 On the other hand, it continues to push for multilateralism and alliance with the US and NATO, given its military underinvestment and security dependency. This requires compromising on contentious projects in line with US preferences, as evident in compensating Ukraine for the continuance of Nord Stream 2 (Federal Foreign Office, 2021). In parallel to these larger shifts and challenges, the overall amount of capital exports and FDI undertaken by German corporations has continued to grow. Foreign markets have thus not lost but gained in importance despite these challenges. Figure 6.5 shows that German corporate assets abroad have been steadily rising since 2010, both in terms of volume and in terms of the turnover of held companies (threshold stake larger than 10%). As the Bundesbank data reveals, around 80% of this is equity investment and 20% loans. The bulk of outward FDI still goes to the European Union (here: including the UK) and the US, but the growth rates of FDI to China, India and Russia have been very substantial (Table 6.2). This reflects the sea change in the sources of economic growth and, concomitantly, power, leading to today’s multipolar world system. In 1990, 50% of global FDI flows went into Europe, about 12% to Asia and around 30% to North America. In 2019, it was 30% to Europe, 33% to Asia, and 20% to North America, with a respective convergence in stocks. It is because of these tectonic shifts that the question of more explicit state support to German corporations gains currency. To get more of this support, Deutsche Bank, for example, now deploys the new language of geoeconomics. In 2021, CEO Christian Sewing stressed ‘the geopolitical importance of banks’ and showed concern for the loss of global competitiveness (particularly vis-à-vis US banks) and the need to align with policy and economics circles for a greater consolidation of the European banking 6 Embedded hegemony, according to Crawford, reflects the stance that instead of independence, German hegemony depends on the very institutions it helped to build and that require continued and robust economic power “to underwrite cooperation in Europe” (ibid., 176).

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1600000

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Fig. 6.5 Economic activity of German enterprises abroad, stocks and turnover 2010–2019 (Source Deutsche Bundesbank 2021. Note Includes direct and indirect [via dependent holding companies] investments, netted out by liabilities)

Table 6.2 Changes in German outward FDI 2010–2019 Recipient of German direct investment All European Union United States Brazil Russia India China South Africa

Value in 2019 1,371,578 578,273 391,151 20,440 23,668 18,638 89,467 7,010

Change 2010–2019 (%)

Average growth rate 2010s

65 56 72 −16 51 140 209 15

6.59 5.99 8.99 5.12 15.82 12.25 13.76 8.63

Source Deutsche Bundesbank (2021)

sector. Moreover, the bank has called for a new industrial policy, in which the state and its state bank KfW shall assume credit risk that frees up the

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large-scale lending of commercial banks.7 These calls have been unsuccessful as of yet, but reflect the use of geoeconomics as a strategic device for the bank-industry nexus. Often neglected because of its lesser importance in total quantities are the exports to and imports from the African continent. Because of geographical proximity, however, strategic reflections on Europe-Africa relations come in cycles, from the Eurafrican utopias of the Nazis to the French attempt to include its then African colonies into the European integration project (Hansen and Jonsson, 2015). Important strategic shifts have been taking place here leading the economic commentariat to talk about a ‘new scramble for Africa’ (Economist, 2019). As Banse shows, for example, ‘China sourced 35% of its mineral resources and 21% of its raw oil from Sub-Saharan Africa’ (2021, p. 14). Data on the relative importance of crucial inputs to global production networks from Africa is scarce but in key sectors imports from the continent are essential. For example, 93% of the Bauxite Germany imports comes from Guinée (Reckordt, 2019, p. 6), one of the states that have witnessed recent coups in West Africa. Tantalum ore originating from artisanal and small-scale mining in the DR Congo and Rwanda, essential for the German car industry and medical engineering, is another case in point. Since prices are relatively cheap, delivery contracts durable or the organizational power of miners low, supply has so far been sufficient. However, China’s willingness to trade on the minerals they source from Africa may no longer be taken for granted (Schmid, 2021). The stabilization of these important supplier countries of rare earths does not take place in a straightforward military manner but through a complex web of military and financial contributions to UN peacekeeping missions as well as bilateral, multilateral or EU development and humanitarian aid. The currently ten German military missions abroad are located in West Sahara, South Sudan, Somalia, in the Mediterranean Sea (two missions), Lebanon, Mali (two missions), Jordan, and Kosovo. Somalia and Mali are framed in explicitly economic terms with a view to facilitating trade and managing migration (Bundeswehr, 2021) and the Mediterranean has also been a singular locus of security–economic logic 7 See, FAZ report from November 16, 2020 (https://www.faz.net/aktuell/finanzen/ sewing-fordert-entlastung-fuer-europaeische-banken-17054833.html); and from January 17, 2021 (https://www.faz.net/aktuell/wirtschaft/unternehmen/die-deutsche-bank-ruftnach-mehr-industriepolitik-17150593.html).

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intertwining to deal with migration. In the rest of Africa, security policy currently refrains from engaging directly. State funds instead flow into humanitarian and development aid in strategic locations such as Eastern Congo. Here, a geoeconomic lens makes visible how the moral and political economy overlap Germany’s foreign policies: the public wants a benevolent aid financier and German industry requires a more or less predictable and ideally cheap flow of resources. Both can be pursued in parallel as the myriad of cross-ministerial initiatives under the banner of human rights such as the recent supply chain law or the Raw Materials Strategy itself attest to. A more assertive Africa policy within or next to the EU’s security policy will ultimately depend on the implications a reorientation of trade relationships toward China, Turkey, and Russia may have for raw materials supply.

Conclusion Throughout the last decades, German governments have pursued a hands-off approach to muscular security policy to support the global success of its major exporting corporations and to stabilize the exportist growth model at home. Studying Germany’s policies as well as domestic and global embeddedness through the lens of ‘geoeconomics’ allows us to see that this tradition has been changing, albeit in long-winded ways. In the field of foreign military operations and economic sanctions are indications that Germany has become more assertive—while remaining soft on China and Russia in most respects for retaining market access. At the same time, the call for active state support to secure the exportist model in the face of threats to supply chains, market access, and liberal competition policy has become louder from industry associations and corporations both financial and non-financial. Certainly, the growth of German capital exports, banks’, and industry’s FDI in the EU, the US and Asia show that the outward orientation of Germany’s production regime is alive and well—both in terms of supply chain integration and revenues, though returns underperform in a comparative perspective (Hünnekes et al., 2019). If the trend toward less trade, more capital controls and tariffs continues, however, German banks and non-financial corporations may have to start looking for profitable business within the limiting borders of the European common market that has—despite remaining the most important economic space—lost in significance for German capital. Furthermore, the European attempts to

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further the green transition, however fragmented, add another challenge to the German production regime as its critical industrial pillars, most notably the automobile industry, will need to adjust their role in global markets. In all likelihood, this will imply a more robust governmental strategy in order to re-orient and secure capital accumulation; a strategy more easily justified by evoking the challenge of rising state capitalism (Alami et al., 2021). To be sure, our intention is not to join the choir of those asking German governments to take more responsibility and consider more openly the use of hard force in the interest of ‘Surplus Germany’. Our aim in this chapter has been to contribute to a more integrated understanding of domestic accumulation strategies and geopolitical positioning at the policy level with the notion of the ‘lens’ of geoeconomics and its four analytical pillars. This notion, we believe, raises a host of new challenges for the multidisciplinary agenda around geoeconomics. For instance, it urges scholars to be both historically and institutionally specific when considering varying degrees of the state’s economic engagement, or the conditions conducive to cooperation, competition, and conflict. Here, taking heterogeneous accumulation strategies as starting points may facilitate a second-image IPE of geoeconomics (cf. Kalinowski, 2020). Furthermore, while our approach buys into the dual dynamic of securitizing economic policy and economizing security policy, in our view, the distinction between the two certainly does not collapse (but see Gertz & Evers, 2020). The relation between political and economic power in the current conjuncture remains to be examined both empirically and theoretically. For this to take place, scholarly integration between political economy and International Relations, between the analysis of foreign and economic policy, is a prerequisite. Acknowledgements We thank Milan Babi´c, Gunther Hellmann, Elsa Massoc, Etienne Schneider, Christoph Scherrer and participants at the ECPR and DVPW general conferences 2021 for valuable feedback on earlier versions of this chapter.

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CHAPTER 7

The Geoeconomics of Chinese Bank Expansion into the European Union Paolo Balmas and Sabine Dörry

Introduction Be unhurried to enter opponent’s territory. (One of the Ten Golden Rules of Wéiqi)

Applying the concept of geoeconomics, this book chapter mobilizes empirical insights to disentangle how various economic means are employed by, through and between nation states in the pursuit of strategic goals (Scholvin & Wigell, 2018). Though still a fuzzy concept, we apply geoeconomics as a continuation of geopolitics, that is, as a foreign policy

P. Balmas (B) · S. Dörry Luxembourg Institute of Socio-Economic Research (LISER), Esch-sur-Alzette, Luxembourg e-mail: [email protected] S. Dörry e-mail: [email protected]

© The Author(s) 2022 M. Babi´c et al. (eds.), The Political Economy of Geoeconomics: Europe in a Changing World, International Political Economy Series, https://doi.org/10.1007/978-3-031-01968-5_7

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practice à la US foreign affairs advisors like Kissinger, Brzezinski and others (see Luttwak, 1990; Søilen, 2010). Our case study links the seemingly uneven, yet interdependent, relationship between China and Luxembourg with the realm of international finance via large Chinese state-owned banks as important, but analytically neglected actors. China is a large territorial country that ascribes to power politics through—as we argue—the expansion of its large state-owned banks, while Luxembourg is a microstate that forms an integral part of the European Union (EU) and which some observers call a financial minnow super-power (Laulajainen, 2003) that is punching well above its economic and political weight. Finance is an industry that has gained disproportionate power over other industries during the era of financial capitalism and financialization (Dörry, 2022), therefore suggesting that a limited number of international financial centres (IFC), i.e. the production sites of finance, also wield a certain degree of power over other territories, sovereign powers and actor groups. Luxembourg is an example of such an IFC, and large Chinese state-owned banks that anchor in Luxembourg are the agents of change in the spotlight of our empirically informed analysis. Luxembourg is a highly sophisticated IFC that manages and leverages its economic power, which, to a certain degree, is simply “borrowed” economic power. Against this background, an interesting question presents itself, namely: how (successful) are geoeconomic strategies, when the large majority of the most influential financial firms in Luxembourg is of foreign origin, e.g. from China, and quintessentially governed by external interests? The concept of geoeconomics, here applied in a narrow, instrumental sense (Wigell et al., 2019), helps us unpack measures, means and ends between both Luxembourg and China, in order to systematize their respective influence and impact on their future relationship, and beyond. In this regard, the prefix ‘geo’ in the conceptualization of geoeconomics is of distinct importance as we illustrate in the next section. Although the term geoeconomics is relatively well established in the disciplinary canon of (mainstream) International Relations (IR), its analytical power as a concept is somewhat fuzzy, and the concept sits uncomfortably with that of geopolitics. Recent attempts sought to clarify and tease out the essences of geoeconomics as a concept for analyzing contemporary structures. While some scholars suggest a deliberately broad definition to encompass a range of diverse and partly overlapping areas (Moisio, 2018, 2019; Sparke, 2004, 2018), e.g. ‘borderless economic zones, strategic economic instruments of foreign policy, both neoliberalism and economic

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nationalism, and so forth’ (Vihma, 2018b, p. 48), others disagree with such an ‘overly extensive’ approach that ultimately ‘lose[s] its analytical power’ (Vihma, 2018b, p. 49). Instead, they favour a more ‘instrumental and hegemonic’ (ibid.) application of geoeconomics. In this chapter, we follow this latter suggestion and propose to understand geoeconomics as economic activity of ‘a more subtle means [than military power] for seeking relative gains, with less risk of major counteractions that could prove costly in a situation of interdependence’ (Wigell & Vihma, 2016, p. 605; cf. Scholvin & Wigell, 2018). However, we seek to extend this essentially state-centred notion of geoeconomics, that is prevalent in the discipline of IR, and add an explicitly spatial and firm-centred notion inspired by disciplinary thinking in economic and political geography. Dicken (2015), for example, understands geoeconomics as an outcome of strategic—global—economic activity and thus a driver of (global) economic inequality, while Dörry and Dymski (2018) consider the uneven distribution of global capital gains a stand-alone ‘geo-economic’ issue. Several other factors determine our approach to the concept of geoeconomics. First, the tension between the private and the public sector is an important notion with which this chapter is concerned. During the coconstituting eras of neoliberalization and (financial) globalization, large corporations, including globally operating financial firms, have become part of a powerful global elite able to dominate and instrumentalize the state for their own purpose (Crouch, 2020; Merkel, 2019). Second, the global dynamics of the economy have further influenced the conceptualization of geoeconomics, and recent changes in the global realms of both politics and economics force us to rethink and reposition the relationship between economy and politics. Søilen (2012) stresses this point when defining geoeconomics as the ‘continuation of the logic of geopolitics, applied to the era of globalization’ (p. 8). Third, however, we show that geoeconomics is not a one-way approach in which one state wields power and influence over others, as is often implied in the concept of geoeconomics (Vihma, 2018a), exemplified by Russia’s strategy of using its energy resources to leverage its political interest over other states (Wigell & Vihma, 2016), or accounts of the export-oriented geoeconomic power of China and Germany to influence exchange-rate policies in Europe and the Far East, respectively (Baru, 2012). Rather, we suggest that regions/states themselves reach out actively and strategically to specific (economic) actor groups. IFCs embedded in states like

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Luxembourg are a specific case in point. They do so to benefit from the economic power of these global actors (Coe & Yeung, 2015) in order to enhance their own economic power that would implicitly enable them to exert their (growing) economic means for future political advantage. Aptly put, geoeconomics includes strong elements of a “revival of economic statecraft” (Wigell et al., 2019). The chapter develops its arguments across five sections. Section ‘The Internationalization Strategy of China: A Geoeconomic Project?’ sets the Chinese state-owned banks committed to geoeconomic agency, as well as the Chinese state and the Luxembourg IFC, in context and situates it among the broader strands of literature. Section ‘Banks: Agents of Change’ reviews the different internationalization strategies of banks in order to understand their organizational patterns, their derived functions and structural positions of power. Section ‘Anchoring Geoeconomics—Strategic Interests of Luxembourg’ links Chinese bank networks in the EU and their headquarters in Luxembourg with Luxembourg’s own expansion strategies in its capacities as an IFC. The final section offers a critical reflection on geoeconomics as an analytical concept and, in this context, reflects on the Chinese banks in Europe as agents of change. In light of its empirical findings and conceptually embedded in the framework of geoeconomics, the final section also suggests avenues for further research on Chinese banks and their financial activity in Europe, and beyond.

The Internationalization Strategy of China: A Geoeconomic Project? Over the past decades, the extensive network of Chinese state-owned commercial banks (‘Chinese banks’ in the following) has successfully internationalized to Europe and beyond, in order to support the expansion of Chinese (state) corporations. In doing so, Chinese banks respond to two different yet inseparable logics; the global capitalist market and the Chinese state, the latter in the sense that Chinese banks follow relatively strict state guidelines on strategic investments. In their expansion, Chinese banks’ operations materialize in regions which they consequently influence in their economic development. Yet, China’s economic internationalization is also an inevitable consequence of its remarkable economic growth during the past decade. This was enabled and accompanied by the internationalization of Chinese banks since 2010, especially after 2013,

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and coincided with the launch of the One Belt One Road development project, later dubbed Belt and Road Initiative (BRI). As state-owned entities, the mission of Chinese banks is primarily defined in accordance with state guidelines (Dikau & Volz, 2021) that strikingly resemble the ‘window guidance’ strategies applied by East Asian developmental states. Window guidance, in a nutshell, refers to a policy instrument to effectively direct and control the growth of lending by commercial banks (for the example of China, see, e.g. Beggs & Deer, 2019; Bell & Feng, 2013; He, 2014). Window guidance is prevalent in Asian bank-centred financial systems (Sasada, 2013), in which commercial banks are often owned by the state (So, 2016). State governments identify socio-economic priorities to ensure that financial investments are channelled to targeted sectors and firms in order to boost industrial expansion and exports (Woo-Cumings, 1999). The Chinese government, for example, defines strategic targets in various documents and programmes, including its (14th) Five-Year Plan, the BRI and the Made in China 2025 strategy. However, despite the differences with South Korea, Japan and Taiwan, China displays similar conditions and characteristics to other so-called East Asian developmental states (Helleiner, 2021; Knight, 2014; Yeung, 2017; Zhang, 2018): (1) China’s largest commercial banks are state-owned. (2) The state controls the banking system1 in order to ensure that commercial banks direct sufficient credit to strategic sectors and firms (and withdraw capital from industries the state considers to have failed to comply with state guidelines, see, for example, the latest excesses of China’s real estate industry). (3) The People’s Bank of China (central bank, PBC) supports the banking system through a respectively defined monetary policy. Overall, window guidance therefore has resulted in an informal process (Dikau & Volz, 2021; Woo-Cumings, 1999) that commercial banks follow through their credit decisions. This is important because the discourse on economic internationalization and 1 The Chinese state controls large commercial banks through the Central Huijin Investment Ltd, which is the major shareholder of Chinese state-owned commercial banks. The principal shareholder of Central Huijin’s is the State Council of the People’s Republic of China, which appoints both the Board of Directors (according to its shareholding weight with appointees often being officials from the Ministry of Finance, cf. Stent, 2017) and the Board of Supervisors. Central Huijin’s mission is to preserve and increase the value of the financial assets that it owns on behalf of the state. In short: The Party extends its reach directly into the large banks to ensure oversight and conformity with the above-mentioned state guidelines.

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foreign investment is firm-centred (e.g. Xie et al., 2021) and implies that firms allocate financial resources towards politically privileged sectors, supported by industrial and monetary policy. In this chapter, however, window guidance implies, in short, that Chinese banks act in a more development-driven than purely profitoriented manner, a point we will detail below. Banks seem to invest in strategic assets in the real economy to the benefit of the many rather than in purely financial assets (Stent, 2017) that may further inflate asset prices and serve speculative investments for a select few only. Chinese banks are thus—although being the largest banks in the world—not (yet) part of financialized market-based banking (Hardie & Howarth, 2013). This is echoed in their internationalization strategies, which we discuss across three dimensions in this chapter: cross-border lending, mergers and acquisitions (M&A), and the increasing physical presence of Chinese corporations and banks abroad, including foreign direct investments (FDI). This suggests that, for the moment, the political trumps the economic. The apparent contradiction between a capitalist banking system and the embeddedness in the state logic and dynamics defines the puzzle of the internationalization of Chinese bank networks in the EU—and the notion of geoeconomics with which we engage. Since a strict dichotomy between the state and the market as both an analytical and policy approach may encounter partiality or cultural bias, identifying some key pillars of Chinese philosophy will help understand economic development from a Chinese perspective. The concept of the state builds on Taoist and Confucian thinking (Weber, 1951) and aims at a Confucian-inspired formation of societal hierarchies: The state sits at the top and holds responsibility for social-cum-economic harmony, as recently reflected in Xi Jinping’s project of ‘common prosperity’2 (The Economist, 2021). It is complemented by the tradition of Chinese Legalism,3 which conceptualizes a strong, centralized and pragmatic state administration, and ensures the efficiency of the government

2 Its meaning in the West would be closer to “even/equal economic development”. 3 Legalism is one of the classical philosophical schools of ancient China and helped

build the concept of a strong state based on the rule of law more than on Confucian ethical principles. The role of legalism in China’s state building processes across time scales back the relevance of Marxism in China’s contemporary political thought. It helps explain that Chinese Legalist pragmatism has deeper roots than Marxism, and why Marxism can co-exist with capitalist institutions in China (Liu, 2017).

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(Hahm & Paik, 2003). Today, in China, the pragmatic state and the efficacy of the government are visible in two main features. The first is the dichotomy of political concentration—the apex of the Communist Party of China as the key place for decision-making—and economic decentralization, that is, the localized and diversified implementation of macroeconomic policies (Zhang, 2018). The second is the pervasive presence of the state in the banking system, not only in the shareholder structure of major banks, but also in the credit and monetary policies that direct investment (Sun, 2020). The entwinement of these two points, in turn, exemplifies how China is different from an advanced democracy with a broad-based welfare system and industrial policy. In China, credit policy becomes an inherent constituent of bank governance and the actual instrument of economic development, which complements the socio-political relationships (guanxi) between the state and the firm. Chinese economic pragmatism during the 1980s/1990s has spread across the banking system. It established hundreds of small, private and locally bound banks to serve small and medium sized enterprises (SMEs) across China, which is one important foundation for the model of ‘capitalism with Chinese characteristics’ (Huang, 2008) that follows the historically and culturally deeply rooted primacy of the state over the market. The introduction of capitalist institutions in China is progressively changing its socio-economic landscape and, to a certain extent, the conceptualization of China’s traditional state-market nexus. The pervasive presence of the state in the economy inspired Western scholars to interpret the Chinese state as entrepreneurial. For example, GonzalezVicente (2011, p. 404) assumes that, in the early stages of China’s economic internationalization, the increasing autonomy of Chinese stateowned enterprises (SOEs) was to be understood as ‘an effect of the entrepreneurial statehood rationale’ and not as the state retreating from the direct management of the economy. Today, this thinking has accumulated in the further engagement of market-oriented reforms promoted by Chinese pro-reform policymakers and scholars,4 which do not question the primacy of the state.

4 The engagement of scholars and policymakers in market-oriented reforms is evident, e.g. in the PBC’s current focus on monetary policy and the internationalization of the renminbi (Guo et al., 2020), which is echoed by scholars at Renmin University who monitor the performance of the renminbi in international markets through the Renminbi Internationalization Index.

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Another recent strand of literature that focuses on the geoeconomics of the BRI includes currency internationalization and state capital-driven asset management (Baracuhy, 2018). Most importantly, it equates the geoeconomics of China with its expansionist strategy realized through the BRI and attributes multiple geoeconomic and geopolitical meanings to it. For example, for Narins and Agnew (2020), the BRI project provides an important answer to China’s geopolitical dilemma of expanding its role in the world while keeping the defence of its national borders at the core of its strategy. Summers (2016), on the contrary, sees the BRI as a state-led spatial fix to facilitate the creation of networks of capital across the Eurasian continent. In a different vein, Winter (2021) argues for the geocultural power of the BRI as a means to build regional alliances. Ly (2020) considers the BRI as an opportunity to internationalize China’s currency, the renminbi (RMB), which in turn will help China to develop and strengthen its domestic financial system. The internationalization of the RMB is interchangeably understood and defined as either a geoeconomic (Huotari, 2018) or a geopolitical (Hasegawa, 2018) phenomenon, through which China will increase its regional power in Asia. While these contributions are far from agreeing on a common understanding of the essences of geopolitics or geoeconomics, each contribution stresses the importance of the conceptual prefix ‘geo’. To enhance its analytical subscription, we propose to complement this mainly structural definition of geoeconomics with a relational, agencycentred concept. We do this by following up on the afore-mentioned important role of Chinese state-owned banks and their agency abroad. However, given the significant differences between Chinese actors, especially between SOEs, and their different strategies in their host countries, an analytical geoeconomic approach from this perspective may be too general and oversimplified (Yeh, 2016). Contributions assembled in a special issue in Political Geography (Oliveira et al., 2020), for example, address this risk of oversimplification and show how the BRI is not a monolithic programme imposed by China but co-constructed by Chinese and non-Chinese agents, sometimes embedded in contradictory discourses (Liu et al., 2021). This complexity echoes in the multifaceted formation of bilateral cooperation agreements and deals that China underwrote together with European countries (cf. Sielker & Kaufmann, 2020). Another recent special issue in Eurasian Geography and Economics (Lai et al., 2020) focused on the topic of financing the BRI. This research agenda seeks to understand foreign economic development

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through Chinese aid and FDI (Dunford, 2020; Liu et al., 2020), and the effects of huge infrastructural projects and potential domestic costs for BRI countries (Rowedder, 2020). Interestingly, Summers (2020) suggests that China’s ability to challenge the structural power of the existing Western institutions through the BRI is rather limited. Echoing Oliveira et al. (2020), Liu et al. (2020) find that BRI projects are particularly defined by inter-governmental cooperation, which suggests the existence of a shared space of co-production between Chinese and non-Chinese state institutions. Importantly, they add that BRI projects ‘involve more complicated and innovative financing structures than do traditional FDI projects’ (p. 139). Although we develop our argument drawing on the example of Chinese banks, Chinese financial activity in Europe is still limited when compared to the investment potentials of Chinese corporations and banks. Research directed towards understanding modalities and agency involved in internationalization strategies remains to be better identified and analyzed in the future. Chinese banks building extensive networks into Europe (Balmas & Dörry, 2021) are an important example and provide corporate financing services (e.g. Mergers and Acquisitions, M&A) to their Chinese corporate clients and engage directly in investing/financing infrastructure projects, private equity acquisitions and currency services such as lending and clearing. At the same time, however, banks adhere to the logics of the Chinese state. In these processes, Luxembourg plays a pivotal role in “transiting” Chinese FDI to the EU. Luxembourg hosts the largest headquarters of Chinese banks that design the fund structures to invest in private equity and infrastructures along BRI countries, and it is a key centre for RMB investments and RMB-denominated bond listing. Yet despite this seeming importance as a strategic node in Chinese foreign bank networks, and despite the fact that Luxembourg has enthusiastically embraced and politically supported the creation of Chinese banks, financial activity remains limited so far. This concerns, for example, the difficulties of integrating business from Chinese banks—or the lack thereof—into the national economies, which has caused disappointment in the recipient countries, e.g. in Luxembourg (Schmit, 2021). Such difficulties seem to have two root causes. First, local practitioners’ lack of knowledge and trust towards Chinese financial institutions derives in part from the absence of marketing and distribution activity of Chinese banks’ services and products throughout the EU. Their slow and seemingly somewhat cautious integration process, which

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is still in an early stage, does not align with business expectations from EU host states. European policymakers asking Chinese banks to engage more into EU economies resonates in the broader political changes at EU level. China’s growing economic activity in the EU, e.g. M&A activities with/of European companies, has set the stage for the EU Commission to adopt a tougher stance towards China in the EU Strategic Outlook (European Commission, 2019) and to revise the EU Merger Regulation (European Commission, 2021; cf. Svetlicinii, 2020). At the same time, the European Central Bank has started to discuss and negotiate the intermediate parent undertaking (IPU) regulation that will strongly affect the future governance of EU-based Chinese banks (Global Times, 2018, January 31). This stiffening does not only affect negotiations between the EU and China for the currently pending Comprehensive Agreement on Investment; it also triggers political reactions that could lead to changes with regard to the originally hoped-for economic integration between the EU and China. All considerations on the actual cooperation and coproduction that define the BRI, as well as the integration of Chinese banks into the European financial landscape, seem to be at odds with the tougher stance of EU political institutions towards China. Many geopolitical fears of EU countries linked with the rise of China refer to sensitive economic activity such as strategic infrastructure investment and company acquisitions.

Banks: Agents of Change Commercial banks are economic entities that create credit. In doing so, they decide where, what and who to finance according to their financing strategies and risk management, which in turn ‘reshapes the economic landscape, across a variety of spaces’ (Werner, 2013, p. 2792). Alluding to this understanding, we suggest that analyzing Chinese bank expansion into the EU reveals the functions they perform outside their home country and helps to better understand China’s geoeconomic projection. Christophers (2013) identifies three internationalization strategies of banks. First, banks can export their services without establishing a permanent presence in a foreign jurisdiction. Second, they can enter foreign markets by establishing a presence through branches and/or subsidiaries, or they can acquire and control foreign banks through FDI. A third option is portfolio investment. Chinese banks are expanding their business in Europe through the establishment of branches and subsidiaries.

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However, Cerutti et al. (2020) find that they are also exporting their services to emerging markets, often without establishing a permanent entity there, while preferring being present in advanced economies. This suggests that Chinese banks organize their business strategies according to political and regulatory differences in target markets. In stable economies where their business is more concentrated, such as in Europe, Chinese banks opt for establishing permanent offices. Interestingly, not Chinese banks but corporations have acquired local banks in Europe, as we will briefly discuss below. Bearing in mind that branches and subsidiaries theoretically operate in different arenas of competition (Heinkel & Levi, 1992), several reasons influence strategic decisions to set up one rather than the other model. For example, the parent bank may prefer to establish a branch when a foreign jurisdiction offers the right conditions to raise funds at a lower cost, which a branch easily reallocates to where it earns higher returns (Fiechter et al., 2011). Other motivations may take into account that the setup of branches is less costly, as compliance needs with the host country’s company law are low (Schön, 2001), but subsidiaries are less costly to dissolve in case of failure (Fiechter et al., 2011). These theoretical distinctions can vary in practice, but as a rule of thumb, branches are primarily oriented towards wholesale and corporate activities, subsidiaries more towards retail services. However, Chinese banks in the EU do not engage in local retail markets. Although implying different ways to raise capital, the decision to establish either a branch or a subsidiary depends not only on the parent bank’s strategy. Rather, regulations in both the host and the home country tip the scales, specifically with regard to a bank’s business objectives and the associated risk exposure that varies between both organizational models. The aim of such strategic decisions is to manage liquidity most effectively by transferring assets routinely among branches and subsidiaries (State Street, 2019). A foreign branch can take advantage of its parent’s balance sheet (Abrahamson, 2020), while the subsidiary is incorporated in the host country and therefore partly independent from its parent bank. Branch networks are centralized, which helps capital move easily within the network of branches, that is, from jurisdictions where raised capital is cheaper to jurisdictions where returns are higher (Fiechter et al., 2011), reflected by the logic of transfer pricing in globally operating firms. Chinese banks’ territorial organization in Europe is not new to the markets. In the 1970s and 80s, Japanese banks adopted a similar strategy

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to internationalize their businesses in Europe (Düser, 1990). While in Luxembourg they established subsidiaries only, they established branches and subsidiaries in Switzerland, Germany and in their main headquarters in London. Curiously, Hall (2021) notes that, before 2014, London’s regulator allowed Chinese banks to establish subsidiaries only. In contrast, in Switzerland and Germany, Chinese banks have established branches only. As a type of state-owned banks, German Landesbanken offers another interesting example as compared to the Chinese strategy. Landesbanken expanded throughout Europe through the setup of branches and/or subsidiaries but followed their corporate customers to the United States in the 1970s to internationalize their operations and operating branches in New York, where they also enjoyed access to the local financial markets (Pohl, 1994). Thus, Chinese banks’ networks in the EU, through their territorial organization and legal structures, reveal in part their strategies and their future potential. The branch-subsidiary structure in Luxembourg enables Chinese banks to perform corporate financial services for their corporate clients across the EU. Luxembourg is a leading hub for bond listing services to both Chinese banks and their clients, not only for the fledgling green bond market. More relevant to our argument is that because Chinese bank subsidiaries in Luxembourg govern a wide network of their own branches across the EU (Balmas & Dörry, 2021), they have direct contact with the localized markets of financing SMEs in the EU, a business that is still recovering from the credit crunch of 2008/09. China’s participation in the EU’s economic development through its large banks would increase both its geoeconomic advantage in the EU and its economic power over the EU. However, banks do not only affect host countries economically, but also politically. Spendzharova (2014) explains how foreign ownership of domestic banks in Central and Eastern European Countries (CEEC) has affected both the integration process of those countries into the EU and the making of the European Banking Union. In the same vein, Epstein (2017) has analyzed the implications of Western banks’ systematic acquisitions of CEECs’ banks with cases reaching up to 100% of foreign ownership. She found that banks’ foreign ownership correlates with the weakening relationship between the host state and its banking sector. Studies of banks’ foreign acquisitions suggest that foreign banks affect the socio-economic organization of the host country by reshaping the landscape of resource allocation and have a major impact on domestic

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politics. Acquisitions of local (retail) banks imply a high degree of penetration into and control over the local economy (Epstein, 2017), e.g. by allocating capital resources where and to whom it is economically and politically most opportune. However, as mentioned before, not banks but Chinese corporations acquired local banks across Europe, with three acquisitions exemplifying this: Banque Internationale à Luxembourg by Legend Holdings in 2017; the German bank Hauck & Aufhäuser by Fosun Group in 2015; and the Danish Saxo Bank by Geely in 2017. The political implications of a wider presence of Chinese corporations into the EU banking sector could, for instance, strengthen lobbying power over the EU Commission and the European Bank Authority. This might be another way for the Chinese state to exert economic and political influence within the EU in the years to come, not least by providing RMB services through non-Chinese banks.

Anchoring Geoeconomics---Strategic Interests of Luxembourg For China, Luxembourg is a transit country for FDI operations and the most important one in Europe. More than 40 percent of Chinese investments into Europe passes through Luxembourg (Arendt, n.d.). Marketing and distribution of investment and RMB services are, however, still limited, although Chinese banks have built an extensive network of affiliates throughout the EU. They are headquartered in Luxembourg, where six of the seven largest Chinese banks are organized in a dual branch-cum-subsidiary structure, and from where subsidiaries govern networks of branches across the EU. This allows Chinese banks to take advantage of the balance sheets of their large parent banks in China, while concomitantly accessing other EU member states through their subsidiaries, which are locally incorporated banks allowed to open up their own branches across the EU. Building on this argument, the widespread presence of branches and subsidiaries of state-owned commercial banks in the EU gives China the opportunity to influence parts of the EU economy. However, as central banks can influence the credit supply by commercial banks through a regime of credit control (Ryan-Collins et al., 2014), Chinese banks in the EU are also geoeconomic actors, which in turn may determine parts of China’s own economic development. Chinese banks are active in the RMB-denominated (green) bond listing, with the Luxembourg Stock Exchange currently taking the lead

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with more than 250 RMB-denominated bonds (LuxSE, 2020). Issuers of Luxembourg-based RMB bonds include the Chinese national development banks, even though they do not have representative offices there. Interestingly, Chinese development banks, along with Luxembourg-based Chinese banks, are investing through alternative investment funds that target private equity and infrastructure projects in Europe, with a particular focus on CEE countries. Chinese banks in Luxembourg, however, use different vehicles to allocate their resources, and the governments of China and the EU countries have co-constituted the conditions under which Chinese banks operate within the EU. These and similar conditions enable Chinese and EU banks and corporations to perform capital market services in both the EU and China. One enabling instrument of such operations is MOUs, which also define an important geoeconomic dimension. A Memorandum of Understanding (MOU) is a bilateral decision to complement international agreements. MOUs are directed to effectively implement actual practices not explained in detail in international agreements. Often, international agreements do not detail what and how each actor involved in an international agreement can do. For example, a double tax treaty (DTT) is an international agreement between two parties to avoid double taxation from both imports and exports of goods and services. The treaty, however, does not enter into the specifics of relevant factors affecting the business of key players in the economy, e.g. stock exchanges. Stock exchanges based in two different countries may sign an MOU to complement an international treaty such as a DTT. In the same fashion, agencies representing specific sectors like banking or asset management, may sign an MOU in order to define practices to follow when banks or investment funds enter the other jurisdiction. Thus, while international agreements define the operational framework for actors, an MOU outlines the guidelines for obligatory practices actors will obey. This makes MOU atypical soft law tools (Adamski, 2020), with their legal status and binding effects not always being clearly defined (Masilo, 2020). Table 7.1 depicts signed agreements between Chinese and Luxembourg agents that help to organize the business environment for banks and investors, including Luxembourg’s fund industry and bond market, the BRI and China’s securities markets. Four important features shape China’s bank presence in Europe, especially in the EU and Luxembourg. First, (most of) Chinese banks have adopted a specific, if not unique, branch-cum-subsidiary structure,

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Table 7.1 Most relevant MOUs between financial entities from China and Luxembourg Counterparties Luxembourg Financial Sector Supervisory Commission (CSSF)

Year China

China Banking Regulatory Commission (CBRC—today CBIRC) Financial Technology Transfer Agency Shanghai Financial Services (ATTF) Association (SFSA) CSSF China Securities Regulatory Commission (CSRC) Association of the Luxembourg Fund Asset Management Association of Industry (ALFI) China (AMAC) Central Bank of Luxembourg (BNL) PBC Insurance and Reinsurance Association Insurance Association of China (ACA) (IAC) Luxembourg House of Financial National Internet Finance Technology (LHoFT) Association (NIFA) Luxembourg Stock Exchange (LuxSE) China Central Depository and Clearing (CCDC) Luxembourg Bankers’ Association China Banking Association (CBA) (ABBL) Government Government (BRI Agreement)

2008

2010/2012 2012 2014 2014 2016 2017 2018 2018 2019

Source Authors

which enables them to perform their core business—providing corporate financing services to Chinese corporations—in the most efficient way. Second, Chinese banks have a wide network of branches, subsidiaries and sub-branches within the EU but do not (yet) use them to their full potential, e.g. they do not expand RMB services, and limit marketing services and distribution of their knowledge and financial products. Third, the environment in which Chinese banks operate is the result of a complicated design of local, international and Chinese regulations, co-constituted by Chinese and European governments and financial institutions. Fourth, while subsidiaries of Chinese banks maintain their presence in Luxembourg and the EU, some have recently reported losses. The continued maintenance of financially non-viable banks, however, profoundly contradicts the capital(ist) market logic. Rather, it suggests that some Chinese banks may be constrained in operating freely in the EU, underscoring the need for furthering detailed analysis as proposed in this chapter.

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Given both their success in China and their financial potential, banks would generally be expected to perform economically in the EU and suggests that political motivations may take precedence over economic ones. Given the banks’ inherent geoeconomic power, we assume that these four characteristics are important, if not the only, preconditions for the geoeconomic power of Chinese banks in the EU.

Critical Reflections and Conclusion In this chapter, we sought to contribute to further understanding the concept of geoeconomics drawing on the example of the (economic) expansion of Chinese state-owned banks’ to Europe and their networks within the EU. Chinese banks embody the specific characteristics of state capitalism in China, including its goals for economic development and social equality within China and its external projections. The state logic of Chinese banks is reflected in their mission to follow rigid state guidelines and serve the real economy both inside and outside its territory. It is important to acknowledge that Chinese banks are stateowned and respond to two different yet closely intertwined logics: the Chinese state and the global market. This makes Chinese banks both political and economic agents of China’s economic expansion strategies across the globe, and particularly in Europe. We identified that Chinese bank networks primarily provide a platform to perform Chinese corporations’ direct investments but also that Chinese banks perform a set of other functions, including the provision of RMB services and therefore promoting the international expansion and use of the RMB. Further, we identified important mechanisms and practices, e.g. the international organization of bank networks, their anchoring in certain places like Luxembourg, and the limited meeting of expectations by Western policymakers, as well as instruments (e.g. MOUs) and strategies (e.g. window guidance) that define important aspects and dimensions of the concept of geoeconomics and complement the ascribed agency of Chinese banks. As shown throughout this chapter, an interesting paradox arises. As the banks’ expansion into the EU is a factor of a broader geoeconomics of the Chinese state and given that the EU is a large recipient of Chinese FDI as well as an important destination of the BRI, future research into this paradox is of particular importance. As agents of the state, the banks’ inherent expansion in Europe implies that they are geoeconomically motivated. Ironically, however, the fact that Chinese banks are limited in their

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activity and strictly adhere to the Chinese state developmental guidelines at the same time constrains their geoeconomic power. This suggests that they are constrained geoeconomically by the geoeconomic calculus of state developmentalism. Put differently, and somewhat ironically, the banks’ constrained expansion in Europe may be a factor of a broader geoeconomics of China’s state development in which Europe figures. That the banks are not operating with their full potential is due to various reasons: First, their business strategies and operations do not seem to be entirely profit-oriented, at least for the time being. Second, banks are not providing as many services as they could, e.g. large RMB investment service providers in Europe are Western and not Chinese banks. Third, all Chinese banks seem to be engaging in a cautious step-by-step expansion and most of them (5 out of 7) started to operate in Europe only recently. In a nutshell, while the banks’ business activity is still limited their networks are extensive and growing, as are the geopolitical concerns of EU state officials. Nevertheless, Chinese banks have the potential power to reshape parts of the socio-economic and political landscape of the countries where they expand their networks. To date, they have not (yet) fully utilized/exerted that power, as their presence and continued territorial expansion across the EU over the last decade has not coincided with an expansion of their services, at least for the time being. This does not mean that they are not framed within the geoeconomic logics of the Chinese state. A closer look at Chinese state investments in Europe by sector (cf. Babi´c, 2021) reveals their strong orientation towards technology and knowledge acquisition for domestic economic-developmental purposes, which is not always purely profit-driven. However, Chinese banks may exert their geoeconomic power in the future, with relevant implications for local economies and economic development in Europe. Our summary of the analysis provided in this chapter allows us to further critically engage with the concept of geoeconomics, including a brief elaboration of its strengths and limitations by way of the example of our case study, and a more general conclusion regarding the concept’s application. We started with and incorporated an understanding of geoeconomics as a state’s more subtle means than military power to secure relative gains (e.g. Scholvin & Wigell, 2018); yet, we departed from this overall structural literature by adding concrete agency to identified key players. While we consider the focus on concrete agency important, the

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concept of geoeconomics is rather limited in providing concrete analytical guidance. Here, we borrowed from the literature concerned with tracing (economic and political) agents and product(ion) networks as, for example, performed in economic and political geography. The apparent contradiction between a capitalist banking system and the embeddedness in the state logic and dynamics remains a theoretical wellspring for future research, which would explain better the internationalization of Chinese banks. This chapter sought to address this by identifying and highlighting the particular role of specific agents (banks, regions, states) and their relational agency. The expansion of Chinese banks in the EU provides an illustrative example of geoeconomics by unpacking the relationship between the state, the firm and place(s). Following these actors through their permeation into foreign jurisdictions requires a more micro- and meso-level oriented analysis, which we suggest would complement the understanding of the state as a monolith operating in the international arena. Geoeconomics provides a perspective for analyzing the emerging complexities of the global economy where particular state agency, not states, alongside other agency performed by firms and banks (co-)create the political and economic conditions for expansion and development. Thus far, scholars have paid little attention to the (economic) expansion of Chinese banks into Europe and their potential political motives and constraints. The relevance of the banks’ presence and the power they could exert in the future deserve further research. Beyond understanding the role of Chinese banks in the performance of China’s FDI to Europe and the consequences of increased RMB activities, we suggest two important avenues for further (empirically driven) research, not least in order to assign more analytical power to the concept of geoeconomics. First, and as a consequence from a series of Chinese acquisitions in Europe, a better appreciation of the implications of Chinese corporate heavyweights in the European banking system would help strengthen a key dimension of the geoeconomics concept. This key dimension comprises China’s potentially rising economic statecraft abroad, informed by the contradictory notion of ‘constrained geoeconomics’ of Chinese banks in Europe outlined above. Second, our analysis suggests that in-depth insights into the role and relevance of the political dimension of Chinese banks would contribute to recognizing more clearly their strategies and practices as materializations of this perceived statecraft. More generally, we believe that research on these two topics would

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enhance our understanding of China’s progressive and challenged integration into the global system. And last, but by no means least, it would also help to further and better comprehend the nexus between China’s growing banking system and its geoeconomic power in the world. Acknowledgements Paolo Balmas would like to thank the Luxembourg National Research Fund (FNR) for funding this research (Grant number 12502225). Sören Scholvin, Imogen T. Liu, Milan Babi´c and Adam D. Dixon provided valuable feedback, which we gratefully acknowledge. All errors remain, however, ours alone.

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CHAPTER 8

Moving Forward: Understanding the Geoeconomic Decade of the 2020s Milan Babic, ´ Adam D. Dixon, and Imogen T. Liu

Introduction Geoeconomic dynamics are changing the face of today’s global politics in an increasing manner. From attention-grabbing US-China Cold War-style confrontations on trade and technology supremacy, to more subtle forms of competition and coercion in East Asian semiconductor

M. Babi´c Department of Social Sciences and Business, Roskilde University, Roskilde, Denmark e-mail: [email protected] A. D. Dixon (B) · I. T. Liu Faculty of Arts and Social Sciences, Maastricht University, Maastricht, The Netherlands e-mail: [email protected] I. T. Liu e-mail: [email protected]

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2022 M. Babi´c et al. (eds.), The Political Economy of Geoeconomics: Europe in a Changing World, International Political Economy Series, https://doi.org/10.1007/978-3-031-01968-5_8

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value chains, geoeconomic phenomena are here to stay (Beeson, 2018; Blackwill & Harris, 2016; Gertz & Evers, 2020; Moisio, 2019; Roberts et al., 2019; Wesley, 2016; Wigell & Vihma, 2016). As the chapters of this book demonstrated, Europe plays a major role in these times, when classical geopolitical confrontations between states as military powers seem to be increasingly overshadowed by geoeconomic considerations (Hopewell, 2020). At the same time, our analytical and conceptual tools to study and understand these developments are still limited. The study of geoeconomics, especially in international politics, is still very much a state-centric, zero-sum game perspective that relies in large part on early conceptualizations from the immediate post-Cold War period (see Luttwak, 1990). However, complex interdependencies within, across, and beyond states challenge these perspectives and urge us to develop new concepts and tools to grasp this new reality (Farrell & Newman, 2019). This volume has brought together researchers from different disciplinary backgrounds and analytical perspectives in order to create a broader and thus more useful catalog of conceptual tools, empirical entry points, and case studies for the study of contemporary geoeconomics, with an empirical eye on Europe in a changing global order. The common denominator and distinctive contribution of this volume lies in its firm rooting in International Political Economy (IPE) research. Many existing accounts of geoeconomics have been developed in International Relations (IR) studies and often work on the basis of the state-centric and static assumptions of the discipline (see, e.g., Wigell et al., 2021). As a first collective IPE contribution to the topic, the volume offers an important reference point in the field for the coming years. Interest in geoeconomics as well as in related concepts like weaponized interdependence or emerging new rivalries has been on the rise recently and will be one of the key research areas in the coming decade of transition and change in global politics (Drezner et al., 2021). In this concluding chapter, we take stock of the different contributions and their core arguments. We do this in three steps. First, we compare and contrast the various contributions, drawing out cross-cutting themes. Second, we formulate an emerging research agenda out of each of the described themes, which seeks to push scholarship on geoeconomics forward in an interdisciplinary manner. Third, we make this research agenda more concrete by extracting a core proposition from each chapter that contributes a building block for future research on geoeconomics and the role of Europe in a change global order. We recognize that the volume

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focuses primarily on Europe and the EU, which is useful for reflecting on the role of the EU and European states in emerging global dynamics. Yet, we see the contributions here as offering critical starting points for extending the study of geoeconomics into more understudied geographies of the global political economy such as Africa and Latin America. We finish the conclusion with a set of insights for policymakers.

Cross-Cutting Themes We identify four cross-cutting themes within the contributions to this volume that constitute a first step in carving out a research agenda for the study of geoeconomics: the value of historicizing geoeconomics; conceptualizing geoeconomics as multi-layered (especially within the EU); the need to take seriously the relational nature of geoeconomic agency; and the implications of geoeconomics for state transformation. Historicizing Geoeconomics Several contributions belie the importance of conceptualizing geoeconomic phenomena within concrete historically informed configurations of political and economic power. Lavery, McDaniel, and Schmid in their chapter demonstrate how the rise, expansion, and consolidation of EU strategic autonomy is contextualized within a wide range of geopolitical and global economic developments characterized by increasing multipolarity, backlashes against globalization, the spread of state capitalism, and increasing instability in the world economy. It is against such a turbulent international environment that strategic autonomy has gained more discursive importance as a means to drive the material reduction of EU reliance on external dependencies. The authors furthermore locate the tensions that persist at the heart of the strategic autonomy debate within the long-running neo-mercantilist and neoliberal divide in EU foreign policy, and the entrenched interests of the transatlantic security community. These developments will continue to challenge any efforts to shore up an autonomous, geoeconomic Europe. In this vein, the geoeconomics of strategic autonomy reflect long-standing power alliances within the EU. Similarly, Veselinoviˇc in his chapter begins from the premise that geoeconomics does not imply a set of predefined structuring forces, either political or economic in origin, rather reflecting broader changes in the

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global political economy and the reconfiguration of class and fractional interests that they engender. The role of foreign policy think tanks in the rise of strategic autonomy is prefaced by a historically grounded understanding of their institutional integration within EU foreign policymaking. Notably, the EU has no permanent bureaucracy and foreign policy think tanks have been present since the establishment and maturation of EU foreign policy institutions and competencies. Their network character within this transnational institutional setting distinguishes them from their American counterparts. It is this unique institutional history that has shaped their role in the strategic autonomy debate. Weinhardt, Mau, and Hillebrand Pohl’s three case studies illustrate how defensive geoeconomic policy may diverge in material outcomes such that they are no longer deemed effective in practice. For one, geoeconomics within the same institutional setting—the EU—can vary across policy initiatives. The EU Investment Screening Framework has been promoted as a defensive geoeconomic tool to limit undesirable foreign investments into the EU, but in reality the European Commission lacks authority to directly prohibit investments under the regulation governing the framework. As such, what constitutes a geoeconomic phenomenon should entail more than policy rhetoric. Moreover, how a particular policy is framed, interpreted, and implemented as geoeconomic is dependent on the alignment of interests that undergird it. The EU’s ability to enforce defensive geoeconomic policies, such as the EU’s non-response to China’s Belt and Road Initiative, is challenged by historically entrenched divisions between Italy and eastern member states on the one hand, and France on the other. These three contributions all point to the value of keeping open to interpretation of what constitutes geoeconomics. Koddenbrock and Mertens in their chapter ground the idea of historicizing geoeconomics as an analytical lens by incorporating national production regimes and the world market as two of the four analytical pillars of their geoeconomic framework. In doing so, they bring a comprehensive, national, and international political-economic understanding of German foreign and economic policy to the table. As they show, Germany’s exportist growth model has preconditioned the orientation of foreign and economic policy. In the interests of market access, the state has remained soft on China and Russia in the context of Germany’s growing assertiveness in the exercise of foreign economic sanctions more generally. As the authors conclude, the varying configurations of political and economic power that belie

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the use of geoeconomics as an analytical device remains to be examined theoretically and empirically. Geoeconomics as a Multi-layered Phenomenon In a classical view, geoeconomics centered around the key dimension of security and was framed as a new set of state tools to project political power (Luttwak, 1990). Yet several contributions to this volume highlight the multi-layered nature of geoeconomic phenomena. Choer Moraes and Wigell in their chapter modify such a state-centric view to theorize the role of corporations in balancing external economic dependence, beyond one-dimensional state-to-state interactions. They theorize the role of domestic and foreign corporations as transnational agents of geoeconomic power that have the potential to diverge and converge with state interests. Zooming in on the EU, Lavery, McDaniel, and Schmid, Veselinoviˇc, and Weinhardt, Mau, and Hillebrand Pohl in their chapters draw out the multi-level nature of the EU as a major structuring factor shaping the strategic autonomy agenda. In the case of the former, the rift between neo-mercantilist and neoliberal social forces results in a fragmented policy program that betrays the long-standing tensions between those that desire an ‘Open’ strategic autonomy versus those pushing for a ‘Paris Consensus’ to rival the Atlanticist ‘Washington Consensus.’ In the case of the latter, Veselinoviˇc draws out the role of think tanks as a medium between the EU foreign policy establishment and other, multi-level social forces. Their reliance on corporate funding reveals their embedding in national circuits of capital, and as such, think tanks take on an important mediating role between national and transnational layers in shaping the geoeconomic agenda of the EU. Where the two previous accounts draw on the multi-level interaction between EU and non-EU actors, Weinhardt, Mau, and Hillebrand Pohl illustrate how within the EU supranational institutions themselves, namely the European Commission, the multi-levelled nature of the EU has complicated the strategic autonomy agenda. They find that there is discrepancy between the framing of policies designated within the strategic autonomy agenda and the implementation of these policies, as in the case of the most-favored nation clauses in EU free-trade agreements, which have been touted as geoeconomic, but are unlikely to yield relative gains in practice.

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Geoeconomics as a Relational Phenomenon In the introduction, we emphasized the role of non-state actors as geoeconomic agents. Several contributions to this volume have pushed the envelope further to highlight the relational, networked nature of geoeconomic phenomena. Balmas and Dörry in their chapter adopt an explicitly relational approach in their analysis of Chinese banking expansion in Europe. They de-center the state-based analysis of geoeconomics to focus on the relation between banks, regions, and the state as enablers of Chinese geoeconomic expansion in Europe. Luxembourg’s centrality in European capital markets provides a platform for Chinese banks to expand their European footprint where the nature of their expansion is tied to the service of Chinese FDI and trade activity. Similarly, Veselinoviˇc highlights the role of think tanks as network brokers and source of ideas in European foreign policy formation, between the supranational level and national debates and interests. Their role as a platform within the foreign policy network evokes an ‘atmospheric,’ rather than direct influence in policy processes. Yet, as Veselinoviˇc shows, they have amplified the interests of specific audiences, shaping the strategic autonomy agenda in important ways. Beyond the EU, the relational nature of geoeconomic agency at the world level is also important. Choer Moraes and Wigell emphasize the global interdependence between states and markets as structure through which both states and corporations may exercise geoeconomic influence. Interdependencies created by neoliberal globalization have preconditioned states’ ability to exercise influence not only toward other states, but also vis-à-vis domestic and foreign firms. Geoeconomics as State Transformation The fourth and final cross-cutting theme we identify are the often implicit state transformations that geoeconomics has wrought in Europe and beyond. Geoeconomics is not only a descriptive category that captures a changing landscape of foreign economic policy and new defensive trade and investment agendas. Rather, geoeconomic dynamics can, as the contributions by Lavery, McDaniel, and Schmid, Balmas and Dörry, and Koddenbrock and Mertens attest to, signal attempts to bring about structural changes within the state. As Lavery, McDaniel, and Schmid detail, the divergences reflected in the contemporary evolution of the strategic autonomy agenda reflect a long-standing struggle to shore up European

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political and economic autonomy in the face of neoliberal Atlanticist interests. Strategic autonomy represents an attempt to bring about a systemic shift in European economic governance toward greater self-reliance. Geoeconomics can also be a means of transforming the developmental trajectory of the state. The geoeconomics of Chinese banking in Europe is a lens to understand how geoeconomics can be an extension of state-led development, as Balmas and Dörry document. Chinese banks in Europe service Chinese foreign investment and trade networks in the region, and as such reflect their role in supporting the spread of Chinese production and consumption and the embedding of Chinese firms in European circuits of trade and investment. Finally, Koddenbrock and Mertens make a conceptual link between Germany’s foreign and economic policies and the exportist model of growth. Should global trade and investment volumes continue to decline, and should protectionism continue to grow, domestic corporations and associations may press for a shift away from an internationally oriented exportist growth model, precipitating a concomitant reorientation in Germany’s foreign and economic strategy.

A Research Agenda The cross-cutting themes in the contributions to this volume provide inspiration for refining a research agenda on geoeconomics. The contributions have drawn on geoeconomic dynamics unfolding in Europe, extrapolating key implications and theoretical insights such as how the multi-layered institutional and political architecture of the EU has informed the strategic autonomy agenda. We propose that these insights can catalyze a research agenda on geoeconomics in a global context on two levels. First, the cross-cutting themes have enriched the conceptual and methodological underpinnings of geoeconomics as a field of enquiry and can be extended and extrapolated to the analysis of both global and place-specific geoeconomic phenomena. The points made in the introduction and conclusion to this volume sketch these important conceptual and methodological contributions. Second, the EU is often the underanalyzed ‘third pole’ that plays only a side-role in accounts of the ‘new Cold War’ US-Sino rivalry. The chapters of this volume hence point out to a substantial extension of a future research agenda on geoeconomics by going beyond a narrow focus on the US-China dyad. By incorporating Europe as a relevant actor in these global contentions, the volume expands the scholarship on geoeconomics not only geographically. Future

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research can build on this and study extensions of EU institutions and European corporations in regions such as South-East Europe and Africa, where the EU often possesses power positions in economic affairs that condition the deployment of US and Chinese geoeconomic strategies. The Western Balkans are a case in point, where EU influence through integration with the single market, regulatory standardization, aid, and diplomatic relations circumscribes Chinese geoeconomic strategies in the region (Pavli´cevi´c, 2019). We now turn to the respective research agenda implications from each of our cross-cutting themes. Historicizing geoeconomics invites future research to pay more attention to institutional, temporal, and geographic specificities in proscribing what constitutes geoeconomics. The history of development financing is illustrative in this respect. US aid channeled to East Asia in the second half of the twentieth century proved key to the rise of the East Asian tigers including Japan, South Korea, and Vietnam. But US aid was contingent on the Cold War context in which the US sought to maintain an open world economy (Yeung, 2017). US aid, in this context, was an early form of geoeconomic power projection. Decades on, some argue a new Cold War is brewing. The Sino-US rivalry has similarly evoked the use of development financing, but as a form of geoeconomic competition where financing tied to infrastructure development is a means to integrate territory into global production networks anchored to domestic lead firms (Schindler et al., 2021). Although in both cases, we might conceive of development financing as geoeconomic, the quality and the substance of geoeconomic intervention varies widely. Future research can and should excavate these historical analogies carefully and thereby expand our understanding of what constitutes geoeconomic dynamics across time and space. Conceptualizing geoeconomic phenomena as multi-layered and complex reflects the growing interdependence of the global political economy. Nowhere is this more apparent than in the structural power of finance, which is mediated through financial institutions, states, and specific sites like international financial centers, each endowed with their own particularities of practice. How states relate to these structures, whether through the investment of state-owned capital, the expansion of banking networks or attempts at currency internationalization, the use of geoeconomic power is dependent on the particular nature, scope, and geography of these networks (see also Farrell & Newman, 2019). For example, the US dollar as a form of global geoeconomic power

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projection is dependent on its status as the world’s reserve currency in the global currency hierarchy, a status contingent on surplus economies’ dependence on the US market and its structural power derived from intellectual property-controlled value capture (Schwartz, 2019). Attempts to challenge this status, for example, through renminbi internationalization, will need to be much more than simple geopolitical exercises in projecting state power. Rather, the multi-layered character of the global political economy and its (financial and other) structures demand geoeconomic strategies that acknowledge and reflect this complexity. Future research should and will hopefully engage in concrete mapping and analysis of different geoeconomic strategies in varying contexts and structures of the global political economy. In the medium run, such a project could, for example, aim at formulating and empirically testing a research program on the varieties of geoeconomic strategies in a changing global order. Furthermore, the relational character of geoeconomic cooperation and competition this volume describes invites researchers to analyze closer how geoeconomic dynamics do not take place in a vacuum, but are always embedded in socio-economic dynamics within global capitalism—and how this embedding actively shapes geoeconomic dynamics. Similarly, to what has been argued for the rise of the ‘new’ state capitalism (see Alami et al., 2022), this volume shows how the reorientation of different actors toward more geoeconomic tools of economic policymaking can be interpreted as a reaction to the geoeconomization of other global actors and structures. Koddenbrock and Mertens (this volume), for example, observe how the transformations of the German growth model is informed and mediated by changes in a global political economy that is becoming more confrontative. Similarly, Lavery, McDaniel, and Schmid (this volume) embed the evolution of the strategic autonomy project in a relational manner to changes within the liberal international order. Future research should carve out, under which circumstances, to which degree, and with which political reverberations geoeconomic dynamics unfold in a relational manner in the global political economy. Finally, the increasing visibility of geoeconomic competition, rivalry, and cooperation in the world economy raises questions as to how it will engender transformations of the state. Interesting for a future research agenda especially are so-called small, peripheral states which provide an important lens to understanding state transformations triggered by geoeconomic competition. Peripheral actors will experience adaptation pressures in a global landscape where the US, China, and Europe vie for

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influence and autonomy. Great power rivalry has presented those caught in the middle with the opportunity to achieve developmental objectives, yet this has necessitated a restructuring of the state, through regulatory reform, the reconfiguration of governance institutions or consolidating state capacity (Schindler et al., 2021). Expanding the scope of geoeconomics as a field of enquiry entails an examination of these local, site-specific consequences of great power competition. For example, Serbia lies at the nexus of EU, Russian, and Chinese geoeconomic competition that has necessitated transformations of the Serbian state in the last years. EU accession-linked market reforms, BRI-precipitated state capacity enhancement, and Russian-backed development projects have brought about both liberalization and a roll back of the state, but also a shoring up of authoritarianism (Rogers, 2022). These ‘geoeconomic sites,’ at the national, local, or even (infrastructure) project level, reveal intricate global power dynamics, reaffirming the value of de-centering geoeconomic analysis from the core, advanced economies, to the so-called periphery. Propositions for Further Research Extending this research agenda, we formulate key propositions from the different chapters of the volume. These propositions can serve as building blocks for further research. Next to a general research agenda, they provide concrete entry points for theory building and hypothesis-testing. We go through each of the chapters and provide a proposition based on the findings of each. The first chapter by Choer Moraes and Wigell surveys the current global geoeconomic landscape and provides important conceptual impulses to think beyond existing categories and conceptual pathways when studying geoeconomics. Besides their discussion of current developments, Choer Moraes and Wigell draw our attention to the commonalities and differences of geoeconomic strategies wielded by different actors. Specifically, they differentiate between balancing dependence as a state strategy and corporate geoeoconomics as corporate strategy in a changing global order. A key proposition derived from their chapter is hence the following:

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P1 : Different from neoliberal globalization, state and corporate strategies will, in a world of geoeconomic competition, converge on geostrategic issues.

By converging on geostrategic issues, we mean that state and corporate strategy will face similar problems and hence require similar strategic answers in a geoeconomic world. As an example, the rise of investment protectionism in many parts of the world poses similar problems for firms that seek to invest cross-border and their home countries (Bauerle Danzman, 2021). Often, investment screening and other even more protectionist measures aim at ‘state-based threats’ such as SOE investment and similar. By building up investment barriers for state-owned or -controlled actors, the interest of the owning state of this investment vehicle is also affected. The owning state might want to export overproduction, acquire important assets for economic development, or help its SOEs and national champions to become multinational players. In the case of investment protectionism, the interests of investing firm and its owning state converge to a certain degree. Likewise, it can be the case that businesses of investment target countries feel threatened by external competition or hostile takeover attempts and are therefore aligning with their domestic governments to block and curb foreign investment in a geoeconomic world (Babic & Dixon, 2021). Future research can work with this proposition and test how far corporate and state strategies converge on more geostrategic issues, and whether we see meaningful variation across cases. This proposition relates to the research agenda points of geoeconomics as a multi-layered phenomenon and state transformation. The second chapter by Lavery, McDaniels, and Schmid contours the emerging discourse on the strategic autonomy project in recent years and demonstrates its development, diffusion, and divergence among key actors. In their analysis, the authors recognize the persistence of old European cleavages over the appropriate way of governing the European political economy in a world of change. Specifically, they argue that the emerging conflicts over the strategic autonomy project resemble familiar rows between ‘Europeanists’ and ‘Atlanticists’ from the 1980s and 1990s. A proposition following from this analysis could be: P2 : The emerging ‘geoeconomic’ cleavages within Europe are the continuation of old ideological and political contentions with new means.

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By new means, we refer to the argument that global politics is entering a new era of geoeconomic competition which is significantly different from the previous era of neoliberal globalization. Consequently, the instruments of how different social forces within Europe vie for supremacy change over time, but the underlying conflicts remain the same. An alternative hypothesis to this proposition would be that the phase of geoeconomic competition introduces different cleavages and consequently new actors to the stage, who overcome old conflicts and introduce new ones. As an example, the possible demise of the US as a hegemonic power could mean the redrawing of geopolitical maps and conflicts in a way that renders the question about whether to align Europe closer with its transatlantic allies superfluous. New social forces and interest coalitions seeking power in a changing European project could emerge that forge different alliances and produce conflicts that are different from the ones the chapter authors describe. Scholars could engage in tracing and mapping these emergent coalitions on the European and member state level in the following years. This proposition speaks to the research agenda elements of historicizing geoeconomic dynamics and geoeconomics as a multi-layered phenomenon. The fourth chapter by Veselinoviˇc dives deeper into the social and politico-economic sources of the geoeconomic turn and strategic autonomy in particular and analyzes the role of foreign policy think tanks. He argues that these think tanks play an important role in the discursive transformation of the EU from a ‘normative’ to a ‘geoeconomic’ power in recent years. By emphasizing the role of agency in structural transformations, the chapter employs qualitative content analysis of relevant documents to illustrate the role of these often-overlooked key actors. Veselinoviˇc holds that the Europeanization of geoeconomic debates is a key political objective of these think tanks and their agency in the process. A core proposition could hence be: P3 : The geoeconomic shift in European foreign policymaking will not succeed if key transnational actors (like think tanks) fail to Europeanize the issues at hand.

To explain, recall that we considered in the introduction to this volume the geoeconomic shifts happening in the global political economy as disruptive to the ‘relative calm’ of the neoliberal era. A more diffuse, competitive, and uncertain environment of geoeconomic competition will

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tend to be more conducive to power politics and coercive means of policymaking rather than global consensus-seeking and rules-based political relations. Consequently, for multilateral actors like the EU, it becomes more difficult to ensure and sustain a consensus among its many member states that often hold contrarian positions regarding many geoeconomic issues (e.g., recall the interest divergence between Western and Eastern Europe regarding Chinese state-led foreign direct investment via the Belt and Road Initiative). For foreign (economic) policy, speaking with one voice is a key asset to wield power in international politics. Hence, finding common ground is likely to succeed only via an Europeanization of geoconomic policies, which needs to be tested in future research. This proposition speaks directly to the themes of historicizing geoeconomics and geoeconomics as a multi-layered phenomenon. The chapter by Weinhardt, Mau, and Hillebrand Pohl traces whether the European geoeconomic turn delivered tangible changes in actual policymaking. Specifically, they probe whether the EU already developed meaningful defensive geoeconomic instruments through three empirical case studies on investment screening, most-favored nation clauses in free-trade agreements and the EU’s reaction to China’s Belt and Road Initiative. They find substantial variation of geoeconomic capacities across the three cases and argue that the role of the EU as a geoeconomic actor still faces considerable obstacles. One key proposition that can be drawn from this analysis is: P4 : The ‘geoeconomic turn’ of the EU is rather a programmatic label than reflected in material changes of its foreign economic policy.

By this, we mean that EU and member state officials resort to geoeconomic language and ‘strategic’ thinking. But in practice, we should expect little real change to occur in how the EU positions itself as a geoeconomic actor in a changing order. A stronger positioning would likely require, as the chapter authors also note, an institutional and political transformation of the current setup of EU foreign economic policies. This would also involve a stronger coordination of this policy area, and likely also more competences for EU institutions dealing with geoeconomic phenomena. Whether or not such an overhaul is realistic in times of increased EU skepticism and legitimacy problems remains an open research question. This proposition touches upon the elements of the relational character of geoeconomics and (European) state transformations.

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In their chapter, Koddenbrock and Mertens put the case of Germany and its foreign policy transformations center stage. They argue that the country is slowly morphing from an actor reluctant to engage in robust foreign economic policies to a serious geoeconomic actor. They trace the sources for this transformation at the intersection of the German growth model and a changing global order that is becoming more geoeconomic. In their case study, Koddenbrock and Mertens merge the domestic with the global in explaining how, why, and to which degree Germany really becomes a different, more strategic actor in global politics. A key proposition derived from their study could be: P5 : Global geoeconomic shifts change actor preferences according to the nature of their respective growth models.

This would mean that while the global political economy is becoming more hostile and uncertain, the effects these changes have are far from uniform. Specifically, different growth models and different degrees (and modes) to which specific models are integrated into the global economy play a key role in determining (geo-)strategic adjustments of the preferences of these actors. For cases like Germany, an export-dependence in combination with its traditional foreign policy stance as a ‘civilian’ power worked well in times of a relatively integrated (transatlantic) core of the global economy. In geoeconomic times, however, this model needs to be re-adjusted to ensure the viability of a (transformed) combination of domestic growth models with a changing global political economy. For other, traditionally more assertive foreign policy actors like France, the outcome of these adjustments might be quite different. For yet again other European actors like Eastern European member states, or so-called small states in the EU, different outcomes depending on the nature of their growth models could be expected. In short, future research would need to establish a variety of growth models under changing geoeconomic circumstances. This proposition speaks to the elements of historicizing geoeconomics and the relational character of geoeconomic dynamics. The last chapter by Balmas and Dörry uncovers the role of Luxembourg as a conduit for Chinese state-owned bank investment into the EU. They argue that the Chinese state exerts geoeconomic power by building strong financial ties to Luxembourg, which itself ‘punches above its weight’ as a small state in a global economy. They trace empirically how international financial firms, Chinese state-owned capital, and

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Luxembourg regulators create an environment which allows the different involved actors to wield geoeconomic power that often flies under the radar of analysts and scholars. An important conceptual contribution of their study is that the exercise of geoeconomic strategy and power is rarely a one-way-street: their case study shows how the intertwining of Chinese (state-owned) capital, international financial firms, and a small European jurisdiction creates a key geoeconomic moment for the EU which is not rooted in cross-border coercion of one state by the other. An important proposition from this chapter is hence: P6 : Different from classical geopolitical power politics, geoeconomic power projection is less determined by classical power resources but by complex cross-border ties and network effects.

Existing research into ‘weaponized interdependence’ has already established the relevance of previously unavailable structures in the global political economy and the respective actors controlling these strategically important nodes and entrance points within globalized networks (Farrell & Newman, 2019). Understanding what constitutes economic and political power in such a world requires researchers to study the network effects at play and how they affect different actors in different ways. As the chapter example shows, seemingly ‘small’ actors can wield enormous power in constellations like Luxembourg’s role in the EU, if they position themselves in a (geo-)strategically favorable way. This is not only the case for financial centers like Luxembourg, but can also be adapted to regional industrial clusters, or other strategic dimensions that pertain to different actors within the EU. As a bottom line, future research should take the geoeconomic nature of these cross-border networks seriously and rely less on established geopolitical paradigms and state-centric ways of thinking about international politics. This proposition relates to the multi-layered character of geoeconomic dynamics and speaks to the issue of state transformations. Taken together, the chapters of this volume provide a core set of interesting and potentially fruitful propositions and work hypotheses for further research that go beyond the statement of general points for a research agenda. By providing concrete propositions, we point future research to specific empirical and conceptual entry points for continuing the groundwork conducted in this volume on the political economy of geoeconomics in a changing order, in and beyond Europe.

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Insights for Policymakers Deriving insights for policymakers is not a simple task nor is it necessarily a neutral exercise. The contributions in this volume are made based on observations and interpretations of what policymakers and other cognate actors (e.g., corporations and banks) are doing. Hence, we run the risk of reinforcing certain modes of thinking and elevating particular discourses, even if these modes of thinking and discourses reflect material forces and changes in the global political economy that exist regardless of how they are formulated conceptually and used to justify policymaking and other government, and corporate, decision-making. There are reasons to take care, in a constructivist sense, but also to recognize, in a realist sense, the material changes occurring in the global political economy. As such, the insights we derive from the contributions in this volume are focused not on actionable policy recommendations but on sensibilizing decisionmakers by informing a dialogue on what is meant by ‘geoeconomics’ as an analytical category. We therefore draw directly on the cross-cutting themes addressed above, focusing on three basic points: the importance of time (i.e., thinking historically); the importance of space (i.e., thinking geographically); and the importance of state transformation. Fundamental to the volume is the claim that we are witnessing a shift from a global political economy that until recently was characterized by neoliberal globalization to one that is characterized by growing rivalries among states that have taken a geoeconomic tone. In other words, the global landscape is increasingly governed by more economic, networkcentered, and complex forms of confrontation, cooperation, and conflict than in the last decades. Notwithstanding this changing environment, the contributions in this volume are careful to not overstate the novelty of geoeconomics, as an analytical concept and as an empirical object. Although we periodize a shift in the global political economy, which we believe requires a different analytical toolkit to understand, we are not discounting the past. Indeed, neoliberal globalization created the market conditions and structures of exchange that complicated classical geopolitical power politics. There are historical contingencies that continue to shape geoeconomics in the current conjuncture at the global as well as the national level. Novelty should not discount continuity. For decisionmakers, this means that taking a broader look at current dynamics is important for understanding current distributional and power conflicts

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and the means with which they are conducted. At the same time, emphasizing historical aspects should not reproduce modes of thinking which simply assume that current geoeconomic dynamics are nothing but a repetition of the ‘old’ Cold War in a new setting. Taking history seriously means, from our standpoint, acknowledging that history does not repeat itself. If appreciating history and time is necessary for understanding geoeconomics, its spatial constitution is just as important. Although the national scale remains a key site for understanding geoeconomics, particularly in a global political economy characterized by more explicit and muscular forms of state economic intervention, it is important to take care to not discount the role and significance of other scales, such as cities and regions, as well as the relations among (geo)economic actors that transcend the nation-state, including supranational bodies like the European Union, and their constituent loyalties. Hyperglobalist claims popular in the 1990s of footloose capital detached from their spatial (national) foundations were exaggerations of the demise of borders (see, e.g., Ohmae, 1990), but they forced a recognition nonetheless of the emergence of a world economy of increasingly porous borders with greater interconnectedness and interdependence. Geoeconomics as an analytical device and an observation of the dynamics of the global political economy requires, as such, an appreciation of spatial dynamics that are not reduced exclusively to the borders of and interactions between (powerful) states. For decisionmakers, this means taking into account that geoeconomic dynamics can in many cases take a very different form than simple geopolitical conflicts for territory or state power: they often involve the (sometimes hardly recognizable) control of global value chains, of economic and financial networks, and of other non-territorial power resources. The new geoeconomic reality forces us to develop more complex analytical angles that incorporate various levels and layers of the global political economy in order to correctly judge emerging conflicts. Yet, while it is important to reflect on other (geo)economic actors and geoeconomic dynamics beyond simple ‘inter-national’ formulations, this is not a call to jettison a focus on the state. Many of the contributions in this volume move beyond a state-centric frame and focus, but appreciation of the state and states in concert remains. What is important, however, is to appreciate the ways in which a ‘geoeconomic’ environment is contributing to a reemergence of the state. This should not be read as a claim that the state was absent under neoliberal globalization

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or played a backseat to other economic actors, such as corporations. Nonetheless, in the current conjuncture we observe a palpable rise of the state in various ways, such as the increase in the number and size of sovereign wealth funds and state-owned enterprises, to the massive state interventions to undergird economies during the COVID-19 pandemic. But ‘more state’ does not mean necessarily ‘less market’. On the contrary, states are becoming increasingly intertwined with global markets, which is fueling undoubtedly geoeconomic dynamics and tensions. In short, understanding geoeconomics requires an appreciation of the state that avoids binary distinctions of state and market as separate spheres. For decision-makers, this means that sharpening the lens through which statemarket interactions are evaluated is a prerogative for a sound analysis of current geoeconomic dynamics. It does, from our standpoint, not make sense to attribute to ‘Beijing’ everything Chinese SOEs do; or everything that US multinational corporations do to ‘Washington’. At the same time, we need to precisely carve out where and how state and market power are intertwined and what the exact modes are through which they interact in different circumstances. Recognizing this will help to avoid confusion as to how and for which means state and corporate power are employed in a world of increasing geoeconomic competition. These recommendations for decision-makers are not specifically tied to the EU or Europe, but concern geoeconomics as a general analytical lens. Similarly, the chapters of this volume focus on Europe, but through this provide a pathway for extending the study of geoeconomic dynamics through other geographies and conflicts that will shape the emerging global order after neoliberal globalization. We hope that the volume represents a stepping stone for a renewed interest of IPE and cognate disciplines in studying emerging geoeconomic dynamics; and that future research builds on and extends the insights generated across the various chapters of this book for a global order in flux. Acknowledgements This chapter was supported by the European Research Council (ERC) under the European Union’s Horizon 2020 research and innovation program (Grant agreement No. 758430).

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