Designing a Geo-Economic Policy for Europe

Geo-economic policies have become an increasingly important feature of international politics – and not just since the war in Ukraine. The European Union (EU) has proposed an economic anti-coercion tool to deter third-party coercion. This policy brief analyses the risks and benefits as well as the challenges related to the EU’s proposed deterrence policy based on a review of the academic literature on coercion and the effectiveness of economic sanctions.

• In response to a major crisis, the EU is capable of mobilizing its economic power, as the Russia sanctions show. Under normal circumstances, agreement is more difficult. This is why the EU has proposed creating a geo-economic deterrence policy.
• An EU anti-coercion policy requires some degree of delegation to be credible. Germany should ensure that the Commission can act within parameters that balance the need for credibility with the need to limit the risk of an unwarranted escalation.
• As a member state with significant economic interests outside of Europe, Germany benefits from EU geo-economic deterrence. As it stands, it will also bear a greater share of the costs in case deterrence fails and retaliation is triggered.
• Germany should therefore propose an Economic Deterrence Fund to ensure a more equitable distribution of the costs of retaliation policies. This should go some way towards aligning member state interests.