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Blog Post | Geoeconomic diplomacy: the EU’s reenergised mobilisation of strategic state-market cooperation

Faced with warfare on the European continent and growing Sino-American geopolitical disputes, the EU’s rising use of sanctions and attention to economic security call for a better diplomatic understanding of how state-market actor-networks are assets of modern foreign and security policy.

Applying the leverage of economic power instruments for foreign and security policy purposes is a fundamental aspect of inter-state relations. Yet, a proactive use of the interwoven ‘geoeconomic’ connections between states and businesses and the instrumentalisation of economic interdependencies have lately become even more central in EU foreign and security policymaking. Whatever the problem, the EU is currently seeking solutions in its geoeconomic toolbox. Be it the unprecedented financial and economic sanctions against Russia; commitments to strengthen Europe’s economic securityalso cooperation with transatlantic allies; the recent adoption of a new instrument to counter possible attempts of economic coercion from China, the United States or other foreign actors; or the use of foreign direct investments in the EU neighbourhood to protect the EU’s energy supply and limit migration: the EU is widening its geoeconomic playbook at an astonishing speed and versatility.

Such developments have direct consequences for EU diplomats and civil servants, who are not only tasked to draft and negotiate this array of geoeconomic policies, but also for ensuring that such policies are put into efficient practice. This active diplomatic engagement in state-market relationships is what I, in a recent book publication, have described as the craft of ‘geoeconomic diplomacy’: 

“Geoeconomic diplomacy [is] the particular realm in which governments pursue the ability to employ national economic capabilities to realise specific geostrategic objectives in their conduct of relationships with other international actors.”  [1]

Throughout history, a state’s mobilisation of its national wealth – together with its savviness to employ the military means at its disposal – has been a determining factor of success and failure on the international scene. But contrary to military power, economic power is derived from a state’s access to market shares and industrial capacities, which, in turn, relies heavily on private actors that are normally outside of the reach and direct control of governments. Among the most prominent thinkers to address this conundrum was Susan Strange. In the ending days of the Cold War she gave this clear-eyed assessment of the intrinsic relationship between political and economic power: 

“It is impossible to have political power without having the power to purchase, to command production, to mobilize capital. And it is impossible to have economic power without the sanction of political authority, without the legal and physical security that can only be supplied by political authority.”  [2]

Shifting focus from the structural power relationships that emerge in state-market relations to the everyday diplomatic engagement with these structures helps us to understand the challenges of making geoeconomic policies work in practice. One recent prime example of the significance of European geoeconomic diplomacy is the strive of EU institutions and member states to implement and enforce their comprehensive sanctions measures targeted at Russia in response to its unlawful military aggression in Ukraine. In the early days after the Russian invasion, all political focus was directed on ensuring unanimity between EU member states, which is, as a general rule, necessary for adopting decisions under the EU’s common foreign and security policy (CFSP). The primary aim of the first seven sanctions packages, adopted between February and July 2022, was to target as many vital economic and financial components of the structures and networks that underpinned and supported the Russian warfare. Since autumn 2022, this focus began to be supplemented with another concern, namely the risks of sanctions circumvention and evasion.

Ever since, the EU has ramped up its implementation and enforcement focus: Relevant EU legal acts have been amended, not least through the eleventh package against Russia adopted in June 2023, to open up the possibility to sanction third-state entities directly engaged in sanctions circumvention schemes. The EU has appointed one of its most senior diplomats, David O’Sullivan, to fill a newly created position as the EU’s sanctions envoy tasked to engage in dialogue with third-states that are particularly prone to be arenas of circumvention practices. And EU institutions have, importantly, increased their direct outreach to non-state actors operating within or outside the EU’s jurisdiction. Such outreach initiatives not only include the European Commission’s facilitation of expert roundtables with representatives from business, think tanks and civil society, but also the creation of a whisteblower tool and a central contact point for non-EU authorities and operators exposed to EU sanctions measures.

Such concrete measures of state-market cooperation will most certainly grow in the near future as the EU seeks to further expand its economic power leverage. In this rapidly changing environment, EU diplomats will be increasingly obliged to establish and maintain cooperation channels, platforms and networks with market actors who will be at the receiving end of many such geoeconomic interventions – but often have little to no previous experience with engaging in questions driven by foreign and security policy concerns. In times where such market actors are gaining in importance, yet still unexperienced, ‘corporate geoeconomic’ players of their own [3], diplomats of EU institutions and member states must find their own recipes for ‘cooperating with corporations’ on delicate questions of foreign and security policy. 

European geoeconomic diplomacy must increasingly become a two-way street in which government officials learn from non-state actors how certain geoeconomic interventions are being translated into market structures, while at the same time providing sound and effective advice to market actors trapped in complex geostrategic situations. 

This diplomatic task cannot be an after-thought in policymaking. It must be part of a strategic approach to diplomatic outreach and network-building of its own with specific tasks for diplomats and civil servants at all levels. Because it is one thing for the EU to slowly learn the language of economic power. It is another to systematically translate this language of power to an innovative approach to its diplomacy.

Kim B. Olsen (PhD, University of Antwerp) is a Research Fellow at the Center for Geopolitics, Geoeconomics, and Technology of the German Council on Foreign Relations. He has previously served as a Senior Adviser to the Danish Ministry of Foreign Affairs and as an Analyst with the Danish Institute for International Studies.

[1] Olsen, K. B. (2022) The Geoeconomic Diplomacy of European Sanctions: Networked Practices and Sanctions Implementation. Leiden: Brill, p. 6.

[2] Strange, S. (2015 [1988]) States and Markets. London/New York: Bloomsbury Academic, p. 28.

[3] Choer Moraes, H. & Wigell, M. (2022). ‘Balancing Dependence: The Quest for Autonomy and the Rise of Corporate Geoeconomics’, in Babic, M., Dixon, D. D. & Lio, I. T. (eds.) The Political Economy of Geoeconomics: Europe in a Changing World, pp. 29-55, London: Palgrave Macmillan.

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