La motivación

States can use a variety of economic means for strategic objectives in the way Luttwak described – in particular, currency policy, trade and investment policy, and energy policy. The EU could use these to pursue strategic objectives such as security, or to promote values such as democracy, human rights, and the rule of the law. But while the EU has huge economic resources, it faces particular limitations when it comes to converting them into its desired outcomes.5 _These

difficulties, which spring from the EU’s own nature and structure, put it at a disadvantage compared to authoritarian states such as China, Russia, and the Gulf states, and democratic states – with a central government – such as the US.

Democracies with open economies do not control economic resources in the same way as authoritarian states do. In particular, they cannot use state-owned enterprises (SOEs), state-owned banks (SOBs), sovereign wealth funds (SWFs), or national oil corporations (NOCs) as instruments of foreign policy in the same way as authoritarian states. Of course, some EU member states do have SOEs and SOBs, especially since the de facto nationalisation of some European banks following the financial crisis, and even small SWFs (such as France’s Fonds Stratégique d’Investissement). But, in general, EU governments have sought to limit the involvement of these groups in the economy to regulation, tax, and some limited subsidies. As a result, in terms of trade and investment and energy policy, EU members do not have the same options as authoritarian states.

European critics of the idea of geo-economics were aware of these limits on the opportunities for democratic market states to use economic power strategically. For example, in the early 1990s, Hanns W. Maull questioned whether Germany and Japan would use their economic resources to challenge US power, as some such as Huntington had worried that they would. “The fear about German or Japanese economic domination […] fails to take adequately into account the nature of technological and economic power. Such power today differs profoundly from traditional state power. First,

5 On “power conversion”, see Joseph S. Nye, The Future of Power (New York: PublicAffairs, 2011), pp. 8–10.

the resources of these forms of power are in the hands of economic actors such as firms or banks, which pursue their own objectives and strategies. Economic ‘power’ thus cannot be easily manipulated and targeted by governments”.6

Other democratic states such as the US are similarly limited in the way that they can use economic power. But the EU is also at a disadvantage compared to them because it is not even a state. Rather, it is a project of regional integration that has become “something more than an intergovernmental organization but less than a fully-fledged European ‘state’”.7 _{It has transferred some foreign policy powers from the national}

to the EU level and now even has a foreign minister and a diplomatic service. Nevertheless, many of Europe’s collective economic means are controlled by member states, which have divergent interests, and are therefore difficult to deploy strategically. In some ways, EU member states are more likely to use geo-economic power individually – and even against each other – rather than collectively.

Perhaps the best example of this is currency policy. The dominant role of the dollar in the global economy gives the US exceptional power to delay or deflect balance of payments adjustment and to coerce other powers through the imposition of economic sanctions.8 _{The euro,}

which many Europeans hoped would become a reserve currency to rival the dollar, seemed to create the possibility of using currency policy strategically in the same way as the US uses the dollar. But because it is a currency without a state, no government “owns” it.9 _{The various}

members of the single currency have conflicting interests: creditors generally want a stronger euro; debtors want a weaker euro. As a result, the EU is unable to use one of its greatest assets strategically. On top of these difficulties in deploying economic power, the use of “hard” geo-economic power goes against what might be called the

6 Hanns W. Maull, “Germany and Japan: The New Civilian Powers”, Foreign Affairs,

Winter 1990/91, available at http://www.foreignaffairs.com/articles/46262/hanns-w-maull/germany- and-japan-the-new-civilian-powers.

7 Christopher Hill and Michael Smith (eds), International Relations and the European Union (Oxford: Oxford University Press, 2005), p. 4.

8 See Alan Wheatley, “The origins and use of currency power”, in Alan Wheatley (ed.), The Power of Currencies and the Currencies of Power (London: International Institute for Strategic Studies, 2013), pp. 17-43, here pp. 18-19.

9 Alan Wheatley, “The Pretenders to the dollar’s crown”, in Wheatley (ed.), The Power of Currencies and the Currencies of Power, pp. 45-73, here p. 50.

DNA of the EU. European foreign policy is an extension of European integration itself and is based on the same technocratic approach to international relations. The EU tends to seek to depoliticise geopolitical problems by turning them into technical questions – not least in order to overcome divisions between EU member states themselves. In particular, an implicit objective of European foreign policy has been to limit the ability of states to use economic means for strategic objectives – for example, through the rules of the World Trade Organization (WTO). The rules-based international order that the EU stands for, exemplified by the WTO, is the antithesis of a geo-economic world. A good example of this is energy policy. While Russia has long used energy as a weapon in what it thinks of as its “near abroad”, in particular through differential prices and the threat of cut-offs, the EU has sought to depoliticise energy policy. In order to reduce the dependence of some EU member states and Eastern Partnership (EaP) countries on Russian gas, it has sought to complete and extend its own internal energy market. But the effect of this liberalisation of the energy market is to limit the potential for states to use energy policy as a coercive tool. Thus there is a question not just about whether the EU is able to use geo-economic power in the hard sense, but also about whether it is even willing to do so.