Europe cannot sleepwalk into another crisis

Russia’s success in selling a façade of reliability as an energy partner to Europe played a substantial role in the EU’s economic hardships that followed the Kremlin’s decision to invade Ukraine – the continent must prepare contingencies for further crises, such as a conflict between China and Taiwan, writes Patrik Szicherle.

Patrik Szicherle is a research fellow at GLOBSEC Centre for Democracy and Resilience.

Despite concerns about EU member states’ ability to survive the winter of 2022/2023, EU members are doing better than expected. Energy prices remain higher than during their recent nadir in the days of COVID, but gas costs are a fraction of the peak in August 2022 at the Dutch TTF.

Nonetheless, it is hard to deny that numerous European leaders walked into the crisis started by Russia’s invasion of Ukraine with their guard down, wholly dependent on Russia for their respective country’s energy needs.

While efforts have been made to decouple the EU from Russia, this has only been successful in the case of pipelines: Russian liquid natural gas (LNG) imports increased in 2022. This keeps the EU vulnerable, handing a weapon to the Kremlin.

China represents a different challenge for Europe. The CCP [Chinese Communist Party] is talking more and more frequently about using force to “reunite” the mainland with Taiwan.

China sent at least 1,727 planes into Taiwan’s air defence zone in 2022, according to data released by the latter’s Defence Ministry; twice that of 2021 and over four times more than in 2020. The European Union is not any more equipped for dealing with an unlikely or – at least – currently distant Chinese invasion of Taiwan than it was for Russia’s attack on Ukraine.

China is the EU’s biggest source of imports and the early days of the COVID pandemic already showed what it means to be overly reliant on a single import source for key products, such as medical equipment.

While efforts are underway to encourage companies to return some manufacturing capacities to EU territory, German firms continue pouring investment into China in select industries. According to research by the Rhodium Group, German companies are the most willing investors in China based on annual foreign direct investment (FDI) transaction value: the country’s firms are responsible for over 30% of European FDI since 2011 (with the single exception of 2015).

Together with the Netherlands, UK and France, they covered 87% of the total investment value on average between 2018-2021, up 18 percentage points compared to the average of the previous 10 years (69%). This indicates that dependence on the Chinese market, the access to which is controlled almost entirely by the CCP, is only growing.

There have also been efforts to restrict China’s ability to invest in critical European sectors, such as its member states’ 5G networks, similar caution is not prevalent elsewhere. In October 2022, the German government gave the go-ahead for the Chinese state-owned COSCO to buy a 24.9% stake in a container facility in the port of Hamburg, while Strasbourg Airport – used frequently by MEPs – signed a deal to buy Chinese-made scanning equipment.

China is becoming increasingly dependent on Europe as well, but one should not underestimate the resilience of authoritarian regimes; primarily their ability to survive large shocks through propaganda and the complete suppression of dissent.

GLOBSEC’s new study on foreign malign influencing efforts highlights that authoritarian regimes use a combination of methods to weaken the ability of their adversaries to repel their hostile actions. One of the key pathways for hostile powers to achieve their goals is creating dependence. Russia, for instance, was highly successful in selling Europe a façade of being a reliable business partner in the energy sector, backed by favourable prices and offers of high-level positions to “friends” in joint energy ventures.

Consequently, Germany, Hungary and many others based their energy strategies on cheap Russian gas. The Kremlin’s PR act and the gullibility of some EU members thus played a substantial role in the hardships Europeans had to endure after February 2022.

The credulity of some European leaders is even more concerning because some states already had experience casting doubt on the Kremlin’s intentions: After historical experiences with Russia using the country’s gas dependence as a weapon, Lithuania built a floating LNG terminal off its coast in the early 2010s to offer much-needed competition to Gazprom and stop it from abusing its market dominance.

The floating terminal ‘Independence’ launched in 2014, forcing the Russian side to drop prices by a fifth. This example was not heeded by the country’s peers in time, only after the Russian invasion: German Chancellor Olaf Scholz opened his country’s first floating LNG terminal in December 2022.

There is a very recent precedent cautioning EU member states against becoming too dependent on authoritarian regimes. Thus, it is extremely important for the EU to strengthen its measures seeking to encourage European companies to return manufacturing capacities to EU territory, especially in strategic sectors.

Similarly, efforts must be strengthened to limit Chinese investments in strategic sectors and infrastructure in Europe. Consequently, the Union’s institutions must put in place a robust, mandatory FDI screening mechanism in place of their current, largely voluntary approach.

Lastly, the key lesson for EU institutions, member states, and individual companies is to better plan and adapt to uncomfortable scenarios so that when the next crisis tapping onto democratic values and principles comes, the EU does not sleepwalk into it.